Rank Enterprises Ltd & Ors v Gerard

Under the standard Norwegian Saleform, an indemnity for claims made against a vessel covers claims whose exposure stems from pre-delivery events, whether or not the asserted liability ultimately exists. The clause is concerned with the making and consequences of claims, rather than only with legally valid liabilities.

A claim is made against a vessel where there is a demand or assertion of rights carrying a real and present threat of seizure. Arrest proceedings or an arrest order are unnecessary. The buyer must, however, deal with the claim reasonably and in a business-like manner.

The appellants bought three vessels under memoranda of agreement incorporating the Norwegian Saleform. The respondent gave a guarantee covering certain pre-delivery claims made against the vessels.

Mr Justice Toulson construed the indemnity in clause 9 as applying only to claims resulting from actual or contingent liabilities incurred before delivery. He also held that a claim against a vessel required a demand coupled with a real and present threat to arrest it.

The buyers appealed on the scope of the indemnity. The sellers cross-appealed on the meaning of claims made against the vessel.

1. Appeal allowed; cross-appeal dismissed. The third declaration made by Toulson J was set aside. The cross-appeal was dismissed.
2. Lord Justice Mance construed the memoranda and guarantee together, applying the reasonable-person approach to commercial construction and considering the transaction as a whole. The second sentence of clause 9 created an obligation distinct from the first sentence’s warranty.
3. The indemnity covered claims made after delivery where the exposure to those claims stemmed from pre-delivery events. It was not confined to claims for which the buyers could later prove that the sellers were actually liable. The relevant risk was the adverse consequence of the claim itself, including the need to provide security or take other protective action.
4. A claim made against a vessel meant a demand or assertion of rights directed against the vessel. It did not require an arrest, an arrest order, or issued proceedings. The necessary qualification was a demand carrying a real and present threat of seizure.
5. The buyers’ recovery remained subject to their dealing reasonably and in a business-like manner with the claim. They would ordinarily be expected to notify the sellers and afford them an opportunity to provide information or assistance.
6. The court declined to treat the wording adopted in Athens Cape Nav. S.A. v. Dampfschiffahrtsges. "Hansa" A.G. (The "Barenbels") as concluding the separate issue of actual liability. The wording could include alleged liabilities. The court nevertheless relied on that decision’s analysis of separate obligations and the practical significance of a threat to the vessel.

Lord Justice Thorpe and Lord Justice Kennedy agreed with Lord Justice Mance.

• Court of Appeal (Civil Division): appeal from declarations made by Toulson J on 14 July 1999. Appeal allowed with costs; cross-appeal dismissed.
• High Court, Queen’s Bench Division: construed clause 9 as limited to claims resulting from actual or contingent pre-delivery liabilities and held that a claim against the vessel required a demand coupled with a real and present threat of arrest.