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HQ 111075

June 8, 1990

VES-13-18 CO:R:P:C 111075 BEW


Chief, Technical Branch
Pacific Region
One World Trade Center
Long Beach, California 90831

RE: Protest No. 27046-003732; Vessel Repair Entry No. 86- 949985-2, dated April 24, 1986; Date of Arrival: April 20, 1986; Port of Arrival: Long Beach, California; Vessel Name: M/V SEALAND INNOVATOR; Voyage No. 62

Dear Sir:

Reference is made to the above-captioned protest seeking reliquidation on the basis of foreign shipyard work having been performed pursuant to a warranty recognizable under the decision of the Court of International Trade in the case of Sea-Land Service, Inc. v. United States, 683 F. Supp. 1404 (1988).


The vessel was taken abroad for the purpose of having a mid- body addition inserted in order to lengthen the vessel by some one-hundred (100) feet. This was accomplished and the vessel was redelivered to Sea-Land by the shipyard on June 3, 1985. The work was performed under a construction contract which was identical for twelve (12) Sea-Land vessels which were modified at nearly the same time. The standard contract contained a warranty clause (Article XI WARRANTY OF QUALITY), containing two time elements, which read as follows:

(b) Guarantee Period. The guarantee of the contractor shall expire:

(i) for defects in design, material or workmanship which the owner might discover by the exercise of due diligence: twelve (12) months from the date of redelivery of the CONVERTED VESSEL.

(ii) for defect in material or workmanship which could not be discovered by the exercise of the owner`s due diligence (i. e. , latent defects): twenty-four (24) months from the date of redelivery of the CONVERTED VESSEL.

The warranty provisions are conditioned upon timely written notice being given by the owner to the shipyard within 20 days following the expiration of the warranty period.


Whether the court-established elements for warranty recognition are present in this case, as detailed in the case of Sea-Land Service, Inc. v. United States, 683 F.Supp. 1404 (1988).


In the case of Sea-Land Service, Inc. v. United States, 683 F. Supp. 1404 (1988), the Court addressed whether repair work performed on a newly constructed vessel subsequent to its delivery to the owner might be considered to be part of the new construction contract. Simply put, the Court considered whether "completion of construction" is a viable concept so as to render the duty provisions of 19 U.S.C. 1466(a) inapplicable if proven. The Court found completion of new construction to be a valid concept, subject to specific conditions, which are:

1. "All work done and equipment added [must be] pursuant to the original specifications of the contract for the construction of the vessel ...."

2. "This basic standard is limited to work and equipment provided within a reasonable period of time after delivery of the vessel."

The contract for construction of the subject vessel contained clauses guaranteeing for twelve (12) months any area of the vessel for which the builder accepted responsibility under the contract and specifications, conditioned upon written notification from the owner of any covered defect within the agreed upon 12-month period.

In reviewing the warranty case on remand from the Court, Customs had the opportunity to review the contract, the specifications, and a so-called "guarantee notebook." This document consisted of numerous guarantee items, some generic in nature and some specific, and represented the written notification of defects from the owner to the builder as required by the contract. Each noted defect was recorded on a separate sheet and assigned a "G" guarantee number. Each was dated, signed by an owner's representative and a builder's representative, and contained a short narrative of the specific complaint.
In that case, we found that the court-ordered criteria had been satisfied and that the "reasonable period of time" for the warranty period was the one-year period specified in the contract. We have since held likewise in similar cases, and have adopted the one-year limit as the benchmark for honoring new construction warranties which otherwise qualify.

As previously mentioned, the construction contract under consideration provides a two-year warranty clause relating to "latent defects". It is the intention of the Congress, as reflected in the record of hearings concerning amendments to sections 3114 and 3115 of the Revised Statutes of the United States (the predecessor provisions to 19 U.S.C. 1466(a) and (d)), that the statute not recognize latent defects. At that time, the House of Representatives and the Senate were considering different amendatory language. The following is recorded in regard to the latent defect issue:

[Senator] Barkley. In other words, as I understand the Senator, according to the House provision if some portion of the ship on the voyage over wears out or a defect is disclosed prior to the sailing of the ship from the home port, that repair may be made in a foreign port without paying the 50 percent tax?

[Senator] Fletcher. Yes.

[Senator] Barkley. But under the Senate committee amendment, no such circumstances could exist. The only repairs that could be exempted from payment of a 50 percent tax are repairs made necessary by reason of stress of storm or weather. In other words ... she can not repair any ordinary wear and tear of machinery or appliances that could not have been reasonably discovered prior to the sailing of the vessel ....

[Senator] Fletcher. That is exactly what it means. (Congressional Record, September 19, 1929, p. 3782)

The quoted legislative history amply demonstrates that latent defect will not excuse duty under the statute. The Senate version was, of course, the version which was adopted and is incorporated in the present statute.

The question now to be addressed is whether the Sea-Land Service, Inc., supra., court-ordered criteria and/or contract requirements have been satisfied in this case.

We note that the repair bill being protested in this case indicates repairs having been effected before the expiration of the one year and twenty-day period specified in the warranty clause of the contract. The fact that repairs were made during the stated period permits us to assume that notification was given to the original vendor by the vessel operator as specified in the contract, so long as we find an invoice from the original vendor stating that work was performed at no charge. If repair work is performed by remote contractors as permitted under the contract, there must be evidence that the builder was notified before repair or that the vessel operator was reimbursed by the original vendor (see Article XI (4) of the contract). The record in this case shows that the vessel operator was charged for services rendered. Since the record does not contain evidence which satisfies the criteria established in the case of Sea-Land Service, Inc., supra., the protest in this case must be denied.


Inasmuch as there is no evidence that the foreign shipyard operations claimed to be covered by warranty were performed pursuant to the conditions of the warranty clause of the contract for construction under consideration, the protest is denied.


Acting Director
Regulatory Procedures and

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