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HQ 112892





February 3, 1994

VES-13-18-CO:R:IT:C 112892 BEW

CATEGORY: CARRIER

Chief, Residual Liquidation Protest Branch New York Region
6 World Trade Center
New York, New York 10048-002980

RE: Vessel Repair; Baltimore, Maryland, Vessel Repair Entry No. 788-4005878-4, dated May 29, 1992; C.S. GLOBAL LINK; Voyage 10; Petition; Modification; Warranty; 19 U.S.C. §1466

Dear Sir:

This is in response to your memorandum dated September 17, 1993, that transmitted a petition for relief from duties filed by Transoceanic Cable Ship Co., in relation to the above referenced vessel repair entry.

FACTS:

The C.S. GLOBAL LINK is a U.S.-flag vessel owned by Transoceanic Cable Ship Co. The record shows that the shipyard work in question was performed on the subject vessel in Falmouth, United Kingdom, during the period of May 7 through May 12, 1992.

The record reflects that the subject vessel, the C.S. GLOBAL LINK, arrived at the port of Baltimore, Maryland, on May 22, 1992. Vessel repair entry No. 788-4005878-4 was filed on May 29, 1992. The entry indicates that the vessel, among other items, had a strut design modification installed while in Falmouth, United Kingdom. An application for relief was filed on May 28, 1992.

The vessel was delivered to Transoceanic Cable Ship Co., by the builder Far East Levingston Shipbuilding Co., Singapore, on May 30, 1991, with a one-year warranty for any defects. A copy of the cable ship's construction agreement which sets forth the warranty clause was submitted with the application.

In January 1992 while the vessel was in drydock at Bethlehem Steel, Sparrows Point, Maryland, fractures were found at the port and starboard struts of the "A" frame bracket. Repairs were carried out by Bethlehem at that time as a "warranty item." A similar fracture in the starboard strut of a sistership, the C.S. GLOBAL SENTINEL was found while the vessel was in Honolulu. As a result it was determined that the strut design required an extensive modification and that the work was to be accomplished by the builder at no expense to the owner. After the vessel completed a cable installation in Southhampton, England, the builder elected to have Appledore Shipyard, Falmouth, England, perform the work.

The applicant claimed that Appledore invoice No. 631, represented a "warranty modification" at no cost to the owner. It also claimed that at the same time, a number of improvements that developed as a result of nearly a year of operation, were considered to be desirable and were done at the shipyard during this time.

In our decision of June 15, 1993 HQ 112550 BEW, we found as follows:

We note that the repair bill submitted in this case indicates repairs having been effected before the expiration of the one year 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 builder by the vessel operator as specified in the contract, so long as we find an invoice from the original builder 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 builder. The record in this case shows that Appledore charged £244,841.00 for the services rendered. We note that the applicant has submitted a copy of an invoice No. 631 for the amount of £244,841.00, dated May 12, 1992, from Far East Levingston Shipbuilding Limited for the "A" bracket modification. Based on our review of this document, it appears that this is a copy of Appledore's Invoice No. 631 with Far East Levingston's address either typed or copied on it. Since the record does not contain evidence which satisfies the criteria established in the case of Sea-Land Service, Inc., supra., invoice No. 631 must be denied as to the warranty claim.

The petitioner has submitted a letter from Far East Levingston Shipbuilding Ltd., which states that invoice No. 631 was paid directly by Appledore.

ISSUES:

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).

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade.

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.

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.

In the case under consideration, the applicant submitted the new construction contract. The contract for construction of the subject vessel contains a guarantee clause which provides that:

1. In the event that any defects on the original materials or workmanship in the VESSEL, other than those defects which are due to wear and tear or misuse and other than defects in items furnished by the OWNER, occur within one year after delivery of the vessel to the OWNER, such defective parts shall be replaced or the defects remedied by the BUILDER at the BUILDER's costs....

The documents submitted by the petitioner satisfy the court ordered criteria and the contract requirements for the warranty period. Accordingly, we find the cost associated with Appledore invoice No. 631 to be nondutiable. The petition is granted. HOLDING:

Following a thorough review of the facts and evidence, and after an analysis of the law and applicable precedent decisions, we have determined to grant the petition.

Sincerely,

Arthur P. Schifflin
Chief

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