KG Bominflot v Petroplus Marketing
DMC/SandT/11/03
English Court of Appeal
Note: The Supreme Court refused leave to appeal in this case
KG Bominflot Bunkergesellschaft für Mineraloele mbH & Co v Petroplus Marketing AG (The “Mercini Lady”): English Court of Appeal: Maurice Kay, Rix and Patten LJJ: [2010] EWCA Civ 1145: 19 October 2010
SALE OF GOODS CARRIED BY SEA: FOB ANTWERP SALE OF EU GASOIL WITH FREE DESTINATION: “SPECIAL” COMMON LAW IMPLIED TERM/CONDITION: STATUTORILY IMPLIED CONDITIONS: WHETHER CARGO TO REMAIN ON-SPECIFICATION FOR A REASONABLE TIME FOLLOWING SHIPMENT: EFFECT OF EXCLUSION CLAUSE ON IMPLIED CONDITIONS: SECTION 14(2) OF THE SALE OF GOODS ACT 1979
Available on BAILII @ http://www.bailii.org/ew/cases/EWCA/Civ/2010/1145.html
Nigel Jacobs QC (instructed by Davies Johnson & Company) for the seller, Petroplus
Philip Edey QC (instructed by Holman Fenwick & Willan) for the buyer, Bominflot
Summary
Additional Implied Term: an additional term to be implied at common law into an FOB sale contract to the effect that the goods would remain in accordance with the contractual specification for a reasonable time after shipment, was not necessary, was contradictory to the purpose of the express terms of the contract, particularly the certificate final clause, and could not survive section 14(1) of the Sale of Goods Act 1979, which limited the implication of terms about quality or fitness of goods to the statutory terms contained in the Sale of Goods Act 1979.
Construction: The wording of clause 18 of the FOB sale contract in this case (“There are no guarantees, warranties or representations, express or implied, [of] merchantability, fitness or suitability of the oil for any particular purpose or otherwise, which extend beyond the description of the oil set forth in this agreement.”) was inadequate to exclude the implication of the statutorily implied condition under section 14(2) of the Sale of Goods Act 1979 as to the satisfactory quality of the goods, because it did not expressly exclude “conditions”.
Case note contributed by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales at Kennedys Singapore LLP and International Contributor to DMC’s CaseNotes
Background
The dispute arose in relation to an EU gasoil cargo purchased on FOB Antwerp terms without a specified destination for discharge of the cargo. The contract included terms which set out that:
1. Various specifications had to be met by the gasoil at the time of shipment: clause 4 (“specification clause”);
2. The quality and quantity of the gasoil was to be determined before loading by a mutually agreed independent inspector, and the inspector’s determination was to be final and binding on both parties, except in case of fraud or manifest error: clause 12 (“certificate final clause”);
3. The buyer assumed all risks when the product passed the vessel’s permanent hose connection at the port of loading: clause 15 (“risk clause”);
4. There were no guarantees, warranties or representations, express or implied, of merchantability, fitness or suitability of the gasoil for any particular purpose or otherwise, which extended beyond the description of the gasoil set out in the contract: clause 18 (“exclusion clause”).
An analysis of the gasoil prior to loading on the vessel was found to be on-specification. However, upon arrival at its intended destination, some four days later, the gasoil was found to have exceeded the maximum sedimentary requirement of the specification clause.
The Commercial Court[1] held that in the absence of any inconsistent terms within the contract (in this case there was held to be none because clause 18 did not exclude “conditions”) the following conditions were to be implied into an FOB contract, as from the time the goods were appropriated to the FOB contract:
1. a statutory condition under section 14(2) of the Sale of Goods Act 1979 (“the 1979 Act”) that the goods would be of satisfactory quality not only when the cargo was delivered onto the vessel but also for a reasonable time thereafter; and
2. a similar obligation at common law, with the additional dimension that the goods should not only be of satisfactory quality for a reasonable time but also should remain in accordance with the contractual specification (if any) for such a period.
The appeal raised two short points of importance to sale of goods law. The first questioned the implication into the contract of what even the buyer accepted was a novel “additional” common law term (as stated at 2. above). The second questioned long-established and high authority to the effect that, if a seller wished to exclude the 1979 Act conditions, this must be done by the express exclusion of “conditions”.
Judgment
Rix LJ gave the opinion of the Court, with which Maurice Kay and Patten LJJ agreed.
Additional Implied Term
The seller argued (and the buyer argued to the contrary) that the implied term was:
1. inconsistent with the express terms of the contract, in particular clauses 4 (specification clause) and/or 12 (certificate final clause) and 15 (risk clause); and
2. unnecessary in the light of the basic statutory implied condition under section 14(2) of the 1979 Act.
Rix LJ noted that the buyer admitted that the gasoil was delivered on-specification but alleged that it thereafter “changed” its quality and specification by the time of arrival at the discharge port four days later. According to Rix LJ, the claim of the buyer was inferred to be that the gasoil was not “capable of remaining” of satisfactory quality, and the seller was thereby in breach of the alleged additional implied term. Rix LJ noted that the judge’s implication of the additional term was an extension based on the statutorily implied condition of satisfactory quality (formerly merchantable quality), as interpreted by Mash & Murrell Ltd v Joseph I Emmanuel Ltd (1).
Rix LJ was of the opinion that there was nothing that necessitated the implication of such a term because:
1. the contract, to the contrary, made it clear that:
(a) the specification had to be met at the time of delivery;
(b) the intention was that the gasoil should be inspected by an independent inspector prior to loading, “basis shoretank” (that is, not even on the basis of the gasoil in the ship’s tanks); and
(c) the inspector’s determination should be conclusive (that is, final and binding in the absence of fraud or manifest error);
2. the sediment was within specification limits at the time of loading and delivery so that gasoil of the correct specification had been delivered;
3. after delivery, the buyer “assumes all risks pertaining thereto” under clause 12 - “all risks” meant all risks, including the risk of transport and the risk of cargo instability;
4. a clause providing for conclusive inspection and determination on loading, such as clause 12, replaced or redefined the implied terms as to quality to that extent. This prevented any further implication that it was legitimate to take account of changes in the cargo’s specification after delivery;
5. if it were otherwise, the whole point of a final and binding determination by an independent inspector on loading would be rendered pointless, for the buyer could always say that although the goods were within specification on loading, and had been conclusively determined so to be, they had nevertheless fallen out of specification during the contemplated voyage or within a reasonable time, so that all certainty in international sale of goods, which such inspection clauses were designed to provide, would be utterly broken; and
6. it was hard to see how the alleged additional term could survive section 14(1) of the 1979 Act, which limited the implication of terms about quality or fitness to the statutory terms contained in the 1979 Act.
It followed that the buyer was unable to establish that its additional proposed common law term was to be implied into the contract.
Exclusion of Conditions
The buyer argued that clause 18 was inadequate to exclude implied “conditions” because it did not expressly exclude “conditions”, which was in line with the treatment of this issue by the leading cases. The seller argued that the approach to the true construction of contracts between commercial parties had evolved since the leading cases were decided, so clause 18 should not be read in the restrictive way sought by the buyer. If clause 18 were ineffective to exclude the implied term under section 14(2) of the 1979 Act, then the seller accepted that the goods should be of satisfactory quality, not only when the cargo was delivered onto the vessel, but also for a reasonable time thereafter.
Following a review of the leading cases on the exclusion of implied conditions in contracts, Rix LJ was of the opinion that:
1. There was judicial consensus that such obligations could only be excluded by language which expressly (or must be taken to necessarily) refer to “conditions”;
2. Such language as had been used in clause 18 did not satisfy the requirements of judicial consensus and principle; and
3. It was not open to the Court of Appeal to depart from that long established consensus.
The seller was consequently unable to exclude by the language used in clause 18 the implication of statutorily implied conditions under the 1979 Act.
Comment
Additional Implied Term
Of considerable interest is that Rix LJ questioned whether clauses 4 and 12 of the contract might impinge on the basic statutory term to be found in section 14(2) of the 1979 Act. He indicated his belief, obiter, that the learning of the jurisprudence on certificate final clauses indicated that a matter of latent inherent vice, which could not have been picked up by the quality inspection mandated by clauses 4 and/or 12, might possibly stand outside those clauses, so as to permit a finding of a breach of the implied term as to satisfactory quality. But if the alleged vice was in truth something for which the specification and certificate final clauses provided, such as sediment (as in this case), then Rix LJ considered that there might be no room for a separate allegation of breach by reference to the statutory implied term of satisfactory quality or any similar term implied at common law.
Exclusion of Conditions
The submissions of the seller on the development of the approach to contractual construction contained some good logic. The approach adopted in relation to exclusion of implied conditions by the House of Lords is, however, a matter only open for reconsideration by the Supreme Court. No appeal application has been made to the Supreme Court despite Rix LJ expressing sympathy for the submissions of the seller. This is not surprising, given his opinion that the other terms of the contract had real potential to exclude the implication of any terms in any event.
Footnote (1): [1961] 1 WLR 862, where Diplock J held that in a CIF or C&F contract for the international sale of perishable goods, such statutory conditions required the goods (which were potatoes shipped from Limassol) “to be capable of standing a normal voyage to Liverpool and to be of merchantable quality at the time of arrival”.
