The recent Commercial Court decision in Septo Trading Inc. v Tintrade Limited [2020] EWHC 1795 (Comm), serves as a reminder to be sure of the contractual terms to which a party agrees. Lucinda Roberts provides the details.
The facts
Septo Trading Inc. (“Septo”), as buyer, contracted with the seller Tintrade Limited (“Tintrade”) to purchase a cargo of 36,000-42,000 MT high Sulphur fuel oil (specification RMG 380 as per ISO 8217:2010) which was loaded on board the NOUNOU in Latvia in July 2018. The contract was evidenced by a Recap dated 20 June 2018, which expressly incorporated the BP 2007 General Terms and Conditions for FOB Sales (the “BP GTCs”), albeit the latter was expressed to apply “where not in conflict with [the Recap]”.
On 25 June 2018 Tintrade nominated Ventspils, Latvia as the load port. SGS Latvia was jointly instructed by Septo and Tintrade to perform quality and quantity tests of the cargo, and took samples were from the seven shore tanks containing the cargo to be loaded on board the Vessel. SGS produced a certificate confirming that the cargo was on-spec and had a TSP reading of 0.04%. TSP (Total Sediment Potential) is a measure of how much sediment fuel oil will produce in long-term storage, and the ISO 8217:010 specification permits a maximum TSP of 0.1%.
The cargo was loaded between 30 June-2 July and was transported to Gibraltar, where it arrived on 11 July. It was transferred to the FIONA SWAN and SKS TANARO, pursuant to an onward sale contract between Septo and a third party. On 17 July Saybolt produced an analysis certificate of the cargo on board the SKS TANARO, which contained a TSP reading of 0.37% - well in excess of the specification threshold of 0.1%.
The samples taken by SGS at Ventspils were then tested, and some were found to be off-spec. Although the cargo in each of the seven shore tanks was on-spec on its own, it was not compatible with each other, such that the blended product was off-spec. Therefore, the SGS samples were not representative of the cargo in fact loaded on board the Vessel.
The dispute
Tintrade refused to repurchase the off-spec cargo from Septo, and Septo was unable to agree a new price for the cargo with its third-party buyer. Septo therefore blended the off-spec cargo with compatible product and sold the re-blended product into the Singapore market. Septo then brought a claim for USD 7.78m in damages against Tintrade, for the supply of off-spec fuel.
The question before the Court was whether the SGS quality certificate produced at Ventspils (which had found the cargo to be on-spec) was binding on the parties. The Recap and BP GTCs contained apparently conflicting wording: the Recap provided that the independent inspector’s results were “binding on the parties save for fraud or manifest error”, whereas clause 1.2.1 of the BP GTCs provided that: “… the certificates of quantity and quality…shall, except in cases of manifest error or fraud, be conclusive and binding on both parties for invoicing purposes and the Buyer shall be obliged to make payment in full … but without prejudice to the rights of either party to make any claim” (emphasis added).
Tintrade argued, based on the Recap clause, that the SGS certificate was final and binding on the parties for all purposes, such that Septo was unable to later argue cargo was off spec. Septo’s position was that the SGS certificate was binding on the parties for invoicing purposes only, and permitted a ‘pay now, sue later’ scenario, such that it was entitled to bring its claim.
The decision
Mr Justice Teare reminded the parties that both clauses were part of the same contract, and that they had chosen to make the contract subject to the BP GTCs. The fact that the BP GTCs were expressed to apply where there was no conflict with the Recap meant that the parties were aware of the possibility of inconsistency.
Teare J. held that there was no conflict between the Recap and clause 1.2.1 of the BP GTCs, rather that Clause 1.2.1 qualified the Recap provision. Therefore, when the clauses were read together, Septo was able to claim damages for Tintrade’s breach in supplying off-spec fuel. He further held that the cargo as sampled at the ship’s manifold was in fact off-spec.
Given that both relevant clauses in the Recap and the BP GTCs contained an exception for manifest error, the question arises as to whether this would have been an alternative avenue for Septo’s claim. Teare J. provided some useful comments in this regard: where SGS had drawn samples to the best of their ability, despite certain difficulties, it was clear that they had made no “obvious blunder”. As such, although the SGS samples were not representative of the cargo loaded on board the Vessel, in the absence of clause 1.2.1 of BP GTCs the Buyer would have had no claim.
Comment
This decision is a useful reminder of the importance of clear and precise language to specify agreed terms, rather than relying on shorthand, particularly where other sets of terms and conditions are incorporated. Parties should take care when including ‘priority’ clauses, which can change the contractual regime greatly. It also serves as a reminder of the Court’s approach to seemingly conflicting wording in contractual clauses: the contract is to be read as a whole and, wherever possible, effect should be given to both clauses.