AIC Ltd v ITS Testing Services (UK) Ltd; The Kriti Palm

JurisdictionEngland & Wales
JudgeMR JUSTICE CRESSWELL
Judgment Date07 October 2005
Neutral Citation[2005] EWHC 2122 (Comm)
Docket NumberCase No: 2002 FOLIO NO 502
CourtQueen's Bench Division (Commercial Court)
Date07 October 2005
Between
AIC Limited
Claimant
and
ITS Testing Services (UK) Limited
Defendant

[2005] EWHC 2122 (Comm)

Before

Mr Justice Cresswell

Case No: 2002 FOLIO NO 502

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr N Hamblen QC and Mr M Ashcroft (instructed by Holman Fenwick and Willan) for the Claimants

Mr D Mildon QC and Miss Jessica Mance (instructed by Hill Taylor Dickinson) for the Defendants

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE CRESSWELL

INDEX

1

INTRODUCTION paragraphs (1) to (14).

2

A CHRONOLOGICAL ACCOUNT OF THE HISTORY OF THE DISPUTES AND PREVIOUS LITIGATION paragraphs (15) to (72).

3

AIC's CASE AND ITS' CASE paragraphs (73) to (94).

4

WITNESSES paragraphs (95) to (163).

5

LIST OF MAIN ISSUES IN DISPUTE paragraphs (164) to (165).

6

MISTAKE AND DEPARTURE FROM INSTRUCTIONS CONTRASTED paragraphs (166) to (174).

7

ANALYSIS AND DISCUSSION OF AND CONCLUSIONS AS TO THE AGREED ISSUES paragraphs (175) to (351).

8

CONCLUSION paragraph (352).

Mr. Justice Cresswell:

1

INTRODUCTION

1

This case raises important issues about the duties owed by inspection companies in domestic and international trade.

2

By a contract made in March 1996 the claimant ("AIC") purchased from Mobil Sales and Supply Corporation ("Mobil") a mixed cargo of regular and premium unleaded gasoline on terms FOB Coryton Mobil Refinery Installation.

3

The contract provided that the cargo was to comply with Colonial Pipeline Specifications ("CPS"). The quantity and quality was to be determined at load port by mutually acceptable independent inspectors appointed by Mobil; costs to be shared 50/50. The results of the inspection were to be "final and binding for both parties save for fraud or manifest error". The defendant ("ITS") was appointed to carry out the load port inspection.

4

The cargo was loaded on the Kriti Palm between 30 March and 3 April 1996. Prior to loading ITS tested samples of the cargo from shore tanks. The regular unleaded gasoline was loaded in four parcels, and ITS issued certificates of quality for each of them. The certificate of quality for one of the parcels stated that the gasoline sampled did not meet specifications. However, ITS issued a further certificate of quality for a "shore composite blend", which stated that the regular unleaded gasoline met specifications.

5

By a contract dated 2 April 1996 AIC sold the cargo to Galaxy Energy (USA) Inc. (Galaxy) ex ship New York. The Quality clause in the AIC/Galaxy sub-sale provided: "Quality: (A) M 2 meeting statutory baseline [i.e. CPS] with the following guarantees … RVP 9.0psi … determination of quality: As ascertained at load port and confirmed by Caleb Brett".

6

The Kriti Palm arrived at New York on 14 April 1996 and began discharging the cargo on 15 April 1996. On 15 April 1996 Galaxy informed AIC that discharge had been suspended because the cargo had been found to be off-specification. In particular, Galaxy informed AIC that the Vapour Pressure of the regular unleaded gasoline was higher than the 9.0psi permitted under the CPS.

7

AIC called upon Galaxy to take delivery of the cargo on the basis that Galaxy was bound by ITS' certification that the cargo met specifications, including as to Vapour Pressure. Galaxy refused to take delivery of or to pay for the regular unleaded gasoline.

8

On 18 April 1996 payment on behalf of AIC was made by Banque Paribas to Mobil.

9

Galaxy only took delivery of the regular cargo after 5 July 1996.

10

The dispute between AIC and Galaxy led to proceedings before the Swiss courts, which lasted from April 1996 until December 2003. AIC was successful at first instance. Galaxy appealed to the Geneva Court of Appeal. On 19 April 2002 the Geneva Court of Appeal reversed the first instance judgment and order, rejected AIC's claims and substantially upheld Galaxy's counterclaims. AIC was ordered to pay Galaxy $1,165,037.62 + interest, $51,036.72 + interest and costs.

11

In this action AIC claim damages for breach of contract, deceit, breach of duty, and contribution from ITS pursuant to section 1 of the Civil Liability (Contribution) Act 1978 in respect of AIC's liability to Galaxy.

12

ITS deny liability. ITS also contend that all claims (other than the claim under the 1978 Act) are time-barred.

13

In response to ITS' limitation defence AIC relies upon section 32 of the Limitation Act 1980.

14

It is convenient to refer by way of introduction to the position of inspection companies. Inspection companies are instructed in connection with domestic and international documentary sales because they are understood and expected to have the necessary facilities and expertise to enable them to determine whether the seller has performed its contract in the relevant respects and are trusted to exercise independent judgment. Although an inspection company may receive its instructions from the seller (in the present case from both the seller (Mobil) and the buyer (AIC)) it will be aware that its certificate is likely to be required for presentation to the buyer and any sub-buyer (in the present case Galaxy) and/or to a bank or banks as part of the documentation against which payment is to be made. An inspection company is aware, therefore, that the buyer and/or sub-buyer and/or a bank which ultimately has recourse to a buyer/sub-buyer, will rely on the existence and accuracy of its certificate in paying the price for the goods. The buyer and/or sub-buyer is the person whom the inspection company should have in contemplation as the person most likely to be affected by any error in the certificate. Absent contract, this is a classic example of the situation envisaged by Lord Morris in the Hedley Byrne case, in which a person with particular expertise is instructed to produce a report which he knows will be passed on to another, who can be expected to rely on it. It is inherent in the nature of the task undertaken by the inspection company that it assumes responsibility to the buyer and/or sub-buyer for what is stated in the certificate. That is the whole purpose of its employment. (See Niru Battery Manufacturing Co v Milestone Trading Ltd [2003] EWCA Civ. 1146, paragraph 51, Moore-Bick J approved by Clarke LJ).

It is also convenient to refer by way of introduction to gasoline cargoes and Vapour Pressure. The quality of a gasoline cargo to be loaded on to a vessel can be determined as follows: —

i) Analyse each individual shore tank prior to loading to confirm they meet specification.

ii) Prepare a shore tank composite for analysis. However, the Vapour Pressure would be based on a calculation from the individual results (weighted average).

iii) Sample and test a ship's composite. For Vapour Pressure individual tanks would be tested and a weighted average calculated.

Vapour Pressure is measured on crude oils and volatile petroleum products. It is an important property for gasoline, because the Vapour Pressure affects the operation of fuel pumps and engines. It will be difficult to pump a gasoline with a high Vapour Pressure without vapour locks resulting at high altitudes or at high temperatures. Conversely there needs to be sufficient vapour generated at low temperatures to facilitate engine start-up and warm-up.

In addition, Vapour Pressure can be used as an indirect measure of the evaporation rate of the gasoline.

Vapour Pressure can also be used as a means of assessing the amount of VOCs a gasoline will release. A high Vapour Pressure can indicate high concentrations of VOCs in the gasoline. VOCs can impact adversely on the environment: they are a constituent of smog and have other health implications. In the case of gasoline they are also an indirect measure of flammability.

In some countries, e.g. the USA, there are seasonal limitations on the quantity of VOCs which can be released from materials such as gasoline.

2

A CHRONOLOGICAL ACCOUNT OF THE HISTORY OF THE DISPUTE AND PREVIOUS LITIGATION

15

I turn to set out a detailed account of the history of the dispute and previous litigation. This is largely drawn from an agreed statement of facts helpfully prepared by junior counsel. I have made some additions.

16

Between about 13 and 20 March 1996 a contract was concluded between Mobil and AIC. Mobil agreed to sell and AIC agreed to buy regular and premium gasoline FOB Coryton. The gasoline was to comply with Colonial Pipeline Specifications. The contract was governed by English law. The quantity and quality was to be determined at load port by mutually acceptable independent inspectors appointed by Mobil; costs to be shared 50/50. The results of the inspection were to be "final and binding for both parties save for fraud or manifest error".

17

On 14 March a charterparty of the Kriti Palm between ST Shipping (as owners) and AIC (as charterers) was agreed.

18

By a telex dated 20 March (to Mobil cc ITS) AIC nominated the Kriti Palm for the purposes of the Mobil/AIC contract.

19

Between about 22 and 25 March there were various exchanges between AIC and Mobil, consequent on which ITS was appointed by Mobil and AIC to sample and analyse the proposed cargoes.

20

On 22 March Mobil faxed instructions to ITS. These included a description of what was to be tested and a copy of the CPS. The CPS prescribed a maximum "RVP" of 9.0psi as arrived at by test method ASTM D5191.

21

The CPS was forwarded by ITS to Mr Paul Mailey (of ITS) at Coryton.

22

On 25 March:

Banque Paribas (for account of AIC) opened a letter of credit in favour of Mobil.

ITS acknowledged nomination of Kriti Palm and confirmed attendance.

23

On 26 March AIC informed Mobil and ITS that AIC required inspections "to be...

To continue reading

Request your trial
15 cases
  • Harris and Others v Society of Lloyd's
    • United Kingdom
    • Queen's Bench Division (Commercial Court)
    • 9 September 2008
    ...case on the merits. It was common ground that the claimants' claim was in deceit. The elements of the tort were fully discussed in The Kriti Palm [2007] 1 All ER (Comm) 667: “252. At the basis of any claim in deceit is the representation in question. Its falsity, and the honesty of the rep......
  • Aviva Insurance Ltd v Brown
    • United Kingdom
    • Queen's Bench Division
    • 25 February 2011
    ...... and so Mr Brown took the matter to the Financial Services Ombudsman Service ("FOS"). Mr Brown's complaint was copied ...However, as stated by Rix J in AIC Ltd v ITS Testing Services (UK) Ltd . (The "Kriti Palm") [2007] 1 Lloyd's ......
  • Nationwide Building Society v Dunlop Haywards Ltd
    • United Kingdom
    • Queen's Bench Division (Commercial Court)
    • 18 February 2009
    ...deceit are well established: Derry v Peek (1889) 14 App Cas 337, Angus v Clifford [1891] 2 Ch 449, Armstrong v Strain [1951] 1 TLR 856, The Kriti Palm [2007] 1 All ER (Comm) 667. I would summarise them as follows: i) The Defendant must have made a representation which can be clearly identif......
  • Fitzroy Robinson Ltd v Mentmore Towers Ltd & Others
    • United Kingdom
    • Queen's Bench Division (Technology and Construction Court)
    • 26 January 2010
    ...upon that representation; e) The representee has therefore suffered loss. The ingredients of the test in deceit are set out AIC Limited v ITS Testing Services (UK) [2007] 1 All ER (Comm) 667, and in particular the judgment of Rix LJ at paragraph 251. In circumstances such as this, it is co......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT