AIC Ltd v ITS Testing Services (UK) Ltd; The Kriti Palm
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Buxton,Sir Martin Nourse |
| Judgment Date | 28 November 2006 |
| Neutral Citation | [2006] EWCA Civ 1601 |
| Docket Number | Case No: A3/2005/2351 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 November 2006 |
[2006] EWCA Civ 1601
Lord Justice Buxton
Lord Justice Rix and
Sir Martin Nourse
Case No: A3/2005/2351
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
The Honourable Mr Justice Cresswell
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Jonathan Gaisman QC, Mr James Brocklebank & Ms Jessica Mance (instructed by Messrs Hill Dickinson LLP) for the Appellant
Mr Nicholas Hamblen QC & Mr Michael Ashcroft (instructed by Messrs Holman Fenwick & Willan) for the Respondent
Index Paragraph
Introduction 1–19
The essence of ITS's case 20–22
The essence of AIC's case 23–27
The dispute 28
The effect of the certificate 29–44
The parties 45–48
The inspection contract 49–52
Events at the loading port 53–60
Events at the discharge port, and their consequences 61–68
The Cooper retest (and further events of 16 April) 69–82
17 April: Mr Rackham briefs Mr Lucas. What Mr Lucas knew 83–95
17 April: the telephone conversation. What Mr Lucas said 96–122
The follow up correspondence 123–129
The premium parcel RVP 130–131
Other witnesses of the telephone conversation 132–145
After the telephone conversation 146–153
AIC's Swiss and Galaxy's English litigation 154–163
The expert evidence 164–168
International and ITS internal guidelines 169–186
ITS's practice and duties with regard to sample retention 187–192
Mr Lucas's evidence 193–205
The judge's findings about Mr Lucas 206–215
A third element 216–218
Mr Chalmers' evidence 219–245
The judge's findings as to Mr Chalmers 246–249
The issues considered by the judge 250
Deceit: the law 251–260
Deceit: the representation 261–280
Deceit: dishonesty 281–293
A third element; and the respondent's notice 294–300
Deliberate concealment 301–314
Section 32(1) (b) 315–325
The four tests 326–327
(1) Did ITS owe a duty to disclose the relevant information? 328–351
(4) Was the information relevant to AIC's right of action? 352–362
(2) and (3) : consciousness of duty and deliberate decision to conceal 363–366
Section 32(2) : a fallback case 367–369
Continuing duties 370–374
Causation, remoteness and loss 375
Conclusion 376–377
Annex A: The transcript of the 17 April Telephone conversation
Introduction
On 2 April 1996 Inchcape Testing Services (UK) Limited ("ITS") issued its certificate of quality in respect of a cargo of regular gasoline grade M2 due to be loaded on the Kriti Palm for carriage to New York (the "certificate") . The sample analysed was described in the certificate as that of a "Shore Composite Blend". It was a composite sample derived that day, before loading of the vessel, from four separate shore tanks at the refinery of Mobil at Coryton in England. The certificate described a large number of properties of the gasoline, the test methods applied, and the results. The property with which this case is concerned was the gasoline's Reid Vapour Pressure ("RVP") . The Colonial Pipeline Specification ("CPS") on which the gasoline had been sold and for which ITS had been instructed to provide a certificate of quality required that RVP should be maximum 9 psi as found by test method ASTM D5191. Unfortunately, in error ITS tested the RVP by an alternative test method ASTM D323. The certificate stated that the RVP as tested by D323 produced a result of 8.22. Both that and all the other results listed on the certificate were within the nominal result requirements of the specification. The certificate stated, at its foot, "FUEL MEETS SPECIFICATION".
The certificate did not in terms refer to CPS as the required specification. However, the reference to test method D323 showed that the required specification had not in fact been complied with.
On the same day ITS faxed the certificate to AIC Limited, in Bermuda, ("AIC") with a copy to Mobil. AIC and Mobil had jointly instructed ITS.
AIC had bought the gasoline from Mobil (Mobil Sales and Supply Corporation), FOB Coryton Mobil Refinery Installation, in March 1996 as part of a total contract purchase of 38,000 tonnes composed of two parcels, one of regular and the other of premium (grade R2) unleaded gasoline.
The "Inspection" clause of the sale contract provided:
"Quality and quantity at loadport: as determined by mutually acceptable independent inspectors, appointed by sellers, results to be final and binding for both parties save fraud and manifest error. Costs to be shared 50/50 buyer/seller."
Apart from the incorporation of the CPS, RVP of 9 psi max was expressly guaranteed. English law was chosen as the proper law.
Also on 2 April 1996, AIC sold the cargo on the Kriti Palm ex ship basis New York harbour. The on-sale was to Galaxy Energy (USA) Inc ("Galaxy") . The on-sale contract's quality clause relating to the regular gasoline parcel stated "meeting statutory baseline" ie the CPS which had statutory force in the United States "with the following guarantees…RVP 9.0 psi". The determination of quality clause stated: "As ascertained at loadport and confirmed by Calebrett". Caleb Brett is an internationally famous name in the world of testing houses, and it resided within the Inchcape group. (The ultimate holding company is now known as Intertek Group plc.) ITS's associate company in the US is ITS (or Caleb Brett) USA ("ITS USA"), which was appointed discharge port inspector under AIC's on-sale. The on-sale determination of quality clause was not expressly stated to be final and binding. The determination of quantity clause, however, was stated to be binding: quantity was to be ascertained at discharge port by Caleb Brett (viz ITS USA) "whose findings are binding". The contract's payments clause stated that "Payment to be made against telexed invoice, telexed inspection report of out-turn quantity and quality…". No mention was there made of any load port certificate of quality. The "general terms" clause incorporated the Inco terms of 1990 with latest amendments for "ex-ship duty-paid". There was no express choice of law clause.
The Kriti Palm completed loading at Coryton on 3 April 1996 and sailed for New York. It sailed with sealed samples from the shore tanks from which the cargo had been loaded: in particular with a sealed composite blend sample covering the four tanks from which the regular gasoline parcel had been loaded. Equivalent sealed samples were retained by ITS at its headquarters in West Thurrock.
On 14 April 1996 the Kriti Palm arrived at New York, and began discharging on the next day. On that day, 15 April, Galaxy faxed AIC to report that discharge tests gave an RVP for the regular gasoline parcel of 9.11 to 9.56. Those results were obtained from an analysis of samples of cargo taken from the vessel's tanks. Galaxy complained that AIC was refusing to release loadport samples for testing. Galaxy said that it would refuse to discharge further until such retesting had proved the parcel to be on specification. AIC's initial refusal to allow access to the loadport samples appears not long to have been persisted in, because on the same day ITS USA issued an analysis report on the regular gasoline parcel stating that its RVP as tested by D5191 was 9.04 and that analysis was carried out on the sealed sample for the composite blend ex shore tanks at the loading port. The seal number was recorded in the report. There was also an ITS USA D5191 test on a loadport sample ex the vessel's tanks after loading, which recorded an RVP of 9.3.
These results led to disputes between AIC and Mobil, AIC and Galaxy, and AIC and ITS. The discharge of the vessel was delayed, and Galaxy only took delivery of the regular gasoline after 5 July 1996. By then, still further analyses had been performed at Galaxy's request by another well known testing house, SGS, on further samples obtained from the vessel's tanks at New York, and these provided RVP results of 9.3 to 9.69.
In the meantime, on 16 April 1996 Mr Chris Rackham, international coordinator at ITS, was fielding urgent messages from AIC. It soon emerged that ITS had tested by the wrong method for the purposes of its certificate. He initiated a retest by the right method, D5191, on surviving residues of the testing (and therefore unsealed) samples, taken from the four individual shore tanks, which had been tested at the time of the blending of the original cargo. These residues were by then some two weeks old. The retest was not carried out on a composite blend from the four shore tanks. The results therefore had to be subject to a further calculation to provide an overall result. This calculation was performed by Mr Rackham. The calculated result was 9.33. The tests were carried out by Mr Michael Cooper, an ITS chemist, and have therefore become known in this litigation as the "Cooper retest".
On 17 April 1996 an important telephone conversation took place between Mr Tom Whitaker of AIC and Mr Nigel Lucas of ITS. Mr Whitaker was a trader at AIC. Mr Lucas was ITS's general manager. AIC had already intimated a claim, and the failure of the conversation led to the appointment of lawyers on both sides. The majority of that conversation was recorded by Mr Lucas, and a transcript of it survives. Mr Rackham was present with Mr Lucas and heard the conversation, but did not participate in it. There was a dispute at trial as to whether Mr Lucas then knew of the...
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