AIC Ltd v ITS Testing Services (Uk) Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Cresswell J. |
| Judgment Date | 07 October 2005 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 07 October 2005 |
Queen's Bench Division (Commercial Court).
Cresswell J.
N Hamblen QC and M Ashcroft (instructed by Holman Fenwick and Willan) for the claimants.
D Mildon QC and Jessica Mance (instructed by Hill Taylor Dickinson) for the defendants.
The following cases were referred to in the judgment:
C v Mirror Group Newspapers & OrsWLR [1997] 1 WLR 131.
Cave v Robinson Jarvis & Rolf (a firm) [2003] 1 CLC 101; [2003] 1 AC 384.
Companhia de Seguros Imperio v Heath (REBX) Ltd [1999] CLC 997.
Doyle v Olby (Ironmongers) LtdELR [1969] 2 QB 158.
IM Properties plc v Cape & DalgleishELR [1999] QB 297.
Johnson v Chief Constable of Surrey (CA Transcript No. 961 of 1992).
Niru Battery Manufacturing Co v Milestone Trading LtdUNK [2003] EWCA Civ 1446; [2004] 1 CLC 647.
Smith Kline & French Laboratories v LongWLR [1989] 1 WLR 1.
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) LtdELR [1997] AC 254.
Veba Oil Supply and Trading GmbH v Petrotrade Inc (The Robin)UNK [2001] EWCA Civ 1832; [2002] CLC 405.
Williams v Fanshaw Porter & Hazelhurst (a firm)UNK [2004] EWCA Civ 157.
Shipping — Sale of goods — Inspection companies — Duties owed by inspection companies in domestic and international trade — Departure from instructions — Negligence — Deceit — International standards — Fraud — Limitation period — Contract for mixed cargo of regular and premium unleaded gasoline on FOB terms — Quantity and quality to be determined at load port by mutually acceptable independent inspectors appointed by seller — Results of inspection to be final and binding save for fraud or manifest error — Defendant appointed to carry out load port inspection — Sub-buyer found cargo to be off specification — Sub-buyer succeeded in proceedings against buyer — Buyer claimed against inspectors — Extent of inspectors' duty to take reasonable care — Materiality of international standards — Original tests not in accordance with stated test procedures and results probably incorrect — Gasoline on balance of probabilities off-specification when loaded — Certificates of quality probably wrong — Inspectors in breach of duty to take care to ensure certificates accurate and to audit/review tests in case of doubt — Inspectors liable in deceit on ground of recklessness in relation to false statement that certificates were good — Failure to disclose results of re-tests extended limitation period — Deliberate concealment of fact relevant to right of action — Correct measure of damages — Limitation Act 1980, s. 32.
This was a claim by buyers (AIC) of a cargo of gasoline against the defendant inspection company (ITS) alleging that ITS had wrongly certified the quality of the cargo.
AIC purchased from Mobil a mixed cargo of regular and premium unleaded gasoline FOB Mobil's refinery. 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. ITS was appointed to carry out the load port inspection. ITS certified that the regular unleaded gasoline met specifications.
AIC sold the cargo to Galaxy ex ship New York. Galaxy tested the cargo on arrival and found the regular unleaded gasoline to be off-specification. Galaxy obtained judgment against AIC and AIC claimed damages for breach of contract, deceit, breach of duty, and contribution from ITS in respect of AIC's liability to Galaxy. ITS denied liability and contended that all claims (other than the contribution claim) were time-barred. In response to ITS's limitation defence AIC relied on s. 32 of the Limitation Act 1980.
AIC's case as to initial negligence was that ITS used the wrong test and carried out the tests negligently; as to negligent misrepresentations that ITS continued to represent that the fuel met specification; that ITS negligently failed to correct/ qualify/withdraw the certificate and to disclose the results of re-tests; and as to deceit that ITS made false statements in the knowledge of the re-test results.
Held, giving judgment for AIC:
1. The inspection company was a classic example of the situation in which a person with particular expertise was instructed to produce a report which he knew would be passed on to another who could be expected to rely on it. (Niru Battery Manufacturing Co v Milestone Trading LtdUNK[2003] EWCA Civ 1446; [2004] 1 CLC 647applied.)
2. The best guide to what was comprised in the duty owed by an inspection agency (whether in contract or tort) to take reasonable care to ensure that any certificate issued was accurate as to the matters on which it was instructed to report was to be found in the International Standards at the material time. On that basis it was ITS's duty to take reasonable care to ensure that any certificate it issued was accurate as to those matters on which it was instructed to report, including implied obligations to both Mobil and AIC: to determine whether Mobil had performed its contract with AIC in the relevant respects, applying the test methods ITS was instructed to apply; to exercise independent and impartial judgment and to act as an independent and impartial inspection company at all material times; to report the results of tests independently, accurately, clearly, unambiguously and objectively; to include in any certificate all information relevant to the validity and application of the test results and all information required by the test method and procedure used; to make it clear whether the results reported referred to tests carried out on a single item, or on a batch of items, including where relevant details of any sampling carried out; to include in any certificate any departures from standard condition, reference to the test method and procedure used, any standard or other specification relevant to the test method or procedure and deviations, additions to or exclusions from the specification concerned; to issue material amendments to any certificate; and where a complaint or any other circumstance raised doubt concerning the quality of the tests, to ensure that the relevant work/tests were promptly audited/ reviewed.
3. ITS did not reasonably interpret its instructions with regard to testing the cargo and did not carry out its instructions. ITS negligently used the wrong test method and its test results stated in the ITS certificates of quality for the regular cargo were probably wrong, to the knowledge of ITS. The regular cargo was off-specification which ITS should have detected and did discover from the re-tests.
4. AIC and Galaxy relied on the certificates.
5. The re-testing of samples should not have been carried out save pursuant to joint instructions from Mobil and AIC.
6. After the re-testing the representation by ITS that the certificate which stated that the fuel met specification was and remained a good and valid certificate, was a false representation made by ITS which was reckless as to its truth. ITS intended that AIC should act in reliance on the representation and AIC did so. ITS was liable to pay damages to AIC for deceit.
7. ITS deliberately decided not to disclose the re-testing and its results. In so doing ITS deliberately concealed a fact relevant to AIC's right of action against ITS for the purposes of s. 32 of the Limitation Act 1980. AIC's claims were not statute-barred.
8. The correct measure of damages for deceit was an award which put the claimant into the position he would have been in if the representation had not been made to him. In the circumstances AIC was entitled to recover the losses claimed, all of which have been vouched. The damage claimed flowed directly from the deceit and was caused directly by the deceit or constituted consequential losses caused by the deceit. AIC did not fail to mitigate its loss. Nor did AIC aggravate its loss.
| 1. Introduction | 1-14 |
| 2. A chronological account of the history of the disputes and previous litigation | 15-72 |
| 3. AIC's case and ITS's case | 73-94 |
| 4. Witnesses | 95-163 |
| 5. List of main issues in dispute | 164-165 |
| 6. Mistake and departure from instructions contrasted | 166-174 |
| 7. Analysis and discussion of and conclusions as to the agreed issues | 175-351 |
| 8. Conclusion | 352 |
Cresswell J:
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...
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AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm)
...— Limitation Act 1980, s. 32(1)(b). This was an appeal by an inspection company (ITS) against a judgment given against it for deceit ([2005] 2 CLC 490). In 1996 ITS issued a certificate of quality in respect of a cargo of gasoline due to be loaded on the Kriti Palm for carriage to New York.......