KG Bominflot Bunkergesellschaft für Mineralöle mbH & Company v Petroplus Marketing AG (The Mercini Lady)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeMaurice Kay,Rix,Patten L JJ
Judgment Date19 October 2010
Date19 October 2010

Court of Appeal (Civil Division).

Maurice Kay, Rix and Patten L JJ.

KG Bominflot Bunkergesellschaft für Mineraloele mbH & Co
and
Petroplus Marketing AG (The Mercini Lady).

Nigel Jacobs QC (instructed by Davies Johnson & Co) for the appellant/defendant.

Philip Edey QC (instructed by Holman, Fenwick & Willan) for the respondent/claimant.

The following cases were referred to in the judgment:

Alfred C Toepfer v Continental Grain CoUNK [1974] 1 Ll Rep 11 (CA).

Attorney General of Belize v Belize Telecom LtdUNK [2009] UKPC 10; [2009] 1 WLR 1988.

Baldry v MarshallELR [1925] 1 KB 260.

BS & N Ltd (BVI) v Micado Shipping Ltd (Malta) (The Seaflower) [2001] CLC 421.

Cammell Laird & Co Ltd v Manganese Bronze & Brass Co LtdELR [1934] AC 402.

Henry Kendall & Sons v William Lillico & Sons LtdELR [1969] 2 AC 31.

Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] CLC 1243; [1998] 1 WLR 896.

Lambert v LewisELR [1982] AC 225.

Mash & Murrell Ltd v Joseph I Emmanuel LtdWLR [1961] 1 WLR 862; [1962] 1 WLR 16 (CA).

Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn)UNK [2009] EWCA Civ 531; [2009] 1 CLC 909.

Navigas Ltd v Enron Liquid Fuels Ltd (unreported, 22 May 1998).

Ollett v JordanELR [1918] 2 KB 41.

Photo Production Ltd v Securicor Transport LtdELR [1980] AC 827.

Pinnock Bros v Lewis & Peat LtdELR [1923] 1 KB 690.

Sirius International Insurance Co (Publ) v FAI General Insurance LtdUNK [2004] UKHL 54; [2005] 1 CLC 451; [2004] 1 WLR 3251.

Veba Oil Supply & Trading GmbH v Petrograde Inc [2002] CLC 405.

Wallis, Son & Wells v Pratt & HaynesELR [1910] 2 KB 1003; [1911] AC 394 (HL).

Sale of goods — Implied terms — Conditions — FOB contract — Sale of gasoil FOB Antwerp — Quality and quantity determined by independent inspection at loading to be final and binding — No guarantees, warranties or representations, express or implied, of merchantability, fitness or suitability of oil beyond description of oil in agreement — Oil accepted to be on specification at loading — After four day voyage to Spain oil found to be off specification — No additional common law implied term that goods should remain on specification for reasonable time after delivery — Statutory implied term not excluded by contractual wording without express reference to conditions — Sale of Goods Act 1979, s. 14(2), (3).

This was an appeal by the seller (Petroplus) against a decision ([2009] 1 CLC 791) on preliminary issues arising out of a contract for the sale of gasoil FOB Antwerp to the respondent buyer (KG Bominflot).

There was a specification clause (clause 4), headed “Quality”, which governed the properties of the gasoil, including “Total sediment”. That was to have a maximum of 10 mg/litre as tested by a specified test, viz D-2709/88. Quality and quantity were to be determined by independent inspection at loading which was to be final and binding for both parties, save for fraud or manifest error (clause 12). Risk and title were to pass on loading (clause 15). Clause 18 (“Other Conditions”) contained a number of terms but also an exclusion clause, as follows: “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.”

The gasoil was inspected at Antwerp prior to loading by an inspector from SGS. The sediment was recorded at 6.4 mg/litre according to test method EN 12662. That was not the contractual test method but the loading determination found the gasoil to be within specification.

Following arrival at El Ferrol, the first discharge port, four days later the cargo was sampled and tested on various occasions. On each occasion it was found to be off-specification as to sediment. The goods were rejected by the receivers as being off-specification.

The buyer did not allege that the cargo was off-spec for the purposes of the sale contract when the cargo was shipped on board the vessel. Rather, its case was that there was a breach of implied terms that the goods were capable of remaining during the voyage and for a reasonable time thereafter of satisfactory quality and/or on-spec.

The judge accepted that, in addition to the statutory implied term of satisfactory quality under the Sale of Goods Act 1979, s. 14(2), there was to be implied a novel further term, at common law, extending the quality clause 4 containing the gasoil's specification, that the cargo had to remain in accordance with the contractual specification after delivery on the vessel for a reasonable period; and that clause 18 did not preclude the implication of that term.

The seller appealed arguing that the additional implied term was inconsistent with the express terms of the contract, in particular clauses 4 and/or 12 and 15, and unnecessary in the light of the basic statutory implied condition.

Held, allowing the appeal in part:

1. There was nothing to suggest, let alone require, the alleged implication. The additional implied term was not part of the intention of the parties to the contract and would not have been understood by reasonable merchants to have been part of its meaning. If it had been 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. All certainty in international sale of goods, which such inspection clauses were designed to provide, would be utterly broken. (Alfred C Toepfer v Continental Grain CoUNK[1974] 1 Ll Rep 11 (CA), Attorney General of Belize v Belize Telecom LtdUNK[2009] UKPC 10; [2009] 1 WLR 1988andMediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn)UNK[2009] EWCA Civ 531; [2009] 1 CLC 909 considered.)

2. There was a well-known line of cases which stated in effect that the Sale of Goods Act implied conditions could not be excluded without express reference to the exclusion of “conditions”. Exclusion of guarantees, warranties or representations did not suffice. There had been a judicial consensus that those obligations could only be excluded by language which expressly referred or had to be taken to refer to conditions; and the language used in this case fell within that consensus and principle. It was not open to the court to depart from that long established consensus. (Wallis, Son & Wells v Pratt & HaynesELR[1911] AC 394, Baldry v MarshallELR[1925] 1 KB 260, Cammell Laird and Co Ltd v Manganese Bronze and Brass Co LtdELR[1934] AC 402andHenry Kendall & Sons v William Lillico & SonsELR[1969] 2 AC 31 followed.)

3. It followed that the alleged special or additional common law implied term which would put the seller in breach where goods of the contractual specification had been delivered but where there was subsequently (for an unspecified reason) a change such that the goods fell outside specification could not be implied in this contract, even if the reason for that change were to be that the goods were not capable of maintaining their specification. The accepted implication of the statutory s. 14(2) condition as to satisfactory quality might or might not assist the buyer on the facts, and might or might not even be engaged in the light of clauses 4 and 12 in the particular circumstances in which it might ultimately be suggested that the quality of the oil so far as sediment was concerned fell outside specification; but if the s. 14(2) implied condition was in play, it had not been excluded by clause 18 of the contract.

JUDGMENT

Rix LJ:

1. This appeal raises two short points of some importance in the area of sale of goods law. The first questions the judge's implication of what even the respondent accepts is a novel term. The second questions long-established and high authority to the effect that if a seller wishes to exclude Sale of Goods Act conditions, he must do so by express exclusion of “conditions”.

2. By a contract dated 9 January 2007 Petroplus Marketing AG of Zug, Switzerland, (the “seller”) sold to KG Bominflot of Hamburg, Germany, (the “buyer”) 38,500 mt gasoil 10% +/- in buyer's option FOB Antwerp free destination, for shipment during 13/15 January 2007, at a price to be determined by IPE February 2007 gasoil less a stipulated discount (the “contract”). The contract was governed by English law. The buyer is the claimant in these proceedings and in this court the respondent. The seller is the defendant and here the appellant.

3. There was a specification clause (clause 4), headed “Quality”, which governed a dozen or so properties of the gasoil, including “Total sediment”. That was to have a maximum of 10 mg/litre as tested by a specified test, viz D-2709/88. Quality and quantity were to be determined by independent inspection at loading which was to be final and binding for both parties, save for fraud or manifest error (clause 12). Risk and title were to pass on loading (clause 15). Clause 18 (“Other Conditions”) contained a number of terms but also an exclusion clause which is central to the issues before us, as follows:

“There are no guarantees, warranties or representations, express or implied, or [sic, sc 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.”

4. This appeal arises out of preliminary issues and so there are no findings of fact. I take the following matters from the buyer's particulars of claim.

5. Loading of the gasoil on the Mercini Lady (“the vessel”) was completed on 17 January 2007 and the vessel arrived at her first destination of El Ferrol in Spain, four days...

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