Saipol SA v Inerco Trade SA
| Jurisdiction | England & Wales |
| Judge | Mr Justice Field |
| Judgment Date | 20 June 2014 |
| Neutral Citation | [2014] EWHC 2211 (Comm) |
| Docket Number | Case No: 2013 Folio 1607 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 June 2014 |
[2014] EWHC 2211 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Commercial Court
The Roll's Building
7 Rolls Building
Fetter Lane
London EC4A 1NL
Mr Justice Field
Case No: 2013 Folio 1607
Mr N Eaton QC (instructed by Holman Fenwick Willan) appeared on behalf of the Claimant
Mr M Collett QC (instructed by Clyde & Co) appeared on behalf of the Defendant
Approved Judgment
This is an appeal with leave under section 69 of the Arbitration Act, 1996 ("the Act") brought by Saipol SA ("Saipol"). There is a parallel application under section 68(2) of the Act but at the hearing the sole issue before the court was the questions of law for which leave had been given to argue.
The questions of law are: (1) Whether the Sale of Goods Act, 1979, limited the recoverable damages to the difference in value between sound and defective goods. (2) Whether the comingling of the respondent's 3,000 MT with the other sellers' parcels had the effect that the respondent was not liable for third party liabilities or for expenses.
The background to the appeal is this. There was a contract between Saipol as buyer and Inerco Trade SA ("Inerco") as seller for the sale and purchase of 3,000 MT of Ukrainian crude sunflower seed oil in bulk at US$1,275 per MT delivery FOB Ilyichevsk between 15 March and 15 April 2008. The contract incorporated the terms of FOSFA Contract 53, Clause 29 of which provides for arbitration in accordance with FOSFA's rules of arbitration and appeal.
Inerco shipped 3,000 MT of product as part of a total cargo of about 16,600 MT of Ukrainian crude sunflower seed oil which was loaded on board the vessel MT Selandra Swan on about 16 March 2008. The 13,600 MT balance of the cargo was shipped by four other sellers, Rizoil, AWB, Cargill AT and Cargill International.
As the FOFSA tribunal that determined liability found in paragraph 5.6 of their award, before loading the entire cargo had been comingled with other oil including that shipped by the other sellers in seven shore tanks and it was loaded, comingled into Selandra Swan's tanks. Paragraph 5.6 reads:
It was common ground that the whole shipment of about 16,600 metric tons was comingled in several storage tanks prior to loading and it was common ground that goods were loaded comingled into the ships' tanks. The storage tanks were identified as tanks numbers 5, 6, 9, 12, 13, 17 and 18 from the Rizoil terminal, although tanks 17 and 18 were apparently the source exclusively for a different shipper. Loading commenced at 21.40 on 13 March and completed on 00.15 on 16 March 2008.
The cargo was discharged at Dunkirk on 31 March 2008 and Saipol began drawing upon it to make delivery to sub-purchasers who were food stuffs manufacturers. On 8 April 2008 a sub-purchaser complained of mineral oil contamination. In the following weeks it became clear there was a serious contamination problem with Ukrainian sunflower seed oil. The EU authorities took emergency action which included recalls of food stuffs containing Ukrainian sunflower seed oil and a temporary prohibition on imports of Ukrainian sunflower seed oil.
Saipol claimed that the 3,000 metric tons sold by Inerco was in breach of sections 13 and 14 of the Sale of Goods Act ("the SGA"). Inerco denied the claim and the dispute went to a first tier FOSFA arbitration. The tribunal upheld Saipol's claim that in respect of the 3,000 metric tons sold by Inerco, Inerco was in breach of sections 13 and 14 of the SGA. The tribunal observed that the intended use of the sunflower seed oil was for use in foodstuffs for human consumption. The question of damages was dealt with in a separate arbitration at the first tier level. The buyers claimed for consequential losses resulting from financing and storage charges and also in respect of sums paid to sub-purchasers to whom contaminated oil had been sold. It was contended that the buyers could recover in respect of the entire cargo of 16,600 metric tons and not only in respect of the 3,000 metric tons sold by Inerco. The buyers claim was advanced under section 53(2) and section 54 of the SGA.
Sections 53 and 54 of the SGA provide (in relevant part):
53. (1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may—
(a) set up against the seller the breach of warranty in diminution or extinction of the price, or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.
(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty.
(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.
54. Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed.
For the reasons given in paragraphs 9.1(4) to 9.1(8) of their award the first tier tribunal held that the buyers were entitled only to damages representing the difference in value between the goods as they were warranted and their actual value. In addition, the buyers were awarded on a pro-rata basis as consequential damages, costs in respect of storage and financing. The sellers appealed the quantum award. Saipol responded to that appeal and maintained their own cross-appeal. Inerco's appeal was on the basis that the tribunal had ignored the contract price in fixing the damages and was wrong to have found that there was no market for the unsound goods in computing the damages for the difference between warranted as warranted and as delivered. Inerco also argued that no award should have been made in respect of storage and financial costs since these were consequential losses and the only measure of recovery was that provided for in section 53(3).
In its cross-appeal Saipol contended that it was entitled to the consequential losses it had identified under section 53(2) which had primacy over section 53(3), alternatively under section 54. Saipol also argued that they were entitled to recover consequential losses flowing from the fact that the entire cargo was contaminated on the basis that each seller of the parcels making up the entire cargo was in breach of contract for delivering contaminated oil and so each had contributed to the contamination of the whole. Accordingly, Inerco, as one of those sellers, was liable for the whole of the consequential losses resulting from delivery of the entire cargo with Inerco being free to seek contribution from the other sellers.
In its award the Board set out in very considerable detail the submissions of the parties on the appeal and the cross-appeal and in the course of reciting Saipol's submissions in paragraph 4.12 (4) the Board noted that Saipol made reference to The Achilleas [2008] UKHL 48, a decision of the House of Lords. Saipol did so because it anticipated that Inerco would make a submission founded on that authority since it had been referred to by Inerco before the first tier quantum tribunal. In the event, however, Inerco placed no reliance in its...
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