Veba Oil Supply and Trading GmbH v Petrotrade Inc. ('The Robin')

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE SIMON BROWN,LORD JUSTICE TUCKEY,LORD JUSTICE DYSON
Judgment Date06 December 2001
Neutral Citation[2001] EWCA Civ 1832
Docket NumberCase No: A3/2001/1081

[2001] EWCA Civ 1832

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN'S BENCH

(Mr Justice Morison)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

Lord Justice Simon Brown

Lord Justice Tuckey and

Lord Justice Dyson

Case No: A3/2001/1081

Veba Oil Supply & Trading Gmbh
Appellant
and
Petrotrade Inc.
Respondent

Mr Michael Nolan (instructed by Davies Johnson & Co of Plymouth PL4 0ES) for the Appellant

Mr David Goldstone (instructed by Clifford Chance of London EC1A 4JJ) for the Respondent

LORD JUSTICE SIMON BROWN
1

If an independent expert departs from his instructions in a material respect his determination is not binding. What for these purposes is a material respect? That is the critical question before us. It arises on appeal from Morison J's order in the Commercial court on 2 May 2001 dismising the defendant's application for summary judgment under CPR Part 24.2.

2

The circumstances in which the point arises are not in dispute and can be briefly told. By a contract made in August 1999 the appellants (the Sellers) sold a cargo of 25,000 plus metric tonnes of gasoil to the respondents (the Buyers) FOB Antwerp.

3

The contract provided, amongst other things:

"4.

Product/Quality

Gasoil meeting the following guaranteed specifications:

Test

Limit

Method ASTM

Density at 15degC

0.876kg/l max

D1298"

That test was followed by 20 other specified tests.

"10.

Quantity/Quality

Quantity and quality to be determined by a mutually agreed independent inspector at the loading installation, in the manner customary at such installation. Such determination shall be final and binding for both parties save fraud or manifest error. Inspector to be appointed by Seller. Costs to be shared equally between Buyer and Seller."

4

On 20 August 1999 some 34,000 mt of cargo was loaded on board the vessel m.t. "ROBIN" at the installation of the Belgian Refining Corporation BV at Antwerp. Caleb Brett were the mutually agreed independent inspectors instructed to carry out the determination under clause 10. By their report dated 26 August 1999 they recorded that the cargo had been sampled and analysed and that its density at 15 °C was 0.8750 kg/l (i.e. within the contractual specification of 0.876), using test method D4052 (rather than the specified method D1298).

5

In this action, brought on 17 August 2000, the Buyers claim some US$250,000 from the Sellers. They do so on the basis that they on-sold the cargo to the Lebanese Ministry of Oil on similar terms as to quality but that on arrival and testing the density of the oil was found to exceed the contractual maximum. They dispute the Inspectors' determination. This, they say, is not final and binding because the wrong testing method was used.

6

The Sellers contend that the Inspectors' determination is binding and conclusive and that the Buyers' claim is accordingly bound to fail. Hence their application for its summary dismissal and, following Morison J's rejection of their argument below, this appeal.

7

Before coming to the arguments I should record certain further matters of agreement. First, that test method D4052 is more modern and accurate than D1298, having a margin of error of .0001% as opposed to 0.0007%. Second, that had the Inspectors used method D1298, they would inevitably still have found the density test satisfied in respect of the actual samples tested. Third, that method D4052 as opposed to D1298 is that customarily used at Antwerp.

Was there a departure from instructions?

8

Before turning to what I have already described as the critical issue, it is necessary first to dispose of a preliminary argument: the Sellers' contention that, on the proper construction of the contract, the Inspectors were not required to use test method D1298 and accordingly are not to be regarded as having departed from their instructions, materially or otherwise.

9

Mr Nolan's argument in this regard runs essentially as follows. Clause 4 is a specification clause pure and simple requiring no more than that the cargo should have a density up to the specified limit. Clearly one way of determining as a matter of objective fact whether that specification was met was by using the prescribed method. But it was not the only way. Another method could be used if, as here, it would still be possible to demonstrate that the specification would have been met even had the prescribed method been used. The only provision in the contract expressly providing for how the independent inspector was to determine the quality of the cargo was clause 10 which provided for this to be done "in the manner customary at such installation". The word "manner" in that context encompasses all aspects of the determination of cargo quality including testing methods. Mr Nolan, indeed, went so far as to submit that the Inspectors were required to use customary method irrespective of whether it was better or worse than the method prescribed by clause 4.

10

For my part I would reject these arguments. Clause 4 does not require that the cargo must be a cargo the specification of which is such that if it were to be tested by the specified method D1298 it would meet the density specification but that it need not be so tested. On the contrary, it provides that this test method must be used. And, indeed, why else would the test method be specified? Why should the parties care whether the cargo is theoretically capable of satisfying a given test unless that particular test is to be used? Mr Nolan submits that test D1298 is specified merely as a standard or bench mark test and that any better test would suffice. If his reasoning is sound, however, a less accurate test (provided always it was "customary" at the installation) would also suffice so long as it could be shown that it would have produced the same result – as, indeed, it would have done here (if one postulates the specification of test D4052 and the use of D1298).

11

There is this further objection to Mr Nolan's argument: in order to determine whether the Inspectors' determination is binding, the parties (or the court) must go through the exercise of comparing the result of the actual test used with the result of a hypothetical test using the specified method. True it is that the parties here have sensibly agreed what the outcome of such an exercise would be. That, however, will not always be so and often the exercise would be problematic. It would certainly be uncommercial.

12

In short, I share the view expressed by the judge below that clause 10 is not to be read on its own. Clause 4 identifies both the standard and the method for assessing whether the standard has been reached. What was required was a test conducted by the stipulated method and none other. Clause 10 deals with the "manner" of carrying out the required tests. This would, of course, include the method where that was not otherwise specified (as was so in the case of some tests under clause 4). But the "manner" would include a host of other matters too, not least the sampling procedures to be followed. These are in fact what the Buyers complain of and will seek to criticise if the Inspectors' determination is set aside. The Inspectors' evidence that the samples tested met the contractual specification will be well-nigh unassailable. Not so, however, the suitability or sufficiency of the samples taken.

Departure in a material respect

13

Having concluded that the Inspectors departed from their instructions, I come then to the more difficult question of whether this departure was in a material respect. At an early stage of his submissions, and certainly in his written argument, Mr Nolan suggested that there is a distinction to be drawn between on the one hand a departure which is de minimis or trivial and on the other hand one which is immaterial. Ultimately, however, he came to accept that all these expressions are synonymous. The critical question is what in this context they entail. The Sellers' argument in a nutshell is that a departure is not material unless it could have had an effect upon the ultimate result, i.e. could have affected the Inspectors' determination that the cargo was of the specified quality, and here it is conceded it could not, and indeed did not.

14

The Buyers' contrary argument is that once, as here, a clear departure from instructions is established, the court should not be drawn into the exercise of determining what if any effect it might have had on the end result. Mr Goldstone submits that only the most trifling departure should properly be characterised as immaterial, where, for example, a valuer arrives late for an appointment. Failing that, Mr Goldstone submits that a departure should not be regarded as immaterial unless the court is satisfied that it could have made no conceivable difference not merely to the outcome of the determination itself but also in any other respect, as for example to a third party's readiness to accept, or pay against, the determination. There are many possible reasons, unconnected with the achievement of an accurate physical result, for choosing a particular test. It could have related to the on-sale contract. It could have related to a letter of credit. It could simply have been the test with which the Buyers were most familiar and confident. It is not for the court to speculate. It is sufficient that the parties have agreed it.

15

Before turning to the authorities most closely in point, it is convenient first to recognise two principles which inevitably touch on the issue. The first, and that on which understandably Mr Nolan places reliance, is to be found in Cairns LJ's judgment in Toepfer v...

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