In a judgment which will be of interest to all those involved in the sale and purchase of crude oil and oil products and commodities contracts generally, Septo Trading Inc v Tintrade Ltd¹, the English Court of Appeal examined whether a quality certificate was intended to be conclusive evidence of the quality of a consignment of fuel oil supplied under an international sale contract. In doing so it has provided a useful reminder of the English court’s approach to the incorporation into contracts of general terms which are alleged to conflict or to be inconsistent with a term expressly agreed between the parties.
Septo and Tintrade had entered into a contract for the sale of a cargo of fuel oil (the “Recap”). As well as setting out various express terms, the Recap specifically provided that “where not in conflict with the [terms of the Recap], BP 2007 General Terms and Conditions for FOB sales (the “BP Terms”) to apply”.
The Recap specified that a quality certificate issued at the load port by an independent inspector would be binding on the parties in the absence of fraud or manifest error. However, the BP Terms provided that the quality certificate would only be conclusive and binding “for invoicing purposes” without prejudice to the buyer’s right to bring a quality claim.
Although a quality certificate was issued which certified that the fuel oil was in accordance with the contractual specification, Septo subsequently brought a claim contending otherwise, and a question arose as to whether the quality certificate was binding upon the parties.
The judge at first instance (Mr Justice Teare) found that, although if it had stood alone, the quality certificate provision in the Recap would have barred any quality claim by Septo, the BP Terms qualified the provisions of the Recap and meant that the binding nature of the quality certificate was limited to questions of invoicing, and so Septo was entitled to bring a claim for breach of contract. The judge went on to award Septo US$3m in damages. Tintrade appealed.
As Lord Justice Males noted in the Court of Appeal, provision for a quality certificate forms a central feature of many international sales contracts and serves a valuable and important purpose in minimising disputes long after the goods have been delivered and can no longer be tested:
“The quality certificate issued by the mutually acceptable independent inspector is binding on the parties, so that (assuming always that the certificate shows the product to be on-spec) the buyer cannot thereafter bring a claim on the ground that the quality of the product is not in accordance with the contract.”
The question in this case was whether, having incorporated the BP Terms, the parties had agreed that the quality certificate would have a different effect.
Lord Justice Males reviewed the judgments in Pagnan SpA v Tradax Ocean Transportation SA² and Alexander v West Bromwich Mortgage Co Ltd³ in reaching his decision and noted that the law which applies to cases of alleged conflicts or inconsistencies between standard forms and specially agreed terms of a contract is well settled.