KG Bominflot Bunkergesellschaft v. Petroplus Marketing

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DMC/SandT/09/08
KG Bominflot Bunkergesellschaft Für Mineralöle mbh & Co KG v Petroplus Marketing AG (The "Mercini Lady")
English Commercial Court: Field J: [2009] EWHC 1088 (Comm): 22 May 2009
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Philip Edey (instructed by Holman Fenwick Willan LLP) for the Buyer, Bominflot
Nigel Jacobs QC (instructed by Davies Johnson & Co) for the Seller, Petroplus
SALE OF GOODS CARRIED BY SEA: FOB EU GASOIL CONTRACT: IMPLIED TERMS / CONDITIONS: WHETHER CARGO TO REMAIN ON-SPECIFICATION FOR A REASONABLE TIME FOLLOWING SHIPMENT / APPROPRIATION TO THE CONTRACT: CARGO SPECIFICATION CLAUSE: CERTIFICATE FINAL CLAUSE: EXCLUSION CLAUSE
Summary
In the absence of any terms inconsistent therewith (in this case there were none) the following conditions were to be implied into an FOB contract, as from the time the goods were appropriated to the FOB contract:
(a) a statutory condition that the goods would be of satisfactory quality not only
when the cargo was delivered on to the vessel but also for a reasonable time
thereafter; and
(b) a similar condition at common law, with the additional dimension that the goods
should not only be of satisfactory quality for a reasonable time but also should
remain in accordance with the contractual specification (if any) for such a
period.

DMC Category Rating: Confirmed and Developed

Case note contributed by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Trainee Solicitor of Hill Dickinson LLP and International Contributor to DMC’s CaseNotes

Background
The dispute arose in relation to an EU gasoil cargo purchased on FOB terms. The contract included terms which set out various specifications that the gasoil had to meet at the time of shipment ("specification clause"). The quality and quantity of the gasoil was to be determined before loading by a mutually agreed independent inspector. The inspector’s determination was to be final and binding on both parties, except in case of fraud or manifest error ("certificate final clause"). The contract also provided no guarantees, warranties or representations, express or implied, of merchantability, fitness or suitability of the gasoil for any particular purpose or otherwise, which extended beyond the description of the gasoil set out in the contract ("exclusion clause. 

An analysis of the gasoil, in accordance with the terms of the contract, was found to be on-specification at the loadport following shipment. However, upon arrival at its intended destination, some four days later, the gasoil was found to have exceeded the maximum sedimentary requirement of the specification clause.

The buyer’s case was that there was implied term that the gasoil would remain on-specification (a) through the duration of a normal voyage from shipment until discharge and for a reasonable time thereafter, or (b) for a reasonable time following shipment. The seller’s case was that any implied terms of the nature proposed by the buyer were inconsistent with other terms of the contract and were also precluded by the exclusion clause.

Judgment
In finding for the buyer, the Commercial Court held that, in the absence of any term inconsistent therewith, there was to be implied by statute into an FOB contract a term, in the nature of a condition, that the goods would be of satisfactory quality not only when the cargo was delivered on to the vessel but also for a reasonable time thereafter. Such a term, in the nature of a condition, was also to be implied at common law with the additional dimension that the goods should not only be of satisfactory quality for a reasonable time but also should remain in accordance with the contractual specification (if any) for such a period. The condition that the goods must be merchantable meant that they must be in that condition when appropriated to the contract and that they would continue so for a reasonable time. The implied terms were not too uncertain to be enforceable, as the courts were used to determining the question of what a reasonable time would be.

As regards the arguments that the implied terms were inconsistent with other express terms in the contract or were excluded by the exclusion clause, the judge held that the requirement that the goods answer a detailed specification was not inconsistent with an obligation that the goods be of satisfactory quality both at the point of delivery and for a reasonable time thereafter. Nor was the specification clause inconsistent with an obligation that the goods remain on specification post delivery for a reasonable time.

The certificate final clause was not inconsistent with the proposed implied terms. This was because (1) the specification only required the gasoil to be on specification at the point of delivery / on shipment onboard the vessel, and (2) the loadport certificate would only be final as to the matters referred to in the specification clause at the point of delivery.

As for the exclusion clause, so deeply ingrained was the status of a condition in English law, as an obligation the breach of which gives the counterparty the right to terminate the contract or to affirm the contract and sue for damages, that the exclusion clause was not to be construed as extending to conditions, unless it expressly so provided. But in this case, the word "conditions" appeared nowhere in the clause.

Comment
Given the previous decisions in relation to certificate final clauses, it is initially perhaps somewhat surprising that such terms were implied in this case. Outwardly this is contrary to the intended commercial purpose of certificate final clauses, namely a once and for all test of contractual compliance of the cargo as to quality and quantity upon shipment, with no second bites at the cherry if the cargo is later found to be off-specification.

However, given that the contract failed to exclude expressly the implication of terms in the nature of a condition and because there is clear law implying such a term into CIF, C&F and FOB contracts, the decision is perhaps less unexpected than it initially appears to be. In effect, achieving the intended commercial purpose of certificate final clauses is predominantly dependent on the express exclusion of implied terms. This in turn depends on the use of clear and precise language to achieve these ends.

The present case therefore mainly turns on the fact that the exclusion clause did not include express reference to "conditions". Alternatively, the certificate final clause would need to have been more precise in its language to ensure that once-and-for-all finality for all quantity and quality claims, including those following shipment, was achieved.

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