22 July 2021
In Septo Trading Inc v Tintrade Ltd [2021] EWCA Civ 718, the issue before England’s Court of Appeal was whether a quality certificate issued by an independent inspector at the load port was intended to be conclusive evidence of the quality of a consignment of fuel oil supplied under an international sale contract. The judgment contains guidance on the court’s approach to the incorporation into a contract of general terms which are alleged to conflict or to be inconsistent with a term expressly agreed between the parties in a “main terms” document, such as the Recap document in this case.
Contract Terms
The email confirmation of the parties' transaction (the Recap) provided (under the heading "Determination of Quality and Quantity") that a certificate issued by an independent inspector at the load port would be binding on the parties in the absence of fraud or manifest error, but also provided (under the heading “General”) that, where not in conflict with the above, BP 2007 General Terms and Conditions for fob sales would apply. Those terms provided that the quality certificate will be conclusive and binding “for invoicing purposes”, but without prejudice to the buyer’s right to bring a quality claim.
High Court Decision
The quality certificate issued by the independent inspector certified that the fuel oil was in accordance with the contractual specification at the load port, but the High Court found as a fact that it was not. It held that the BP Terms qualified the Recap term which, if it had stood alone, would have excluded the buyer's quality claim, but that there was no conflict between those terms which could be read together, so as to give effect to both of them. Accordingly the buyer's claim succeeded and the judge assessed damages at US $3,058,801.
Court of Appeal Decision
The seller appealed, contending that the BP Terms were in conflict with the Recap term providing for the determination of quality by the independent inspector to be binding on the parties.
The Court said that the law which applies in a case like the present, where there is said to be an inconsistency between specially agreed terms and the printed standard terms of the contract, and where the contract contains an inconsistency clause, is well settled, the leading case, being Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565.
The Court said that the starting point was to ascertain the meaning of the Recap term. The Court should form a provisional view of what that term means, which could then be tested against other clauses of the contract in the usual way. At this stage, the Court said, account should not be taken of the printed term which was alleged to be inconsistent. However, if the provisional view thus formed required significant modification when account was taken of the Section 1 BP Terms, that was likely to be relevant to the issue of inconsistency. Plainly, if a contract term means one thing when it is considered on its own and means something very different when it is considered in the light of a printed term in a set of standard conditions, that is likely to shed considerable light on that issue, the Court said.
The Court held that the judge below was right to conclude that the effect of the Recap term, considered on its own, was that the quality certificate was intended to be binding on both parties for all purposes. That was the clear meaning of the term, which referred to a "determination" which was to be "binding on parties". There was no reason, the Court said, to revise this provisional view when the construction of the Recap term was tested against other provisions of the contract, including (assuming it to apply) Section 1 of the BP Terms. Whether or not Section 1 of the BP Terms qualified the effect of the Recap term, it did not, the Court said, change the meaning of the word "binding". Nobody would think, reading the Recap term, that the word "binding" meant "binding for invoicing purposes". Accordingly the starting point for consideration of the issue of inconsistency was that the Recap term provided that the quality certificate issued by the mutually acceptable independent inspector was binding on the parties, so that (assuming always that the certificate shows the product to be on-spec) the buyer could not thereafter bring a claim on the ground that the quality of the product was not in accordance with the contract. Provision for such certificates to be binding formed a central feature of many international sales contracts, the Court said.
The Court said that the next step was to consider the effect of the printed term. Section 1.2 of the BP Terms provided that the quality certificate was to be "conclusive and binding on both parties for invoicing purposes" and that the buyer was obliged to make payment in full, but that this was without prejudice to the rights of either party to make any claim that the product was not in accordance with the specification. Plainly this was different from the Recap term. The Court took the firm view that Section 1.2 of the BP Terms was in conflict with the Recap term. The two provisions could not fairly and sensibly be read together. The printed term did not merely qualify or supplement the Recap term, but rather deprived it of all practical effect because:
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The Recap term provided for the quality certificate to be binding for all purposes, so as to preclude a claim for damages for breach of quality, while the printed term provided that the binding nature of the certificate was for a very limited purpose (“for invoicing purposes" only). This for practical purposes deprived the Recap term of all effect.
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A regime in which a certificate of quality is binding is fundamentally different from one in which it is not.
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The provision in the Recap term for the quality certificate to be binding was a central feature of the contractual scheme. It defined the seller's obligation with regard to the quality of the product, that obligation being to provide a product which was certified by the independent inspector as being in conformity with the contractual specification. In the case of a liquid cargo whose composition could only be determined by sampling and analysis, and where no two sets of samples were likely to be exactly the same, this provided an important measure of certainty. It was unlikely that the parties would wish substantially to detract from this by means of printed terms.
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It was necessary to stand back and consider the intention of the parties as practical business people operating in the real world. While perfectly reasonable for parties to choose a contractual scheme in which the quality certificate is not binding but is merely evidence, it was appropriate to ask whether that was a commercially reasonable interpretation of what they had done in this case. It was not – if the parties' intention was to provide that the quality certificate would not be binding in any real sense, they went about it in a very strange way, first by saying in the Recap that it would be binding and then by providing something different in standard conditions which could be argued to qualify and not to nullify what was said in the Recap.
Accordingly, the Court of Appeal allowed the appeal, concluding that the contract, on its true construction, provided that the quality certificate issued at the load port would be binding, with the consequence that the buyer was precluded from bringing its claim in this case
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