This dispute arose out of a contract for the sale and purchase of fuel oil on FOB Ventspils, Lativa terms between Septo Trading Inc. as Buyer and Tintrade Limited as Seller. The sale contract was evidenced by a trade recap which incorporated the BP general terms & conditions for sales and purchases of Petroleum Products 2007 (the “BP GTCs 2007”) “where not in conflict with the above” (i.e. the recap itself).
The trade recap included an express term stating that the independent inspector’s results were “binding on the parties save for fraud or manifest error.” However, section 1.2.1 of the BP GTCs 2007 states that:
“Provided always the certificates of quantity and quality…of the Product comprising the shipment are issued in accordance with sections 1.2.2 or 1.2.3 below then they shall, except in cases of manifest error or fraud, be conclusive and binding on both parties for invoicing purposes and the Buyer shall be obliged to make payment in full in accordance with Section 30.1 but without prejudice to the rights of either party to make any claim pursuant to Section 26” [emphasis added].
The parties jointly instructed an independent inspector at the load port to determine the quality of the fuel oil. The certificate showed that the cargo was within the contractual specifications. On the basis of later samples, however, the cargo was off-spec.
The court was therefore required to determine, amongst other things, whether the certificate of quality issued by the independent inspector at the load port:
- Was final and binding on the parties, and so prevented the Buyer from arguing (based on later samples) that the cargo did not comply with the contractual specifications, or
- Was binding on the parties for invoicing purposes only. In other words, it was a “pay now, sue later” provision i.e. the Buyer was to obliged to pay the Seller’s invoice for the price of the cargo based on the certificate of quality, but the certificate was not final as to quality, so the Buyer was still entitled to bring a claim on the basis that the cargo did not comply with the contractual specifications.
The Buyer’s counsel submitted that the effect of section 1.2.1 of the BP GTCs 2007 was to clarify the purposes for which the certificate of quality was binding i.e. for invoicing and payment. This meant that the certificate was binding for payment purposes but was not final. This was said to be consistent with the trade recap, which stated that the certificate was “binding” but did not state it was “final”. In other words, the effect of clause 1.2.1 was that the certificate was binding only as to price.
The Seller’s counsel submitted that section one of the BP GTCs 2007 conflicted with the Recap, and so did not form part of the sale contract.
The Judge concluded that section 1.2.1 of the BP GTCs 2007 was not in conflict with the trade recap. Instead, it had the effect of “qualifying the otherwise general effect of the recap by saying that the binding nature of the determination of the independent inspector is limited to questions of invoicing, without prejudice to any later claim for breach of contract. In that way both clauses [i.e. the recap and section 1.2.1 of the BP GTCs 2007] can be read together and effect can be given to both of them.”
In light of the Judge’s decision, the Buyer was entitled to claim that the cargo did not comply with the contractual specification. The Judge went on to find that, on the facts, the actual condition of the cargo at the ship’s manifold meant that the Buyer had established that the Seller was in breach of contract.
This judgment shows the importance of parties using clear and precise language in trade recaps to specify the terms of their agreement, rather than relying on shorthand. This is particularly the case where general terms and conditions (“GTCs”) are incorporated into the trade recap and contain terms that deal with the same subject matter as the trade recap. If parties are not very clear, they risk the possibility that when the recap and the GTCs are read together, the terms of the GTCs will be said to qualify the terms of the recap, rather than the recap overriding the terms of the GTCs.