BP GTCs 2007: Septo Trading Inc v Tintrade Limited  EWCA Civ 718
In Septo Trading Inc v Tintrade Limited ( EWCA Civ 718) the Court of Appeal overturned a High Court decision ( EWHC 1795 (Comm)) that a term in a trade recap which provided that an inspector’s results were “binding on the parties save for fraud or manifest error” was qualified by the BP 2007 General Terms and Conditions for FOB sales (the “BP GTCs 2007”). Our blog post on the High Court’s decision can be found here.
The relevant facts are set out in our original post. In short:
- Tintrade Limited (“Seller”) agreed to sell a cargo of fuel oil to Septo Trading Inc. (“Buyer”) on an FOB Ventspils, Latvia basis.
- The contract was recorded in a trade recap which incorporated the BP GTCs 2007 “where not in conflict with the above.”
- The trade recap included a term which provided 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 provides that certificates of quantity and quality are “binding on both parties for invoicing purposes.” [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.
A dispute arose as to 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 earlier High Court decision
Mr Justice Teare decided that section 1.2.1 of the BP GTCs 2007 did not conflict with the determination of quality and quantity clause in 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 trade 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 Court’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.
The Court of Appeal decision
The lead judgment, with which Lord Justices Phillips and Moylan agreed, was given by Lord Justice Males. He concluded that, contrary to the High Court decision, section 1.2.1 did conflict with the trade recap term, and that the provisions could not be read together. He gave four reasons in support of his conclusion:
- The term in the trade recap provided that the certificate of quality was binding for all purposes, whereas section 1.2.1 of the BP GTCs provided that the certificate was binding for the very limited purpose of invoicing only. For practical purposes this deprived the term in the trade recap of any effect.
- A regime in which a certificate of quality is binding is fundamentally different from one in which it is not. In support of this, he cited the view of Mr Justice Colman in Navigas v Enron. Mr Justice Colman held that an inspection regime set out in terms incorporated into the contract and which provided that quality and quantity was to be determined for bill of lading and invoicing purposes, was fundamentally different from a clause in a telex (the equivalent of the trade recap in this case) stating that the inspector’s certificate was binding. This was because it “involved no means of conclusive determination of either quality or quantity.”
- The term in the trade recap that the certificate of quality was binding defined the Seller’s obligation with regard to the quality of the product. That obligation was to provide a product which was certified by the independent inspector as being in conformity with the contractual specification. For liquid cargoes, this provides an important measure of certainty, as no two sets of samples are likely to be exactly the same.
- When considering the intention of the parties as business people, it was not a commercially reasonable interpretation of what they had done (i.e. agreeing a trade recap which stated that the certificate of quality was final and binding, then incorporating the BP GTCs 2007 which provided something different) to suggest that the certificate of quality was binding for invoicing purposes only. As it was put by Lord Justice Phillips, “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.”
In light of the Court of Appeal’s decision, the Buyer could not bring a claim for breach of contract on the basis that the cargo did not comply with the contractual specifications.
The Court of Appeal’s decision confirms that where parties agree in a trade recap that an independent inspector’s certificate of quality is final and binding, the binding nature of the certificate will not be qualified (or otherwise undermined) by a different regime set out in any general terms and conditions incorporated into the trade recap.
In our experience this decision is in line with what most parties in the oil trading market would expect when agreeing a trade recap incorporating general terms and conditions. Nevertheless, the case is a helpful reminder that the courts will always try to construe the express terms of a trade recap and the incorporated clauses together before preferring one over the other. As such, when parties agree trade recaps that incorporate general terms and conditions, they should take care to ensure that clear and precise language is used in the trade recaps to specify the terms of their agreement, especially where the recap is apparently intended to be inconsistent with the GTCs.