Petrotrade Inc v Texaco Ltd (Note)

A consistent course of dealing may incorporate the parties’ usual contractual terms into an orally concluded commercial sale. The inquiry is objective: whether each party was reasonably entitled to conclude from the other’s conduct that the transaction was on the same terms as previous dealings. A no-set-off term requires no separate or stricter test once the terms are incorporated.

Where an agreed independent inspector’s determination is final and binding save for fraud or manifest error, later non-contractual tests do not displace a compliant determination merely because they produce different results.

Civil Procedure Rules rule 36.21 applies only where liability is determined at trial, not by summary judgment. A claimant’s settlement offer nevertheless remains highly material to the court’s general discretion over costs and interest.

Petrotrade Inc sold gasoil to Texaco Ltd. The parties agreed the principal variable terms by telephone. Petrotrade contended that its telex of 16 September 1998, including a no-set-off clause and a final-and-binding inspection clause, was incorporated through a course of dealing. Texaco withheld part of the price after later tests suggested that the cargo was off specification.

Langley J granted Petrotrade summary judgment for the unpaid price on 21 December 1999. He declined enhanced interest and indemnity costs despite Petrotrade’s settlement offers. Texaco appealed the summary judgment. Petrotrade cross-appealed on interest and costs. The central issues were whether the telex terms formed part of the contract, whether the SGS determination bound Texaco, and how a claimant’s Part 36 offer affected costs and interest after summary judgment.

1. Texaco’s appeal was dismissed unanimously. Lord Justice Clarke gave the leading judgment, with Lord Justice Latham and the Master of the Rolls agreeing. The parties’ repeated prior sales on substantially the same terms established a consistent course of dealing. Applying the objective approach in McCutcheon v David MacBrayne Ltd [1964] 2 WLR 125, each party was reasonably entitled to conclude that the oral agreement would be on those terms, subject to any later agreed variation. That included the no-set-off clause. No distinct or more demanding incorporation test applied merely because that clause excluded set-off.

2. The 16 September telex was intended to have contractual effect. In any event, if it was a counter-offer, Texaco accepted it. Its proposal that SGS inspect the cargo with costs shared equally was consistent with the telex and inconsistent with the broker’s earlier proposed terms.

3. The SGS report recorded a flash point of 60 degrees Celsius and stated that the specification had been met. This complied with a contractual minimum of 60 degrees Celsius. SGS had made its determination in the customary manner at the loading installation. Later tests with different results did not show fraud or a manifest error. The determination was therefore final and binding, and Texaco had no real prospect of establishing a set-off or counterclaim.

4. Petrotrade’s cross-appeal was also dismissed unanimously. Per Lord Woolf MR, Civil Procedure Rules rule 36.21 applied only where liability was determined at trial. Summary judgment under rule 24.1 was a determination without trial, so rule 36.21 did not apply directly.

5. The court nevertheless had a broad general discretion over costs and interest. A claimant’s Part 36 offer, and its refusal, was a highly material consideration. Ordinarily that factor should be reflected in costs and interest, though the orders were compensatory rather than penal and depended on all the circumstances. The court would not interfere with the judge’s discretionary decision because the decisive arguments had not been presented below. The formal order recorded interest at 4% above base rate for 12 months and awarded Petrotrade half the costs of the appeal and cross-appeal.

• Court of Appeal: Texaco’s appeal from summary judgment and Petrotrade’s cross-appeal on interest and costs were dismissed: [2000] EWCA Civ 512.
• Commercial Court: Langley J, on 21 December 1999, gave Petrotrade summary judgment for US$140,660.75 plus interest, but refused enhanced interest and indemnity costs.
• Earlier proceedings: Langley J had granted an earlier summary judgment on 11 December 1998. The Court of Appeal allowed Texaco’s appeal, after which Petrotrade amended its pleading and renewed its application.