Exxonmobil Sales and Supply Corporation v Texaco Ltd.

An entire agreement clause excluding usage or course of dealing may prevent implication of a term based on custom, but does not necessarily exclude a term required to make the express contract work. A contractual quality determination procedure must be read as a whole. Where the contract gives an independent inspector’s determination final and binding effect, an inconsistent sampling and retesting regime is not incorporated. A term is implied for business efficacy only where it is necessary, not merely important, convenient or reasonable. A contractual exclusion of loss of prospective profits does not exclude the prima facie damages measure under section 50 of the Sale of Goods Act 1979, since that measure is available whether or not the seller would have made a profit.

Exxonmobil sold Texaco 15,000 metric tonnes of ultra-low sulphur auto diesel. The contract made the load-port independent inspector’s quality determination final and binding, subject to fraud or manifest error. Texaco rejected the cargo after tests at Cardiff indicated that its flashpoint was below the contractual minimum.

Exxonmobil sought summary judgment under Part 24 of the Civil Procedure Rules. Texaco relied on alleged express and implied terms requiring retention of samples, and on usage or custom. The court also had to construe a contractual exclusion of loss of prospective profits and determine whether certain resale losses were too remote.

1. Summary judgment. Texaco had no real prospect of establishing the alleged express or business-efficacy term, or a term based on usage or custom. Judgment was therefore entered for Exxonmobil on liability.
2. Express term. Part I clause 6 established a quality-determination regime under which the mutually agreed independent inspector’s determination was final and binding. Part II clause 2.4 formed part of a different determination and retesting regime. Its sample-retention requirement was an integral part of that regime and conflicted with clause 6. It was therefore excluded by the contractual priority clause.
3. Business efficacy. A manifest error could be established from the face of the determination, for example by an arithmetic or typographical error. Retesting might make proof easier, but a term is not implied merely because it is important, convenient, reasonable or facilitates proof. Necessity to make the contract work was required.
4. Usage or custom. The evidence was sufficient to give Texaco a real prospect of proving a usage at trial. However, the entire agreement clause expressly excluded usage or course of dealing. Those were recognised methods by which terms might otherwise be implied. The clause therefore excluded the suggested customary term. The judge left open whether a term necessary to make the express contract work could be excluded in the same way.
5. Expert procedure. The judge observed that, had any sample-retention term existed, failure to follow that agreed final procedural step might have meant that the determination was not binding, if the departure was not trivial or de minimis. That issue was not determinative.
6. Damages. The exclusion of loss of prospective profits did not exclude the seller’s claim measured under section 50 of the Sale of Goods Act 1979. The measure applied whether or not the seller would have made a profit. The court declined to declare that the substitute-sale loss was not too remote, because causation, remoteness, mitigation and reasonableness involved factual issues.
7. There was judgment for Texaco’s contractual demurrage liability in the sum of US$60,100, with interest.