Totsa Total Oil Trading SA v Bharat Petroleum Corp Ltd

Where a commercial contract requires payment against an invoice and expressly prohibits set-off, deduction, withholding and counterclaim, the buyer must initially pay the invoiced amount. That prohibition may cover a contention that part of the goods invoiced was never supplied, even where the contention is framed as a defence that the price was never due rather than as a claim for abatement or set-off. The question is one of construction of the particular contract. Contractual provisions identifying the quantity to be used for invoicing may reinforce that conclusion. The buyer’s underlying complaint is not lost, but must be pursued separately where the contract requires payment in full pending resolution.

The claimant sought summary judgment for the unpaid balance of the price of crude oil sold on FOB terms. The contract incorporated Elf 90 FOB general terms. It required payment against the invoice and shipping documents, without discount, deduction, withholding, set-off or counterclaim. The quantity used for invoicing was the quantity determined from shore-tank measurements and recorded in the bills of lading.

The buyers alleged that a substantial part of the cargo was water rather than oil. The sellers accepted that the factual issue could not be decided summarily, but argued that the contractual payment provisions nevertheless required payment of the invoice in full. The central issue was whether the buyers’ contention was a permissible defence that no price was due, or conduct prohibited by the restrictive conditions.

Judgment for the claimant. The factual question whether the cargo contained substantial quantities of water was unsuitable for summary determination. It did not, however, provide a defence to the invoice claim at this stage.

1. The contract and payment undertaking had to be construed as a whole. The buyers promised to pay the full invoice against the relevant shipping documents, without discount, deduction, withholding, set-off or counterclaim.
2. The court rejected the distinction between a prohibited deduction and a so-called pure defence that the invoice included barrels for which no price was due. A buyer who withholds part of the invoice because it alleges short delivery or delivery of non-contractual goods is seeking to deduct and withhold that part of the payment.
3. The contractual provisions governing invoicing required the shore-tank quantity, reflected in the bills of lading, to be used initially. The presence of water discovered after loading did not create an implied restriction on using those quantities.
4. The authorities established that rights of set-off and abatement can be excluded by sufficiently clear words. The breadth of the wording here extended to the buyers’ contention, whether characterised as abatement, set-off, counterclaim or a defence that the whole quantity had not been supplied. The particular wording of each contract remains decisive.
5. The buyers were therefore required to pay the invoice in full and pursue their contention that part of the cargo was water in separate proceedings.