AIC Ltd v Its Testing Services (UK) Ltd

An inspection company instructed to certify the quality of goods must exercise independent judgment and reasonable care. Its certificate must accurately and clearly state the tests performed, the results obtained, relevant departures from specification, and matters affecting validity. Where subsequent events cast doubt on a certificate, the company must investigate promptly and issue an appropriate supplement to all affected clients.

A material departure from testing instructions invalidates a contractual determination intended to be final and binding. An inspection company may also incur liability in deceit where it knowingly or recklessly maintains a certificate as valid despite information indicating that it is unreliable. Loss directly caused by deceit is recoverable even if unforeseeable, subject to ordinary principles of mitigation and remoteness.

AIC Limited purchased gasoline from Mobil for shipment to New York and appointed Its Testing Services (UK) Limited to inspect the cargo. The contractual specification required vapour pressure testing by ASTM D5191, but ITS used ASTM D323 and issued certificates stating that the fuel met specification.

After discharge testing indicated excessive vapour pressure, ITS re-tested retained, previously opened samples. The results supported the conclusion that the cargo was off-specification, but ITS did not disclose the re-tests to AIC or withdraw the certificates. AIC continued to rely on the certificates in its dispute with its sub-buyer and was subsequently held liable in Swiss proceedings.

The principal issues were the scope of ITS’s contractual and tortious duties, the effect of using the wrong test method, deceit, limitation, causation, mitigation and damages.

1. Duty of an inspection company. ITS was jointly instructed by Mobil and AIC. It owed contractual and tortious duties to exercise independent and impartial judgment, use the instructed test methods, and take reasonable care to ensure that its certificates were accurate, clear and objective. The duty extended to persons, including a sub-buyer, whom ITS should have contemplated as likely to rely on the certificates.

2. Testing and certificates. The instructions required ASTM D5191 testing. ITS negligently used ASTM D323, failed adequately to check the certificates, and stated that the fuel met specification when it had not carried out the required test. The results were probably wrong and the cargo was, on the balance of probabilities, off-specification at the load port.

3. Subsequent doubts. Once complaints and other circumstances raised doubts about the tests, ITS had to audit or review the work. It should have issued a supplement withdrawing or qualifying the certificates, informed Mobil and AIC of the retained samples and re-tests, and sought instructions before re-testing the samples. The Cooper re-tests were relevant evidence despite not being suitable as certificate tests on broached samples.

4. Deceit. On 17 April 1996 Mr Lucas represented that the certificate remained good and valid, while knowing or being reckless as to information indicating that the tests were unreliable and the cargo probably off-specification. He intended AIC to rely on the representation, and AIC did so. ITS was therefore liable in deceit.

5. Limitation and loss. The deceit claim was not time-barred. In any event, the court held that facts relevant to AIC’s right of action had been deliberately concealed and could not have been discovered by reasonable diligence before 17 May 1996. The losses flowed directly from the deceit. AIC had not failed to mitigate or acted in bad faith.

6. Disposition. AIC’s claim succeeded. The court held that AIC was entitled to recover the losses claimed, subject to credit for the payment received from Mobil. Interest was to be determined after judgment. Issues concerning contribution and ITS’s liability directly to Galaxy did not require determination.