Choil Trading SA v Sahara Energy Resources Ltd

A sale described as “as is” may still contain a contractual quality term. Its effect depends on the objective meaning of the agreement and the commercial context. Such wording did not permit delivery of product grossly contaminated by a substance not normally present in the stated product.

The prima facie damages rule for defective goods may be displaced where the parties contemplated use of the particular goods under a specific sub-contract. A general intention to resell is insufficient. Reasonable hedging losses may form part of the direct loss caused by breach and are not necessarily consequential loss. Where laytime provisions remain unagreed, the buyer must give adequate notice and the seller must load within a reasonable time.

Choil bought naphtha from Sahara for shipment FOB Port Harcourt. The cargo was heavily contaminated with MTBE and was later rejected by Choil’s sub-buyer. Choil claimed damages for defective quality, hedging losses, additional transport and survey costs, demurrage, and short delivery.

Sahara contended that the cargo was sold “as is”, that the contractual quality provisions gave no warranty, that damages should be assessed by reference to the ordinary market rule, and that Choil’s demurrage and short-delivery claims were barred or overstated. The court determined the contractual quality standard, the measure and timing of damages, the effect of the limitation clause, laytime and demurrage, and the contractual notification requirement.

1. Quality. The contract was to be construed objectively. The combined effect of the parties’ communications was that the cargo had to be of PHRC naphtha quality, or normal running production as produced by Port Harcourt Refining Company. “As is” described the characteristics of the cargo supplied within that contractual range; it did not exclude every quality obligation. Gross MTBE contamination was abnormal and constituted breach of the contractual description and the implied term as to satisfactory quality (paras [102]–[114]).
2. Damages. The ordinary prima facie measure under section 53(3) of the Sale of Goods Act 1979 was not displaced by a general intention to resell. A sub-sale measure may apply where the parties contemplated that the particular goods would satisfy a particular sub-contract. Choil had bought for resale generally, so the sub-sale measure did not apply (paras [124]–[130]).
3. The sound value was assessed by reference to the market value of contractual-quality naphtha around the date when the contamination became clear. The Blue Ocean sale was reliable evidence of the damaged cargo’s value. After allowing for the resulting difference and additional costs, Choil’s damages were assessed at $1,208,157.30 (paras [131]–[155], [162]).
4. Reasonable hedging losses caused by the breach were recoverable. They were a normal and necessary part of the claimant’s trading operations and were not consequential, indirect or special losses under clause 13. The contractual cap relating to the difference between contract and market price did not apply to a claim for defective delivery (paras [156]–[165]).
5. Demurrage. The parties had not reached a concluded agreement on laytime. Laytime therefore began when the vessel berthed, and 42 hours represented a reasonable loading period. Sahara was responsible for delay caused by the unsafe berth, refusal to take back excess cargo, and customs detention resulting from missing export documents. Demurrage of $281,885.40 was due (paras [168]–[185]).
6. Short delivery. The notification clause was a condition precedent, but notification by the buyer’s bank, supported by the bill of lading and inspection report, was sufficient. Choil recovered $38,004 for short delivery (paras [188]–[193]).
7. After setting off the sums due from each party, judgment was given for Choil for $389,880.03 (para [195]).