Bominflot Bunkergesellschaft fur Mineralole mbH & Co v Petroplus Marketing AG

Under the statutory implied term of satisfactory quality, goods may be defective because of an inherent and latent characteristic not covered by contractual specifications. Gasoil instability was a distinct quality defect from sediment already present on delivery. Its later manifestation through sediment formation did not bring it within a sediment specification or exclude the statutory term.

Goods must be fit for all purposes for which goods of the relevant kind are commonly supplied. For latent defects discovered after delivery, damages for diminution in value may be assessed by reference to the reasonable resale date, with sound and unsound values assessed at the same date where that produces a like-for-like comparison. Consequential losses reasonably and foreseeably incurred were recoverable, but legal costs incurred in pursuing a third party on the mistaken premise that the seller was not in breach were too remote or independently caused.

The claimant bought gasoil from the defendant under a contract containing detailed quality specifications, including a maximum sediment level, and a loadport certificate-finality clause. The gasoil complied with the specifications when loaded, but became heavily contaminated with sediment during the short voyage to Spain. The claimant alleged that the gasoil had been unstable on delivery and therefore breached the implied term under Sale of Goods Act 1979, section 14(2).

The defendant had unsuccessfully sought to defeat the claim on preliminary issues before Field J, and had unsuccessfully appealed on the scope and exclusion of implied terms. At trial the defendant was unrepresented and had adduced no evidence. The issues included satisfactory quality, the effect of the contractual specifications, valuation of the loss, consequential losses, remoteness and mitigation.

1. Liability. The claimant established that the sediment increase was not caused by rust or inorganic contamination from the vessel. The evidence established that the gasoil was unstable on delivery and that instability caused sediment to form during the voyage.
2. Satisfactory quality. Instability was a distinct quality issue from the presence of sediment. It was serious because it made the gasoil unsuitable for the ordinary purposes for which gasoil of that description was commonly supplied. Under sections 14(2) and 14(2B) of the Sale of Goods Act 1979, the gasoil was therefore not of satisfactory quality on delivery.
3. Contractual specifications. The stability defect was not directly covered by the specifications, which made no provision for stability testing. The fact that instability later manifested itself through increased sediment did not mean that it was indirectly covered. Otherwise the statutory term would largely lose meaningful content. The defendant was accordingly in breach.
4. Damages. Because the defect was latent and was discovered later, the loss directly and naturally resulting from the breach was properly assessed by reference to the claimant’s actual resale of the unsound gasoil. Sound and unsound values were to be assessed at the same resale date. The diminution claim was allowed in the sum of $2,108,226.70. Reasonably incurred return freight, demurrage, commission, inspection, expert and testing costs were also recoverable.
5. Excluded heads. Legal costs incurred in defending the vessel owners’ claim were not recoverable. They were claimed on the premise that the defendant was not in breach and were alternatively the consequence of the claimant’s independent choice to contest that claim. The defendant’s mitigation case failed, both because it was procedurally barred and because the defendant had not discharged the burden of proving failure to mitigate.
6. Judgment was entered for the claimant for the recoverable losses, with interest.

• High Court (Commercial Court): Field J determined preliminary issues in favour of the claimant, including that the section 14(2) term was implied and was not excluded. The decision was reported at [2009] 2 Lloyd's Rep. 679.
• Court of Appeal: The defendant succeeded on the separate common-law implied term but not on exclusion of the statutory term. The principal judgment was given by Rix LJ, with Maurice Kay and Patten LJJ agreeing. The decision was reported at [2011] 2 Lloyd's Rep. 442. Permission to appeal to the Supreme Court was refused.
• High Court (Commercial Court): The present trial resulted in judgment for the claimant.