OMV Supply and Trading AG v Kazmunaygaz Trading AG

In a c.i.f. sale, a contractual requirement that the buyer notify the seller of customs fees and provide supporting documents immediately after discharge will not ordinarily operate as a condition precedent to recovery unless the contract clearly says so. The court should consider the commercial consequences of treating a short notice period as producing forfeiture, especially where the liability could not reasonably be identified at the time. A clause requiring fees in force at customs clearance to be deducted from the invoice value permits recovery of a resulting overpayment. It does not, without clear words, create a separate obligation for the seller to pay fees exceeding the contractual price.

These related appeals concerned the construction of clause 6 in a c.i.f. contract for the sale of biodiesel to Romania. The clause addressed customs duties and penalties connected with non-EU origin. The goods were initially cleared as Canadian, but Romanian Customs later imposed substantial antidumping, compensation, interest and penalty sums after an investigation concluded that they were of US origin.

In [2013] EWHC 1560 (Comm), Mr C Edelman QC, sitting as a deputy judge, gave judgment for OMV for US $862,695.43 and permitted Kazmunaygaz to defend the balance. In [2013] EWHC 3941 (Comm), HH Judge Mackie QC determined as a preliminary issue that Kazmunaygaz was not liable for the balance under clause 6. OMV appealed the latter decision and Kazmunaygaz appealed the former. The central questions were whether timely notification was a condition of recovery and whether the buyer could recover sums exceeding the contractual price.

Both appeals were dismissed. The Court of Appeal upheld the two decisions below.

1. Effect of clause 6. Although a c.i.f. seller is not generally liable for import duties, the contract clearly allocated to the seller customs duties and penalties incurred by reason of non-EU origin and in force at the time of customs clearance.
2. Notification requirement. The parties did not intend the buyer’s entitlement to depend on notifying the seller and supplying supporting documents by the first business day after discharge. Treating that short period as a condition precedent would create forfeiture even where the amount could not reasonably be identified, would produce an unfair or absurd result if equivalent timing applied to the seller’s invoice, and was not supported by clear contractual language. Clauses 10 and 20 showed that the parties knew how to impose an express time bar where that was intended.
3. Later-discovered liability. The words requiring deduction of fees in force at customs clearance were not confined to fees identified or imposed at that date. The later discovery of the true origin therefore did not prevent adjustment of the price. OMV could recover the overpayment of US $862,695.43.
4. Limit of recovery. Clause 6 provided for a deduction from the price. It did not, without clear words, require the seller to pay fees exceeding the price. A negative balance would contradict the ordinary function of a sale price, which is the sum paid by the buyer to the seller.
5. A proposed distinction between the taxes and the interest and penalties was not pursued, and the court made no determination on it.

The formal order was that both appeals be dismissed.

• Court of Appeal (Civil Division): In [2014] EWCA Civ 75, both appeals were dismissed.
• High Court of Justice, Commercial Court: In [2013] EWHC 1560 (Comm), Mr C Edelman QC gave judgment for OMV for US $862,695.43 and permitted a defence as to the balance.
• High Court of Justice, Commercial Court: In [2013] EWHC 3941 (Comm), HH Judge Mackie QC determined that Kazmunaygaz was not entitled to recover the balance under clause 6.