Saipol S.A. v Inerco Trade S.A.

Section 53(3) of the Sale of Goods Act 1979 provides a prima facie measure for breach of warranty of quality. It does not exclude consequential losses recoverable under section 53(2), applying the first limb of Hadley v. Baxendale [1854] 9 Exch. 341. The court must first assess whether the claimed losses resulted directly and naturally in the ordinary course of events. The exceptional approach in The Achilleas [2008] UKHL 48 requires more than a general trade practice where the circumstances do not establish a legitimate expectation limiting liability. An arbitral tribunal must also give proper reasons when rejecting a claim that several contractual breaches jointly contributed to a single loss.

Saipol appealed under section 69 of the Arbitration Act 1996 from a FOSFA appeal award concerning damages for contaminated sunflower seed oil. A first-tier tribunal had found breaches of sections 13 and 14 of the Sale of Goods Act 1979 and awarded diminution in value together with storage and financing costs.

The appeal concerned whether section 53(3) limited recovery to the difference between sound and defective goods, and whether the commingling of Inerco’s consignment with other sellers’ oil prevented recovery of liabilities and expenses relating to the whole cargo. There was also a parallel section 68(2) application, but only the questions of law were argued.

1. Appeal allowed. The tribunal had erred in law by proceeding on the basis that the only potentially applicable measures of recovery were under sections 53(3) and 54 of the Sale of Goods Act 1979.
2. Section 53(2) expresses the first limb of Hadley v. Baxendale [1854] 9 Exch. 341. Depending on the facts, consequential losses may be recoverable where they result directly and naturally in the ordinary course of events. The tribunal should have begun by assessing the factual circumstances against that criterion. It was not necessary at that stage to establish any particular assumption of responsibility for the kind of loss claimed.
3. The tribunal’s reliance, or possible reliance, on The Achilleas [2008] UKHL 48 was erroneous. That was a highly exceptional case involving a generalised market understanding and a legitimate expectation that liability would be limited. A general reference to an approach within the trade was insufficient in the present context.
4. The tribunal also rejected the contention that the separate sellers had each contributed by breach of contract to contamination of the whole cargo, but gave no proper reasons for that conclusion. The issue was not confined to liability for Inerco’s own consignment; it included the asserted joint contribution to the overall loss.
5. The matter was remitted to the tribunal to apply the law correctly and determine whether the consequential losses were recoverable. No special costs order was made; costs were left to the tribunal’s discretion in light of the final outcome.

• FOSFA first-tier arbitration: Liability for breach of sections 13 and 14 of the Sale of Goods Act 1979 was established. The tribunal later awarded diminution in value and certain storage and financing costs.
• FOSFA appeal board: The board treated section 53(3) as the applicable measure for direct losses and rejected recovery of the wider consequential losses and the whole-cargo claim.
• High Court (Commercial Court): The appeal under section 69 of the Arbitration Act 1996 was allowed and the matter remitted.