Septo Trading Inc v Tintrade Ltd

Where contractual documents contain apparently inconsistent provisions, the court should construe them together and find inconsistency only where effect cannot fairly be given to both. A general independent-inspection clause may therefore be qualified by later terms limiting the certificate’s binding effect to invoicing and payment. A certificate protected against manifest error cannot be challenged merely because the certifier made a mistake or because the result is later shown to be inaccurate. Manifest error requires an obvious and demonstrable blunder. A failure to obtain the result hoped for while carrying out the instructed sampling method is not, without more, a failure to carry out the instructions.

The claimant bought a cargo of high-sulphur fuel oil from the defendant. The contract required the product to comply with ISO 8217:2010 and contained a Recap provision making the independent inspector’s determination binding, subject to fraud or manifest error. It also incorporated BP 2007 General Terms and Conditions, including provisions making certificates conclusive and binding for invoicing purposes, without prejudice to later contractual claims.

An SGS certificate recorded an on-specification result at the loading port. After loading, testing showed excessive total sediment potential caused by incompatibility between the fuel from different shore tanks. The issues were whether the certificate prevented a claim for breach, whether the cargo was off-specification when delivered, and the proper measure of damages.

1. Contractual construction. The Recap and the incorporated BP terms were to be read together. Following the guidance in Pagnan v Tradax [1987] 2 Lloyd’s Reports 342, apparently wide wording is capable of qualification. Inconsistency requires contradiction or conflict such that effect cannot fairly be given to both provisions. The construction should also be tested against commercial common sense. The BP provision qualified, rather than contradicted, the Recap. The SGS certificate was binding for invoicing and payment, but without prejudice to a later claim for breach of contract.
2. Inspection and sampling. The certificate was not deprived of effect by the four factual objections advanced. The 20 June sample was taken before loading and was used in the composite sample; its use was questionable but was not shown to be a manifest error. The certificate sufficiently recorded that SGS had sampled the product. The instruction concerning shore-tank valves required the matter to be reported, rather than requiring sealing in circumstances where that was rarely performed.
3. Manifest error. A certificate cannot be set aside merely because the certifier was mistaken. Manifest error means an obvious blunder readily demonstrable without extensive investigation. The possibility that SGS’s samples were unrepresentative emerged only through expert evidence and cross-examination, and was not an obvious error. The distinction between an expert going wrong while performing instructions and failing to carry out the instructions was material. The case concerned the former, not the latter, as explained in Veba Oil v Petrotrade [2001] 2 Lloyd’s Reports 295.
4. Breach. The fuel from the seven shore tanks was fundamentally incompatible. When the parcels passed the vessel’s manifold, it was practically inevitable that their subsequent blending would produce excessive total sediment potential. The cargo therefore failed to comply with the contractual specification when delivered, notwithstanding the transfer of risk at the flange connection.
5. Damages and relief. The best evidence of the off-specification cargo’s market value was the contemporaneous offer of US$350 per metric tonne. Damages were assessed at US$3,058,801. The court accepted in principle that the claimant was entitled to indemnity in respect of claims by its buyer, but declined to grant the declaration in the proposed form unless the parties could agree wording preserving the defendant’s right to contest particular claims.