Cargo Quality – Specified Test Methods

March 2002

What happens when cargo quality is sampled using a test other than the test specified in the sale contract? This question was recently considered by the English Court of Appeal in Veba Oil Supply and Trading GmbH v Petrograde Inc (The "Robin").*

In a contract for sale of gasoil the relevant clauses were:

Clause 10, which provided that the quantity and quality of the cargo was "…to be determined by a mutually agreed independent inspector at the loading installation, in the manner customary at such instillation, such determination shall be final and binding for both parties save fraud or manifest error…"

and

Clause 4:

"…

 

PRODUCT/QUALITY

Gasoil Meeting the following guaranteed specifications:

 

TestLimitMethod

 

Density at 15 deg C+0.876 KG/L maxASTM D1298

…"

Independent inspectors were appointed at Antwerp (the loading installation) and the test was observed by a representative of the buyers. The density was determined as 0.8750 Kg/l.

The buyers, however, claimed that the density in fact exceeded the contractual maximum and that they suffered a loss when they sold the product on similar quality terms. They claimed that the test report was not final and binding as the inspectors had used test method D4052 rather than D1298 as specified in the contract.

The sellers argued that even though the inspectors had departed from their instructions, this did not amount to a material departure rendering the determination invalid on grounds of manifest error. They contested that clause 4 was a merely a specification clause so that the cargo density was not to exceed that limit. That while testing could follow the prescribed method, this was not an exclusive method of testing - it was acceptable to use a different method if it could be shown, as in this case, that the specification would still have been met had the prescribed method been used. Further, the inspection, including testing method, had been carried out in the "manner customary" at Antwerp, as required by clause 10.

It was agreed by both parties that:

• Test method D4052 is a more modern and accurate method than the specified D1298
• That test method D4052 was the method customarily used at Antwerp
• That had they used the D1298 test method on the samples tested, the density test would still have been satisfied.

It was held that:

1. The only reason to specify a test method was so that it should be used, not merely be considered hypothetically. Both the standard and method for testing were prescribed by clause 4. The effect of Clause 10 is to cover testing procedures that are not otherwise specified.
2. The purpose of independent certification is to avoid disputes about quality and to give finality. However, finality turns on whether inspectors have followed the instructions that the parties have agreed upon.
3. In such disputes the question of materiality may be relevant to mistakes made by an inspector in carrying out his instructions and the impact that the mistake will have on his determination. However, materiality is not an issue which needs to be considered where there has been a departure from instructions. Materiality is relevant only to mistakes in this context.
4. Once a departure from instructions has been established, the court is not concerned with the effect on the result. Any departure from instructions will render the result non-binding unless that departure can be characterised as trivial in the sense that it can make no possible difference to either party.

It was held, therefore, that the determination was not binding as the test method used was not the one by which the parties had agreed to be bound.

This case serves as a reminder of the importance of following prescribed procedures when samples are taken; if a contract specifies that a certain test method must be used, then that method must be used, even if there is a more modern and more reliable testing method available.

It also provides a useful opportunity to remind owners of the importance of taking and retaining their own cargo samples. Such samples may prove to be invaluable in cases where a buyer claims from a seller/shipper losses in respect of cargo which allegedly fails to meet quality specifications; Should the cargo owner subsequently try to claim an indemnity from the vessel owner on the basis that the cargo was contaminated on board, tests on samples taken by the vessel owner may be able to show that this was not the case and provide evidence to reject the claim. It is important to stress that it is not sufficient for the owner merely to take samples - these must be retained, not thrown away or handed to a third party. (A detailed article on Sampling of Bulk Liquid Cargoes can be found in "Sea Venture" Vol.20 page 30).

* 6 December 2001, 2001 LMLN 0577