Although heard as a preliminary issue, whether or not the decision is appealed or heard at a full at a full trial, the decision in the case of The “Mercini Lady” has potentially significant ramifications for international trade; specifically, the construction of sales contracts and the issue of when a final and binding certificate may not be final and binding.
Briefly, the facts were that buyers, M/s KG Bominflot Bunkergesellschaft Fur Minerallole mbh & Co KG (“claimants”), entered into an FOB agreement for the purchase of 38,500 mt gas oil with M/s Petroplus Marketing AG (“defendants”) on 9 January 2007.
The contract set out detailed specification for the cargo at the time of shipment and:
“12.Quality and quantity…to be determined by a mutually agreed independent inspector at the loading installation…such determination shall be final and binding for both parties, except I case of fraud or manifest error”
…..
15. ….. each delivery shall be completed and title shall vest absolutely in buyer when the product passes the vessel’s permanent hose connection at the port of loading at which time the buyer assumes all risks pertaining thereto.
“18.There are no guarantees, warranties or representations, express or implied, or (sic) merchantability, fitness or suitability of the oil for any particular purpose, which extend beyond…this agreement.”
In accordance with the agreement, composite samples were taken at the load port and analysis results showed the cargo to be on-spec. However, after an incident free voyage the cargo was found to be off-spec at the discharge port. The receivers rejected the consignment.
The claimants claimed in excess of US$3m and alleged that the defendant sellers were in breach of an implied term that the goods would remain of a satisfactory quality and/or fit for their purpose following a normal voyage pursuant to S.14(2) and S.14(3) Sale of Goods Act 1979 (“SOGA”), and/or a term to be implied at common law that the gas oil would be of satisfactory quality, and/or comply with the contractual specification following a normal voyage and a reasonable time thereafter.
The defendant sellers denied any such terms should be implied into a FOB contract when (i) they were unaware of the voyage period or (ii) when the contract contained a detailed specification. They also relied on Clause 18 which, they argued, excluded contractual promises as to merchantability and fitness for purpose beyond those set out in the cargo description.
The court dealt with the competing arguments as construction issues.
With respect to S. 14(3) SOGA, that goods should be fit for their purpose following a normal voyage, because the defendants did not know the destination of the goods it was not appropriate to imply a terms as to fitness for the voyage actually undertaken although it was appropriate to do so for a voyage that was in all the circumstances a reasonable voyage.
Similarly, pursuant to S.14(2) SOGA, that the goods would remain of a satisfactory quality following a normal voyage, it was held that absent any term to the contrary in the contract such a term should be implied into an FOB contract not only when the cargo was delivered but for a reasonable time thereafter. Further, at common law the same term should be implied but with the added caveat that the goods should also remain in a satisfactory condition in accordance with contract specifications for a reasonable time after delivery to the buyer
As to what constituted a voyage of “reasonable time”, and in contrast to CIF contracts, where the seller had no knowledge of the place of destination, the time period would depend on the circumstances of the individual contract. In this respect, the fact that delivery to a vessel makes it is likely that goods will be carried by sea, as well the seller’s knowledge of buyer’s intentions for the goods, were relevant considerations.
Surprisingly, the “final and binding” provision of clause 12 was held to be limited to thepoint “when the product passes the vessel’s permanent hose connection at the port of loading”. Thus, provided there was compliance with the contract specifications on loading, the quality and quantity of the cargo was determined and final and binding at that time, and not for all purposes. Further, and because there was no reference in clause 18 to an exclusion of a breach of any “condition” of the contract as to satisfactory quality and/or fitness for purpose, clause 18 provided no defence to the claim. The exclusion of any “guarantees, warranties or representations, express or implied, or (sic) merchantability, fitness or suitability” was not sufficiently wide to cover all types of contractual terms, whether express or implied.
Until the construction issues, or reasoning supporting the period of time that goods sold under FOB contracts must remain of a satisfactory quality and/or be fit for purpose, are appealed or clarified in any subsequent disputes, the decision in this case reinforces the message to any party seeking to rely on it, that exclusion clauses will be strictly construed against the party seeking to rely on them to escape or limit liability. Further, in the case of sale contracts, at a minimum, the word “condition” should be added to the list of potential contractual breaches excluded.
KG Bominflot Bunkergesellschaft Für Mineralöle mbh & Co KG v Petroplus Marketing AG (The “Mercini Lady”) QBD (Com Ct)(Field J) – 22 May 2009
Article by Mahtab Khan
