Quantity and quality, basis shoretank 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 except in case of fraud or manifest error…
15. RISK AND TITLE FOB Antwerp
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 buyer assumes all risks pertaining thereto.
18. OTHER CONDITIONS
There are no guarantees, warranties or misrepresentations, express or implied, [of] merchantability, fitness or suitability of the oil for any particular purpose or otherwise which extend beyond the description of the oil set forth in this agreement.
The shore tank analysis24 indicated that the gasoil met the specification stipulated in the contract. However, the buyer contended that notwithstanding an admission that the gasoil was of the contractual specification as it was loaded on board the Mercini Lady,25 when it arrived at destination it did not conform to the contractual specifications and the seller was therefore in breach.
As a result, the buyer sought trial on a number of preliminary issues.26 These included whether or not the seller was in breach of the implied term of satisfactory quality pursuant to section 14(2) of the 1979 Act and/or a similar term implied at common law, both of which the buyer said meant that the seller was under an obligation to deliver gasoil which would remain of satisfactory quality for a reasonable time after delivery on board the Mercini Lady. The seller contended that such was inconsistent with the notion that risk of loss/ damage to the gasoil passed incrementally as it was loaded on board the Mercini Lady and that clause 18 of the sale contract excluded the possibility of the implication of a term either by section 14(2) of the 1979 Act or at common law.
Mr Justice Field27 determined these preliminary issues in favour of the buyer. His judgment appeared to suggest that there was a ‘continuing’ warranty28 implied by statute29 and at common law that the goods must continue to conform with the contract for a reasonable time after shipment30 and that clause 18 of the sale contract did not prevent the implication of either term.
The impact of Field J’s decision was to effectively render the certificate obtained at loading worthless, despite the fact that it was expressed to be ‘final and binding’. Whilst the judgment cast no doubt that the certificate was indeed final and binding as to the quality/ quantity of the oil,31 it was expressed to be so only at the point just prior to loading.32 The certificate said nothing as to the quality/ quantity of the oil after this point, ie after shipment, and given the implied terms as to the quality of the gasoil after shipment, all the buyer would need to do to succeed in his claim33 would be to adduce evidence that the gasoil was not of the contractual quality at the discharge port.
The practical effect of Field J’s judgment was that the seller was still ‘on risk’ in respect of the goods complying with the implied terms as detailed above, notwithstanding clause 15 of the sale contract. This in turn meant that the certificate provided the seller with no finality as a matter of practicality and therefore no certainty, notwithstanding the clear intention that it provide otherwise and preclude the buyer from making the arguments it had.
In the Court of Appeal, the parties were in agreement34 that if clause 18 of the sale contract did not exclude the statutory implied term that the goods would remain in conformity with the contractual specification for a reasonable time after delivery on board the Mercini Lady, then such a term could only operate at a fixed point in time,35 namely the point of delivery, ie the time at which the gasoil was loaded on board the Mercini Lady. This once again gave the certificate teeth vis-à-vis the statutory implied term, since the buyer would have to prove that the gasoil was defective in the sense alleged at this point in time, which he could not do due to the fact that the certificate said that the gasoil was of the correct specification at this time.36
In respect of the implied common law term, which was also said to operate at a fixed point in time, ie at the point of delivery,37 the Court of Appeal unanimously held that there was no basis on which to imply such a term. In the words of Lord Justice Rix, the contract made it clear that:38
the specification [of the gasoil] ha[d] to be met at the time of delivery,39 that the intention [was] that the gasoil should be inspected by an independent inspector prior to loading ‘basis shoretank’…and that the inspector’s determination should be conclusive.
Finally, as to whether clause 18 of the sale contract excluded the implication of the statutory implied term, Rix LJ held that Field J had decided this point correctly and that the clause did not operate to exclude the implication of ‘conditions’ since it referred only to ‘guarantees, warranties or misrepresentations’.40 However, whilst the law is ‘very strict’41 and Rix LJ had ‘sympathy’42 for the seller’s case on the point, like Field J he was ultimately bound on the point.43
Thus, the Mercini Lady reiterates that caveat emptor still rules in this area of English law, that the parties will be held to their contractual bargain and that attempts to effectively reallocate some of the risk in shipment contracts44 via a recharacterisation of a seller’s duties are unlikely to succeed.
The judgment also highlights the possibility that a ‘final’ certificate may not in fact be final as to all matters of quality, notwithstanding the fact that there was no dispute between the parties about the certificate itself45 and a seller would be unwise to consider a certificate final clause in a sale contract as providing it with an absolute defence to any claim about issues of quality per se, unless the clause is carefully drafted (and many are not).
Furthermore, the judgment also serves as a warning that if the parties wish to exclude the implication of terms as to quality in their contracts, then they must be precise when drafting their contracts. Whilst the current position in English law46 is undoubtedly out of step with the commercial reality, until the Supreme Court gets to grapple with this point, it is not going to change.
Notwithstanding the above, the effect and usefulness of the statutory implied terms will of course depend on the facts of the case. Undeniably, a ‘final’ certificate will often mean that a buyer will be faced with an insurmountable hurdle and thus provide the contracting parties with certainty.
However, it is submitted that this may not always be so. What if the alleged defect falls outside any specified testing method? Although Rix LJ considered this point hypothetically,47 it is submitted that it must surely be correct that a certificate can only be evidence of the results of the process which has been undertaken to produce it. Put another way, it is submitted that a certificate expressed to be final and binding as to ‘quality’ cannot in fact be final and binding as to every conceivable issue of quality per se unless the clause is appropriately drafted.