Claimant: KG BOMINFLOT, the fob Buyer.
Defendant: PETROPLUS, the fob Seller.
Court: QBD – Hamblen J
By a sale contract dated 9 January 2007, Bominflot (Buyer) agreed to buy from Petroplus (Seller) a quantity of gasoil fob Antwerp. The contract contained detailed specifications for the gasoil on delivery, including as to sediment, but not as to stability. Quality was to be determined by a surveyor at the loadport on the basis of shoretank samples and the determination was to be final and binding save the case of fraud or manifest error.
The gasoil was tested prior to loading and certified to be on specification, including as to sediment content. The gasoil was thereafter shipped on board the vessel Mercini Lady on 17 January 2007. Four days later, by the time of arrival, the cargo was off-specification as to its sediment content, being rejected by the buyer’s sub-buyer, the Spanish Ministry of Defence. The gasoil was finally sold to an alternative buyer, Mabanaft, on 5 February 2007 at a significant lower Price. The latter also agreed to sell to the buyer replacement gasoil for delivery to the Spanish Ministry of Defence.
In a damage claim for the alleged seller’s breach of the implied term under s. 14(2) SGA 1979, which states that the goods must be of satisfactory quality on delivery the issues raised were the following:
Whether the high sediment levels were the result of the gasoil being contaminated on board the vessel.
- If not, whether the gasoil was unstable on shipment/delivery. In such a case, whether the gasoil was consequently not of satisfactory quality.
- If the gasoil is not of satisfactory quality, whether it constitutes a breach of contract, since the subsequent increased sediment is covered by a contractual specification.
- Quantum of damages.
- Remoteness of the legal costs paid by the buyers to the owners.
As to the scope of the implied term in S. 14(2) SGA 1979, Hamblen J, following what Rix LJ said obiter at the original trial of the preliminary issues ( EWCA Civ 1145), found that where instability is “a truly latent and separate vice which the specifications tests would leave untouched and undiscovered”, there could be a breach of the implied term as to the satisfactory quality of the goods. That was the present case. Accordingly the judge rejected the seller’s argument that instability was either directly or indirectly covered by the sediment specifications; on the contrary it was a different characteristic of the cargo.
As to the quantum of damages, under s. 53(3) SGA, the usual measure of loss in this kind of cases isthe difference between the sound and unsound market value of the goods at the time of delivery. However, Hamble J, finding that the defect did not become patent until later and that, on discovery of the defect, the buyer at all times acted reasonably in seeking to minimise its losses in terms of the loss in value of the cargo, agreed that the relevant date for the calculation of diminution in value of the unsound gasoil was that of resale. Likewise the value of sound gasoil should be assessed at the same date in order to avoid market distortions.
Finally, as to the remoteness of damages, expenses reasonably incurred and consequential losses that were foreseeable, when caused by the result of the seller’s breach, are recoverable.
- The sediment increases were not caused by contamination on board the vessel.
- The gasoil was unstable on delivery at Antwerp (which caused increased sediment content) and therefore not of satisfactory quality, not being fit for any of the purposes for which it was commonly supplied.
- Instability was not a characteristic of the cargo directly or indirectly covered by the express specifications as to sediment. Therefore, there was a breach of the statutorily implied term.
- Both, sound and unsound damages should be calculated at the date of resale.
- The buyer’s decision to fight the owner’s claim for demurrage and freight (made on the assumption that deterioration was caused by the vessel) is an independent matter of the seller’s breach and hence not recoverable.
In conclusion, the seller was in breach of contract and therefore liable to pay all the damages claimed by the buyer except for the above mentioned legal costs.