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England and Wales High Court (Commercial Court) Decisions
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Galaxy Energy International Ltd v Eurobunker Spa [2001] EWHC 502 (Comm) (31 July 2001)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/502.html
Cite as:
[2001] 2 Lloyd's Rep 725,
[2001] CLC 1725,
[2001] EWHC 502 (Comm),
[2001] 2 All ER (Comm) 912
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| | [2001] EWHC 502 (Comm) |
| | Case No: 2001 Folio 330
|
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
| | Royal Courts of Justice Strand, London, WC2A 2LL |
| | 31 July 2001 |
B e f o r e :
THE HONOURABLE MR JUSTICE THOMAS
____________________
| GALAXY ENERGY INTERNATIONAL LIMITED (BVI)
| Claimant
|
| - and -
|
|
| EUROBUNKER SPA
| Defendant
|
____________________
Mr Andrew Baker (instructed by Shaw and Croft) for the Claimant
Mr Nigel Eaton (instructed by Holman, Fenwick & Willan) for the Defendants
____________________
____________________
Crown Copyright ©
Mr Justice Thomas:
- There is before the court an application for judgment under CPR Part 24. The action was brought by the Claimants (the Sellers) against the Defendants (the Buyers) in respect of a contract for the sale of low sulphur fuel oil contained in a telex dated 20 November 2000 and an associated agreement made in January 2001.
- Under the contract of 20 November 2000, the Buyers agreed to buy 9,000 – 10,000 tons of low sulphur fuel oil. The contract set out the specification of the oil, but it is only necessary to refer to the pour point as it was that part of the specification that gave rise to the dispute; it provided:
“Low sulphur fuel oil of EU origin with the following actual specifications as tested at loadport:
PROPERTIES PROPERTY UNIT RESULTS FINAL
…
Pour Point Deg C - 3
…
And with the following guaranteed specifications at disport:
Pour Point Deg C + 3 Max
This clause constitutes the whole seller’s obligations with respect to the quality of the product to be supplied…”
- The price was to be paid “without deduction, offset or counterclaim”. Clause 8 of the contract provided as follows:
“8. DETERMINATION OF QUANTITY/QUALITY:
- Quantity as per outturn quantity as checked by Messrs Saybolt Independent Inspectors.
- Quality as ascertained at loading installation to be final and binding for both parties except for pour point, sulphur and net calorific value to be retested at disport on the basis of a ship’s composite sample taken before discharge by Messrs Saybolt Independent Inspectors whose results to be final and binding for both parties save fraud or manifest error.
Inspections costs at disport to be equally shared between Buyer and Seller. ”
The contract also provided for jurisdiction in the following terms in clause 11:
“This contract is governed by and construed in accordance with the laws of England. The parties hereto irrevocably agree that the High Courts of England are to have jurisdiction to settle any dispute which may arise out of or in connection with this contract and submit to the jurisdiction of those courts.”
The delivery of the cargo
- A cargo of 28,600 mt of Low Sulphur fuel oil was loaded at Tarragona, Spain on the Adriatiki on 15 November 2000 by Repsol SA. (Repsol); it was in two parcels – one of 10,600 mt and one of 18,000 mt. It came from a single shore tank (save for 400 mt). A certificate was provided by Repsol showing the pour point at Tarragona was -3°C as tested by test method ASTM D-97 from a sample taken from the shore tank.
- The vessel discharged 9,790 mt at Malta on 18-19 November 2000 into the shore tanks of Oiltanking Malta Ltd. The cargo that was discharged was tested by Saybolt Malta Ltd (Saybolt); they took a composite sample representing the parcel to be discharged at Malta from the ship’s tanks before discharge (sample A), a sample from shore tank 321 into which the parcel was discharged (sample B) and a composite sample from all the ship’s tanks (sample C). A certificate was issued which showed the results in the following terms:
“Sample submitted as Fuel Oil
Received Sampled by Saybolt Inspector
Marked (A) Ship’s composite sample taken before discharge; representing the Malta parcel.
(B) Single tank composite sample taken ex ST 321 after discharge.
(C) Multiple ship’s tanks composite sample taken on arrival of all cargo.
TEST UNIT METHOD RESULTS
A B C
Pour Point deg.C. ASTM D 97 ” 3 3 9(*)
Remarks
(*) Re-checked three times”
The dispute between the parties
- The course of subsequent events was a matter of dispute.
- The oil was held initially in the tanks to the order of the Sellers by Oiltanking Malta Ltd. Subsequently, the Buyers took delivery of 3,999.7 mt, the price due to the Sellers being secured under letters of credit. The Buyers transported that quantity in December 2000 to Augusta, Sicily on the Cap Farina and then by road to Messina; the Buyers claimed they had difficulty in transporting the oil because of the pour point; they had intended to ship it directly to Messina, but because of the pour point, that could not be done as the shore line was long and it had to be discharged at Augusta and sent on by road.
- An agreement was made with the Sellers on 30 December 2000 and a further agreement replacing that was made on 18 January 2001. The Buyers had declined to accept the remainder of the cargo- 5,790mt; this was returned to the Sellers under the agreement of 18 January 2001 which provided that the Buyers pay a difference in price of $396,647.26 on 15 March 2001. The Sellers contended that this was a “wash-out” of the sale and purchase obligations against payment of the agreed amount. Subsequently the Buyers declined to pay this amount. They contended that the specification of the oil was not in accordance with the contract as regards the pour point; they claimed an abatement of the price and that they had suffered additional losses.
- Under a further agreement made on the telephone on 18 January 2001, the Buyers also agreed to pay for the storage charges of the oil in the sum of $14,000.
- The ship’s composite sample taken by Saybolt in November 2000 (sample A) was then re-tested by Saybolt on 25 April 2001 in the presence of the Buyers and Sellers in two ways; test (1) involved the original sample A prepared on 18 November 2000 and test (2) involved a new sample prepared on 25 April 2001 from the ship’s tanks representing the cargo discharged at Malta ; the following results for (1) and (2) were set out in a certificate dated 26 April 2001:
TEST UNIT METHOD RESULTS
1 2
“Pour Point C ASTM D97 +6 +12
- Two further tests were also carried out:
- On 11 January 2001 Saybolt analysed a sample from shoretank 323 in Malta; this contained the remainder of the cargo. The certificate showed a pour point of +9°C.
- On 28 February 2001 Agenzia Delle Dogane analysed the cargo taken to Sicily. They certified that it had a pour point of +12°C.
The course of the proceedings
- Proceedings were issued by the Sellers on 22 March 2001 and a Part 24 application made on 24 April 2001. The primary basis of the application made was that there was no defence to the claim under the agreement of 18 January 2001. When the application came on for hearing, it became clear that it was not possible, on the evidence before the court, to determine whether the buyers had a real prospect of defending the claim made by the Sellers under the agreement of 18 January 2001; the Sellers claimed that they were entitled to succeed under that agreement whatever the outcome of the dispute was in relation to the pour point.
- However all the available evidence for the purpose of a Part 24 application was before the court in relation to another question that arose – whether the Buyers had a real prospect of successfully defending the claim by showing that the pour point of the cargo was not in accordance with the specification in the face of the Saybolt certificate of 22 November 2001. There was a short issue on whether, under the terms of clause 8, the Buyers had a real prospect of success in showing that there was manifest error. It was accepted by the Buyers that, if this issued was decided against them, then they were liable to the Sellers irrespective of the nature of the dispute over the agreement of 18 January 2001, as they would not be able to maintain their complaint in respect of the pour point of the cargo.
- I decided therefore that it was appropriate to determine the second issue; if I decided that issue against the Sellers, then they were to be entitled to pursue their part 24 application under the agreement of 18 January 2001.
The applicable principles of the law
- Clause 8 provided that the re-test for the pour point at the discharge port by Saybolt was to be final and binding for both parties “save for fraud or manifest error”.
- Although the term “manifest error” is now not infrequently used in clauses relating to certification in contracts for the supply of oil, so far as the researches of counsel had gone there is no decided authority on the meaning of the term. However the applicable principles were not seriously in dispute:
(i) It is important for the operation of commerce that commercial men and bankers can rely upon the finality of a certificate: in Toepfer v. Continental Grain Co. [1974] 1 Lloyds Rep. 11. Lord Denning put the position in the following terms:
“Apart altogether from authority, I am clearly of the opinion that a mistake by the certifier, even when afterwards admitted by him to be a mistake, does not invalidate the certificate. It remains binding as between seller and buyer all down the chain… it must be remembered that numerous persons act on the faith of the certificate, such as buyer, sub-buyers, bankers lending money and so forth. Good sense requires that the finality of the clause should be upheld by arbitrators and the Courts in full.”
(ii) Even if the certifier admits that he has made a mistake, the Court should uphold the finality of the certificate (see the passage quoted above).
(iii) The exception of manifest error should be construed in this commercial context.
(iv) “Manifest” meant in ordinary language “plain and obvious”.
(v) The manifest error must relate to the certificate or the procedure that led to the making of the certificate; for example it would be a manifest error if a plain and obvious mistake of transcription had been made or a plain and obvious error had been made in testing or in sampling or in mixing the samples.
(vi) In deciding whether there was a manifest error the Court should take into account the technical knowledge that parties would have about the testing procedure.
The technical background
- There was set out in a report by Mr Chell of London Offshore Consultants Limited, well known marine and engineering consultants, the relevant technical background; Mr Chell is an expert in fuel oil analysis and was formerly employed by Lloyd’s Fuel Oil Bunker and Advisory Services. He explained that the standard test for pour point is ISO 3016 and it was the same method as ASTM D97 as used by Saybolt and Repsol. The testing method involved heating a small sample of oil and then cooling it at a specified rate, while examining it at the 3°C intervals for flow characteristics. The pour point was quoted at 3°C above the temperature at which no flow was observed.
- Tests for pour point did not necessarily produce exactly the same results, but there were well recognised parameters within which tests could be compared; these were termed “repeatability” and “reproducibility”. Repeatability was the closeness of test results of the same sample using the same test method and the same laboratory. Reproducibility was the closeness of the test result of the same sample using the same test method but by a different laboratory. The ASTM D97 test had a repeatability of ±3°C and reproducibility of ±6°C.
- Mr Chell stated that the range for reproducibility explained the contractual specification; as-3°C was specified at the loading port, then as the cargo would be tested at the discharge port by a different laboratory, then the specification had to allow for a variation in the pour point of ±6°C and so gave a maximum value at the discharge port of +3°C.
- He believed that the most likely explanation for the difference in test results was due to a blending problem; a possibility was that the fuel in the tank at Tarragona was a blend of more than one parcel each with a different pour point; if the parcels were not properly blended, then there could be layers of fuel with different pour points within the total parcel. The only way to determine this was to test each ship’s tank.
The respective arguments
- Against this background the Buyers contended:
(1) The range of tests primarily to be considered were those at Taragona carried out by Repsol and those carried out by Saybolt at Malta in November 2000.
(2) At Taragona the pour point was -3°C; all the tests for the cargo at Malta should have been within the reproducibility of this – ie. within ±6°C and within ±3°C of each other. They were not - the Saybolt test as certified on 22 November 2000 for the whole cargo at Malta (sample C) was +9°C; this was outside the reproducibility range applicable in respect of the Tarragona test and the repeatability range for the other tests at Malta. There was an overall variation of 12°C. If the samples tested in April were brought into account, then A as re-tested in April 2000 was +6°C and the new sample made in April 2001 was + 12°C. This showed a variation of 15°C, well outside the acceptable range.
(3) Although Mr Chell may have defined reproducibility as the closeness of the test results of the same sample using the same test methods but by a different laboratory, looking at his report as a whole it was clear that he considered:
(a) The tests at Malta should have all been in the repeatability range; they were of the same cargo.
(b) That there should not be such a large difference between Tarragona and Malta; it should not have exceeded the reproducibility range.
(c) Saybolt were plainly in error as they re-tested one of the samples three times.
Looking at the figures on this basis, there was a plain and obvious error in the sampling or in the certificates.
- The Sellers’ contentions can be summarised as follows:
(1) It was clear on the explanation given by Mr Chell that there was no error.
(2) The relevant samples were the composite sample from the ship’s tanks of the cargo to be discharged – Sample A as tested in November 2000 (3°C) and April 2001 (6°C). The second test was within the repeatability range of ±3°C.
(3) The only other test with which comparisons could possibly be made were the test at Tarragona and the other tests carried out by Saybolt in November and April; to those the range for reproducibility applied and all the tests were within ±6°C of the +3°C result for Sample A.
(4) Looking at Mr Chell’s report as a whole he did not say that Saybolt had done anything wrong.
Conclusion
- As was common ground, the question before the court was whether there was a real prospect of successfully defending the claim by showing that there was a plain and obvious error in relation to the certificate or the procedure leading to the making of the certificate.
- If I was to consider the definition of repeatability and reproducibility given by Mr Chell, the tests of Sample A made in November 2000 and April 2001 were plainly within the range of repeatability. There was no error evidenced by the re-test, let alone any plain and obvious error. All the other tests at Malta were within the reproducibility range of sample A and thus no error could be inferred from such tests.
- However, reading Mr Chell’s report as a whole and taking into account the fact that this is a Part 24 application, I accept that he seems to have taken the view that all the tests in Malta by Saybolt should have been within the repeatability range, even though the tests on Sample B and C taken in November 2000 and the new composite made up in April 2001 were tests on different samples. He does not explain why this was so, but it may be because he considered that the samples should all have been the same or treated as the same. Accepting this evidence, it points, as he stated in his report, to an inconsistency in the results.
- Is this sufficient? I do not consider that it is.
- In the first place, I consider that the relevant sample was sample A. The contract provided for a guaranteed specification at the discharge port; the guarantee plainly applied to the cargo sold to the Buyers and due for discharge and not to the whole of the cargo on the vessel. Similarly the task of Saybolt at Malta was to re-test the parcel to be discharged by means of a composite sample from the ship’s tanks. Their certificate would be a certificate in respect of the composite sample of that cargo and not the other cargo on the vessel. Thus the relevant certification was the certification in respect of the composite sample of that cargo. The relevant sample was sample A; this was re-checked in April 2001 and the result was within the margin of ±3°C applicable for repeatability. In so far as it might be appropriate to consider the new composite sample prepared in April 2001, as this was a new sample, then the reproducibility range applied and there was no error when that result is compared with the result in the certificate of 22 November 2000.
- Furthermore even assuming that it is appropriate to apply the repeatability range to the new composite sample prepared in April 2001 (so that the result is outside the range) and/or that it is appropriate to rely upon the test results of samples B and C and apply to them the repeatability range (so that the results are outside the range), then these results would point to an inconsistency, but nothing more. I do not consider that they give rise to any real prospect of showing that there was a plain and obvious error in the certificate or the testing or sampling. On the evidence, there is nothing to show that a plain and obvious error occurred in these tasks; at the highest it shows that if the sampling was done differently, there might have been a different result. This might have been caused by some form of error, but even an error (and not merely the possibility of an error) is not enough. There is no evidence of plain and obvious error.
- There is one further point, though it only reinforces the conclusion I have reached. There was no contemporaneous protest by the Buyers about the certificate of 22 November 2000. If the differing results as shown on that certificate (which included the notation that sample C had shown a result of 9°C and had been re-tested three times) and/or as compared to the result in Tarragona had given rise to a plain and obvious error, then I have no doubt that the Buyers would have raised the point. They said nothing at the time; the new evidence in relation to the tests in April 2001 did not in reality change the position. It is difficult to see how it can be said there was a plain and obvious error when nothing was expressed about it at the time the certificate was produced and part of the cargo accepted.
The claim for storage costs: $14,000
- A claim was made by the Sellers for storage costs of the cargo they took back under the agreement referred to at paragraph 9. The only point taken by the Buyers in defence to this claim was that the Court did not have jurisdiction. I have set out the jurisdiction clause at paragraph 3 above.
- It was contended by the Buyers that the claim for storage charges was not within that clause and so this court did not have jurisdiction. The clause provided that this Court was to have jurisdiction to settle any dispute “which might arise out of or in connection with the contract”. These are wide words. It is clear that the dispute in relation to storage charges for the cargo is plainly a matter that arose out of or in connection with the contract.
Overall conclusion
- I therefore have come to the conclusion that the Sellers are entitled to judgment for the amount due in respect of the cargo and the storage charges.