QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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ASTON FFI (SUISSE) SA |
Claimant |
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- and - |
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LOUIS DREYFUS COMMODITIES SUISSE SA |
Defendant |
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Mr MICHAEL COLLETT QC (instructed by Reed Smith) for the Defendant
Hearing dates: 15 January 2015
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Crown Copyright ©
Mr Justice Eder:
Introduction
i) As a matter of law, can an FOB Buyer only reject goods in reliance on a certificate which complies with the documentary requirements set down in the payment terms of the contract?
ii) Was the Board of Appeal wrong in law to ignore the totality of the evidence bearing on the question of whether the cargo was contractually compliant and not to find for [Buyers] on liability?
The Contract
"Quality AS PER GASC TENDER TERMS
Inspection
WEIGHT, QUALITY AND CONDITION FINAL AT TIME AND PLACE OF LOADING AS PER RELEVANT GASC TENDER. Buyer's right to appoint a 1st class GAFTA approved surveyor. Should there be a major discrepancy between the two analysis results carried out by the 2 surveying companies, then a first class GAFTA approved 3rd surveyor (to be mutually agreed upon) should act as arbitrator."
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Loadport Agent AS PER GASC TENDER TERMS
Documents furnished by the seller
AS PER GASC TENDER TERMS
Please issue draft copy documents for buyer's approval
Payment 100% C.A.D. Geneva within 48 hours
Special Conditions
All GASC expenses like fees for GASC Delegation, LOI to be for buyer's account. Seller is simply selling F.O.B. Terms; including expenses for the surveyor are for seller's account
Governing Contract
All conditions not in conflict with the above as per GAFTA 49. Arbitration, if any, in London as per GAFTA 125."
The Contract also contained terms relating to notice, loadguarantee, laytime and demurrage/despatch all stated to be "AS PER GASC TENDER TERMS" as well as other terms relating to price and shipment period.
"Supplied Wheat should matches & compiles to the following terms & conditions:
1) TEST WEIGHT : ( min 77 KG/HL acceptable down to 76KG/HL, with deduction of a ratio 1:1 from the price and prorate less then 77KG/HL to on 77 KG/HL to 76 KG/HL.
2) MOISTURE : ( max 13 pct up to 14 pct acceptable with deduction of a ratio 3:1 from the price and prorate over than 13% PCT to 14%.
... For American origin not to exceed 13% acceptable up to 13.5% with deduction of a ratio 3:1 from the price and prorate over than 13% PCT to 13.5%.
... For Australian origin not to exceed 12% max.
3) PROTEINS : 11% protein minimum (determined by azot procedure on dry matter basis nx 5.7)
For Russian origin 11.5% protein minimum (determinated by azot procedure on dry matter basis nx 5.7)
4) Total shrunken broken grains, damaged Kernels grains, other cereals grains, extraneous matter, harmful &/ or toxic seeds, Bunted grains & ergot must not exceed 5% max, division as follows:
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NOR
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CASE VESSEL HOLDS FAILED INSPECTIONS BY THE INSPECTION COMPANIES APPOINTED BY "GASC" AS WELL AS THE EGYPTIAN GOVERNMENTAL COMMITTEE – IF ANY – AS WELL AS OFFICIAL SURVEYING AUTHORITY AT LOAD PORT WHEN OCCURRED COMPLETELY OR PARTIALLY TIME FROM REJECTION UNTIL PASSING RE-INSPECTION NOT TO COUNT.
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Payment:
Payment will be cash upon confirmed, irrevocable, non-transferable and divisible L/C against presentation of the following documents:
1) commercial invoices …
2) certificate of origin …
3) certificate in one original and 2 copies stating that the shipped wheat is from latest crop harvest (2010) …
4) Full set clean on board bills of lading in three originals …
5) Superintending Certificate with (Sublots composite analysis) In One Original And 5 Copies To Be Issued By the Inspection company nominated by the buyer indicating Quantity, Weight, Specifications, Packing, Quality, goods kind At loading Time And Indicting Also That Holds And Hatches Of Carrying Vessel Are Clean And Free From Alive And Dead Insects And Fit For Shipping Wheat.
Said Certificate Should Also Show:
- The loaded quantity conformed to the contract conditions and specifications.
- Determination of the sampling methodology.
- Sample is represented completely and it had been divided into three portions, stamped by the supplier and the inspection company, one sample is kept by the supplier, the second kept with the inspection company and the third sent with the master of the carrying vessel.
- Determine the way of inspection and indicating the apparatus that had been used in inspection.
6) Weight Certificate …
7) Phytosanitary Certificate …
12) One original Certificate & two copies issued by the appointed Superintending Company by GASC, Evidencing That the vessel is capable to load and transport the cargo also it is clean, pure and free from any insects or pests or traces of other materials which might cause damage to the shipped wheat or change in its specification and that it is free from rust and iron filings.
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14) two copies Of certificate of quality issued by the ministry of agriculture of Russian federation federal service on veterinary and phytosanitary supervision and declaration from the beneficiary evidencing that they have already dispatch the original certificate to the applicant (GASC) to be presented directly upon vessel's sailing.
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Notes:
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3) The buyer has the right to nominate who represents him in inspection operation at loading or discharging port
4) GASC reserves the right to appoint a superintendent company of its choice with deduction of 1$Mt from the price.
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7) Immediately after award supplier must submit request to have delegation from the Government and will handle all the costs and procedures and offer all Facilities needed for the travel of this delegation at loading port and in case the delegation did not travel for reason due to the supplier the payment of the Cargo will be after the approval of the government Egyptian authority at the discharging port to discharge the vessel.
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9) If inspection of consignment at load port states that it is not identical to GASC's conditions and specifications (in this tender document) it will be rejected immediately on site, the performance bond will be confiscated and the contract will be cancelled."
"19. SAMPLING, ANALYSIS AND CERTIFICATES OF ANALYSIS
The terms and conditions of GAFTA Sampling Rules No. 124 are deemed to be incorporated into this contract. Samples shall be taken at time and place of loading. The parties shall appoint superintendents, for the purposes of supervision and sampling of the goods, from the GAFTA Register of Superintendents. Unless otherwise agreed, analysts shall be appointed from the GAFTA Register of Analysts."
"GENERAL
1.2 Pursuant to the contract terms and for the purposes of these Rules, superintendents shall be appointed from the GAFTA Register of Approved Superintendents.
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10. NON-COMPLIANCE WITH THE RULES
In the event of non-compliance with the preceding provisions of these Rules being raised at arbitration as a defence, any quality and/or condition and/or rye terms arbitration claim shall be deemed to be waived and barred, unless the arbitrators or board of appeal as the case may be, shall in their absolute discretion determine otherwise."
The Facts
i) On 11 October, Buyers nominated the carrying vessel i.e. the mv "Mega Hope". [5.2]
ii) On 17 October, the Buyers advised Sellers of their agents at Novorossisk and also their documentary requirements. In particular, the superintending company was identified as Comibassal [5.1]. Buyers indicated that the superintendent's certificate had to be issued by Comibassal. [8.4]
iii) Comibassal had been appointed by GASC under the terms of the Sub-Sale. [5.1]
iv) On 22 October, the vessel arrived at Novorossiysk; and on 1 November, the vessel commenced loading. [5.2]
v) On 2 November, the GASC delegation requested Buyers' local office to suspend loading as Botrans (Buyers' surveyors) and Comibassal (surveyors appointed by GASC) stated that they had detected high levels of Lolium seeds and other defects. [5.3]
vi) On 3 November, loading was halted and an unknown quantity of cargo was discharged and replaced by Sellers [5.4]. Loading was completed at 10.10 hours on 4 November. [5.5]
vii) On 4 November at a time unknown, a report was issued by The Tripartite Egyptian Committee for State of Russia. That report contained certain analysis results on samples taken during "shipping" and the following conclusion: "The final result for only 30,000 tonnes of Wheat Which examined at origin state (Russia) is NOT acceptable according to ES 1601-1/2010 General principles for wheat … and Egyptian AGRO Quantitive Legislation of as well as the terms of the contract between G.A.S.C. and supplier". There was however no indication in the report as to when and how any samples had been taken nor the analysis methods used to obtain the results on which they were refusing the goods. [8.11]
viii) On 5 November, Buyers sent the following message: "GASC have confirmed that the cargo will not be accepted by them; our right to reject the cargo is reserved." [5.6]
ix) Thereafter, following numerous discussions/messages between the parties on 10 November, Buyers and Sellers entered into Addendum No 1. For present purposes, the details of that agreement do not matter. It is sufficient to note that the parties, in effect, agreed that the cargo on board the vessel would be discharged at Kerch; that the vessel would then return to Novorossiysk to load another cargo of wheat; that the costs of this operation would, in the first instance be split 50/50; and that the disputes between the parties would be referred to arbitration. [5.7]
x) Pursuant to Addendum No 1, the vessel departed Novorossisk on 15 November; and, after discharging the cargo on board in Kerch on 20/21 November, the vessel then returned to Novorossisk to load a new cargo. [5.10]
The Award
i) In line with the GTT, the Contract and the documentary instructions given by Buyers "… the contractual quality certificates had to be issued by Comibassal." [8.7]
ii) Both the Egyptian Standards (ES:1601-1/2010) and the GTT contain explicit rules as to what should be contained in the superintendent's certificate(s). These requirements were confirmed and formed part of Buyers' documentary instructions sent on 17 October. [18.16]
iii) The Comibassal certificate was deficient and non-contractual due to the following circumstances:
- No mention of GASC terms
- No mention of sampling methodology
- No mention that sample had been divided into three portions and distributed as specified
- No mention of the method of inspection
- No indication of the apparatus used in the inspection
- Not in conformity with Buyers' documentary instructions
- No mention that a quantity of wheat had been discharged and replaced and that the samples analysed did not contain the wheat that had been discharged. [8.18]
"[The Comibassal] nomination as between GASC and Buyers was contractually compliant. However, as between Buyers and Sellers their nomination was not contractually compliant as they were not GAFTA approved surveyors. Even if they had been GAFTA approved their certificate was not contractually compliant due to the differences mentioned [in paragraph 8.18 of the Award]. As a consequence of this there was no contractually compliant quality certificate for the goods loaded. Buyers, who had nominated Comibassal to Sellers, therefore had no official analysis on which to base their rejection. By rejecting the goods, with no official analysis to back up that decision, the Buyers were in repudiatory breach of the Contract and consequently WE FIND that Buyers were in default". [8.19]
The surveyor point
i) The superintending company appointed by GASC under the GTT will be deemed to have been appointed as the "first" surveyor under the inspection clause.
ii) The Board's correct conclusion on this point must be based on the words "AS PER RELEVANT GASC TENDER" because there is no express reference to a first surveyor in the inspection clause at all. It follows that:
a) Note 9) of the GASC Terms cannot be incorporated into the Contract, because it would be inconsistent with the term of the Contract that the first surveyor's inspection was to be final as to quality and condition. As Buyers themselves appear to accept, Note 9) permits rejection under the GTT by reference to inspection by an entity other than the first surveyor (e.g. the Egyptian government delegation).
b) If the incorporation of the role of the first surveyor into the Contract does not derive from Note 9) of the GTT, then it must derive from the payment provisions of the GTT (which is where the first surveyor's role is spelled out). The Board was therefore correct to conclude that, in the Contract, the first surveyor's inspection would only be final insofar as it complied with the requirements for the quality certificate in the payment provisions of the GTT.
iii) Buyers had the right (but not the obligation) to appoint their own "1st class GAFTA approved surveyor". It will be noted that, because the Sellers had no role in the appointment of the first surveyor and could not compel the appointment of the second surveyor, they would be unable to prevent the quality and condition of the goods from being determined by the first surveyor (appointed by GASC). This is relevant to the Board's conclusion that it was a term of the Contract that the first surveyor must be GAFTA-approved: this provided some commercial protection for the Sellers in circumstances where they might otherwise have no say in the identity of the relevant surveyor.
iv) If there was no "major discrepancy" between the surveyors nominated by GASC and Buyers, then the first surveyor's analysis results would be final for the purposes of the Contract (subject to the question of contractual compliance, as further discussed below).
v) If there was a "major discrepancy" between the surveyors nominated by GASC and Buyers, then a third "1st class GAFTA approved surveyor" would be appointed by Sellers and Buyers jointly and the analysis results of the third surveyor would be final (if it were otherwise, the third surveyor's inspection would have no contractual effect).
i) The first sentence of the inspection clause in the Contract makes no reference to the first surveyor being GAFTA-approved. This is in sharp contrast to the subsequent references to the Buyer's surveyor and the third surveyor. In the absence of express words and given this difference of wording, it is, in my view, difficult if not impossible to imply a requirement that the first surveyor must be GAFTA-approved.
ii) I readily accept that there is at least some force in Mr Collett's submission that a requirement that the first surveyor should be GAFTA-approved would provide Sellers with some commercial protection in circumstances where it is the Buyers who have the right to nominate the surveyor under the GTT; and that this might support an argument that such surveyor should be GAFTA-approved. However, I am unpersuaded that this argument is sufficient to override what seems to me the ordinary meaning of the words used in the context of the overall structure of the inspection clause in the Contract.
iii) I also readily accept that the position might be otherwise if the first surveyor was required to be GAFTA-approved under the GTT. However, that is plainly not the case. There is nothing in the GTT which requires the surveyor to be GAFTA-approved whether under Clause 5, Note 9) or otherwise; and, in my view, the Board was plainly right to conclude that the nomination of Comibassal was in effect contractually compliant under the GTT.
iv) The foregoing highlights the mismatch between the Contract and the Sub-Sale. Contrary to Mr Collett's submission, it is my view that Note 9) of the GTT was, in effect, incorporated into the Contract; and as it seems to me, the effect of Note 9) of the Sub-Sale was that GASC would be entitled to reject the cargo under the Sub-Sale if the "inspection" stated that the consignment was not "identical to GASC's conditions and specifications". My tentative view is that the inspection referred to in Note 9) is the inspection performed by the company nominated by GASC under sub-clause 5) of the payment clause. But whether that is correct or not, there is nothing in the GTT which is comparable to the scheme of the inspection clause in the Contract.
i) The requirement in GAFTA Rule 124 that "superintendents shall be appointed from the GAFTA Register of Approved Superintendents" had no application to the nomination of the first surveyor i.e. Comibassal under the Contract;
ii) The fact that Comibassal was not GAFTA-approved was not a relevant non-compliance for the purposes of GAFTA 124 Rule 10; and
iii) If, as Mr Collett submitted, the Board's decision in this context is to be understood as being based on the preclusive effect of GAFTA 124 Rule 10, I would respectfully disagree. In the event, it is, in my view, unnecessary to consider the further argument as to whether the Board should have exercised its discretion under the last part of GAFTA 124 Rule 10 still less whether the Award should be remitted to the Board to enable it to consider the exercise of such discretion.
The certificate point
Conclusion
i) "Question 1: As a matter of law, can an FOB Buyer only reject goods in reliance on a certificate which complies with the documentary requirements set down in the payment terms of the contract? Answer: No, unless the Contract stipulates in clear terms that that is the case; and the Contract in this case does not do so."
ii) "Question 2: Was the Board of Appeal wrong in law to ignore the totality of the evidence bearing on the question of whether the cargo was contractually compliant and not to find for [Buyers] on liability Answer: The Board of Appeal was wrong in law to ignore the totality of the evidence bearing on the question of whether the cargo was contractually compliant."