World Bunkering > News > Winter 2009 > Legal Eagle

A recent case in the English Commercial Court confirmed that an FOB contract implies that the goods (in this case, bunker fuel) should be of satisfactory quality not only when the cargo is delivered on to the vessel but also for a reasonable time thereafter. According to Jim Leighton, a trainee solicitor at Hill Dickinson LLP commenting on the case on David Martin Clark’s maritime law website, the dispute arose in relation to an EU gas oil cargo purchased on FOB terms.

The contract included terms which set out various specifications that the gas oil had to meet at the time of shipment (“specification clause”). The quality and quantity of the gas oil was to be determined before loading by a mutually agreed independent inspector. The contract also provided no guarantees, warranties or representations, express or implied, of merchantability, fitness or suitability of the gas oil for any particular purpose or otherwise, which extended beyond the description of the gas oil set out in the contract.

The gas oil was found to be on-spec at the loadport following shipment. However, upon arrival at its intended destination, some four days later, it was found to have exceeded the maximum sedimentary requirement of the specification clause. The buyer’s case was that the contract implied that the gas oil would remain on-spec throughout the voyage, and for a reasonable time after shipment and discharge. The seller’s case was that any implied terms of this were inconsistent with other terms of the contract and were also precluded by the exclusion clause.

In finding for the buyer, the Commercial Court held that, in the absence of any term inconsistent therewith, it was implied that the goods would be of satisfactory quality not only when the cargo was delivered on to the vessel but also for a reasonable time thereafter. The implied terms were not too uncertain to be enforceable, as the courts were used to determining the question of what a reasonable time would be. The judge also held that the requirement that the goods answer a detailed specification was not inconsistent with an obligation that the goods be of satisfactory quality both at the point of delivery and for a reasonable time thereafter.

Nor was the specification clause inconsistent with an obligation that the goods remain on specification post delivery for a reasonable time. The certificate final clause was not inconsistent with the proposed implied terms. This was because (1) the specification only required the gas oil to be on specification at the point of delivery / on shipment on board the vessel, and (2) the loadport certificate would only be final as to the matters referred to in the specification clause at the point of delivery.

As for the exclusion clause, so deeply ingrained was the status of a condition in English law, as an obligation the breach of which gives the counterparty the right to terminate the contract or to affirm the contract and sue for damages, that the exclusion clause was not to be construed as extending to conditions, unless it expressly so provided. But in this case, the word “conditions” appeared nowhere in the clause.

“Given the previous decisions in relation to certificate final clauses, it is initially perhaps somewhat surprising that such terms were implied in this case,” writes Leighton. “Outwardly this is contrary to the intended commercial purpose of certificate final clauses, namely a once and for all test of contractual compliance of the cargo as to quality and quantity upon shipment, with no second bites at the cherry if the cargo is later found to be off-specification.”

However, given that the contract failed to exclude expressly the implication of terms in the nature of a condition and because there is clear law implying such a term into CIF, C&F and FOB contracts, the decision is perhaps less unexpected than it initially appears to be. In effect, achieving the intended commercial purpose of certificate final clauses is predominantly dependent on the express exclusion of implied terms.

This in turn depends on the use of clear and precise language to achieve these ends. The present case, therefore, mainly turns on the fact that the exclusion clause did not include express reference to “conditions”. Alternatively, the certificate final clause would need to have been more precise in its language to ensure that once-and-for-all finality for all quantity and quality claims, including those following shipment, was achieved.