18/05/2021

Court of Appeal rules on approach to inconsistency and conflicts between documents

Septo Trading Inc v Tintrade Limited [2021] EWCA Civ 718

Michael Ashcroft QC and Oliver Caplin acted in the Court of Appeal for the successful appellant in an oil trading dispute. The judgment, handed down today, contains useful yet orthodox guidance on the approach to inconsistency and conflicts between documents. The decision looks in particular at those contracts that exist in the form of a deal recap incorporating standard terms. The point of substance arising out of the interpretation of the contract in this case was whether a certificate of quality issued by an independent loadport inspector was binding on the parties on matters of quality (which is what the recap provided for) or whether it was only binding for invoicing purposes (which is what the standard terms provided for).

Background

The case at trial involved a claim by Septo for damages arising from the alleged defective quality (high TSP) of a cargo of high sulphur fuel oil sold to it by Tintrade. Tintrade argued at trial that by reference to a loadport certificate of quality which showed the product to be on-spec (the CoQ), and which was contractually binding on the parties, Septo was precluded from advancing a quality claim. Septo had argued that as a matter of interpretation, the CoQ was not intended to be binding for all purposes, but only for invoicing purposes. It also argued that in any event the CoQ was not conclusive because it was affected by various manifest errors and other problems.

These latter arguments were all dismissed, but the judge, Teare J, did agree with Septo that because of the effect of the standard terms, which he found were incorporated into the parties’ recap contract, the CoQ was only binding for invoicing purposes, entitling Septo to bring its quality claim. That quality claim then succeeded on the facts as the judge found them.

Tintrade appealed the judge’s decision on the construction of the contract and the status of the CoQ, arguing that the standard terms were not incorporated into the contract because they were in conflict with the conclusive certification regime in the recap.

The contract was, as is often the case in the trading of commodities, contained in a bespoke deal recap which then incorporated standard terms, in this case the BP 2007 General Terms and Conditions for FOB Sales (the BP GTCs), which were said to apply in the recap “where not in conflict with the above”. The recap provided in relation to the ascertainment of quality as follows:

“As ascertained at loadport by mutually acceptable first class independent inspector, or as ascertained by loadport authorities and witnessed by first class independent inspector (as per local practice at time of loading).

Such result to be binding on parties save fraud or manifest error…”

Tintrade argued below and in the Court of Appeal that this clause rendered the CoQ final and binding for all purposes. Septo relied on section 1.2 and of the BP GTCs, which it said provided for a more limited regime of the CoQ being binding only for invoicing purposes. It also relied on section 1.3, which it said supported its construction. Tintrade argued that sections 1.2 and 1.3 were “in conflict” the recap term because they provided for a completely different quality ascertainment regime to the one provided for in the recap. Those provisions were not, Tintrade argued, incorporated into the contract.

Court of Appeal decision

A powerfully constituted Court of Appeal (Males, Phillips, Moylan LJJ) agreed unanimously with Tintrade’s position. Males LJ (with whom the other Lord Justices agreed) took a straightforward approach to the question of conflict / inconsistency. Males LJ agreed that if one started off with the recap term, as he decided was the right course (accepting Tintrade’s approach), it was clear that the BP GTCs regime was different to the one set out in the recap, and so would deprive the recap term of all effect (§42). The court agreed that a regime where a CoQ is binding for all purposes is fundamentally different from one in which it is not (§43), agreeing with and approving of Colman J’s similar approach in Navigas v Enron (which Teare J at first instance had not followed, despite being invited to). The recap certification regime and the BP GTCs certification regime could not fairly be read together (§41). The certification regime in the recap was a central feature of the parties’ contractual scheme, making it less likely that the parties would have wished to depart from it through the standard printed terms they had referred to (§44).

Michael Ashcroft QC and Oliver Caplin were instructed by HFW for Tintrade Limited.

Read the full judgment