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In the case of Septo Trading Inc. v Tintrade Limited, the Court of Appeal considered the correct approach to take when there is alleged inconsistency between bespoke terms expressly agreed between the parties and an incorporated standard term.
The parties entered into a contract for the sale of fuel oil in 2018, the terms of which were recorded in an email confirmation (the Recap). A clause in the Recap stated that a quality certificate issued by an independent inspector at the load port was “binding on parties save fraud or manifest error”.
The Recap also provided for the BP 2007 General Terms and Conditions for FOB Sales (BP Terms) to apply "where not in conflict with the above". The BP terms stated that the quality certificate was “conclusive and binding on both parties for invoicing purposes. … but without prejudice to the rights of either party to make any claim pursuant to Section 26". Section 26 permitted a claim for damages in relation to quality or quantity.
The quality certificate issued by the inspector certified that a composite sample of the fuel oil was within the contractual specification at the load port. Following transfer to different vessels pursuant to an onward sale by Septo (the buyer), the fuel oil was found to be off-spec and investigations concluded that the testing carried out at the load port was unrepresentative of the cargo actually on board. The buyer claimed damages.
At first instance, the judge found that, as a matter of fact, the consignment did not conform to the specification. He also decided that the provisions in the BP Terms and the Recap could be read together, with the BP Terms qualifying the Recap term. He therefore awarded damages to the buyer of just over US$3 million.
On appeal, Tintrade (the seller) argued that the BP Terms were inconsistent with the Recap and the Court of Appeal agreed.
The court examined the case law concerning alleged inconsistencies between standard form terms and expressly agreed terms of a contract, in particular the leading case of Pagnan SpA v Tradax Ocean Transportation SA. Following the approach in that case, the court considered the following three questions:
Although this case does not create any new law, it provides a useful reminder of the application of the principles in Pagnan, where the court drew a distinction between a standard term that qualifies an expressly agreed term and one that negates it.
In practice, certain clauses (such as force majeure clauses or extensions of time) have the effect of qualifying absolute obligations in other clauses within a contract. However, this does not mean that they are inconsistent. The question to consider is whether the clauses can sensibly be read together. If they cannot, there is inconsistency and the special condition is likely to prevail over the standard term, provided that is the true intention of the parties.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
12 August 2021