Quality and inspection certificates, as commercial documents, play an important role in international trade. Disputes can often arise as to the accuracy of the contents of certificates and whether or not one certificate or another is final and binding on the parties to the underlying contract. A recent case before the English Commercial Court has shown that certificate final clauses are not always what they might at first seem.
RG Grain Trade LLP (UK) v Feed Factors International Ltd (2011)
In the above case, the sellers (RG Grain) of 1,500 MT +/- 10% of animal feed supplement, Ukrainian origin sunflower expeller, appealed under s.69 of the Arbitration Act 1996 against a decision of the Board of Appeal of the Grain and Free Trade Association (GAFTA) awarding damages to the buyers (Feed Factors) and dismissing the sellers claim for the balance of the purchase price.
The contract incorporated terms and conditions from GAFTA 119. Clause 5 of GAFTA 119 provided that the certificate of inspection at the time of loading into the carrying vessel would be final as to quality. The contract also incorporated terms and conditions from GAFTA Sampling Rules No. 124. Rule 4 provided that where such a certificate was to be final as to quality, that inspector would be solely responsible for taking samples, disapplying Rule 5 which provided that a buyer could request a further analysis.
The contract further provided that quality and condition was to be tested by a GAFTA approved supervisor appointed by the sellers, with the buyers having the right to appoint their own GAFTA approved supervisor. Further analysis (if required) was to be carried out by an analytical chemist.
When the cargo was being loaded, the buyers exercised their option to appoint their own surveyor and joint sampling was conducted. The sellers inspector certified that the cargo was in accordance with the contract specifications. However, the buyers analysis suggested that the cargo did not comply with the protein and fibre content specifications. The buyers sent samples to an analytical chemist (Salamon & Seaber) for analysis, who certified that the cargo did not comply with the protein and fibre content specifications. The buyers rejected the cargo, which was then sold to another buyer.
Before the first-tier arbitrators, the sellers claim for the balance of the purchase price succeeded. On appeal, the Board found that the Salamon & Seaber analysis superseded the sellers certification and allowed the buyers appeal. The following questions came before the court:
- Whether on a true construction of the contract, the certificates of quality and condition issued by the superintendent chosen by the sellers were final and binding
- Whether the buyers were entitled to reject the documents and the goods despite the terms of Clause 5 of GAFTA 119
As to the first question, the court held that the Board had been correct to conclude that Salamon & Seabers analysis was final and binding. Quality as certified by the sellers would be final in circumstances where the buyers had not appointed their own supervisor. An alteration to the contractual regime was made when the buyers appointed their own supervisor. Sampling was then to be carried out jointly, in accordance with GAFTA 124, which meant that, contrary to Rule 4, the sellers inspector would not be solely responsible for drawing samples. A further contractual alteration occurred when a second analysis was requested by the buyers. Although it was not expressly stated in the contract as the buyers right, the court held that it was clearly what was contemplated under the contract. If quality was final as certified by the sellers inspector, there would be no purpose in providing for a second sample. Hamblen J added:
"The existence of such a right is therefore inconsistent with a certificate final regime. This is further borne out by GAFTA 124 where a right to call for a 2nd analysis only arises in circumstances where there is no such regime, as Rule 4 makes clear."
It followed that when the buyers requested a second sample, the contract did not provide that the sellers certification would be final. The second analysis carried out by Salamon & Seaber (at the request of the buyers) was final and binding.
As to the second question, the court held that the Board had proceeded on the basis that there was a right of rejection for quality matters unless the contract provided otherwise. The Boards approach involved a clear error of law. There was nothing in the Boards reasons to suggest that it had addressed the issue of whether the fibre content provision should be properly regarded as a condition, as opposed to a warranty or an innominate term. The Board assumed that the term was a condition unless there was a clear indication to the contrary. This was not the law. The court further held that the Board had erred in concluding that the breach of the fibre content provision gave rise to a right to reject and it had not addressed the relevant legal questions in reaching that conclusion. The buyers were not entitled automatically to reject the documents because of a statement in the quality final certificate that the goods contained 4.1 per cent impurities. The Board had erred in law in concluding that the buyers were entitled to reject the documents, and that this issue should be remitted to the Board for further consideration.