In Trafigura Beheer BV v Renbrandt Ltd (2017) EWHC 3100 (Comm) the Commercial Court provided some winter comfort to purchasers and sellers that are seeking to rely on conclusive evidence clauses as to quality. The Commercial Court swiftly dismissed a belated attempt to challenge the quality of a shipment of gasoil outside the prescribed time and in the face of a conclusive evidence clause. The decision reinforces that the English Courts will not permit parties to circumvent contractually agreed processes concerning the measurement of quality.

Facts

Trafigura Beheer BV (the “Seller”) entered into a contract with Renbrandt Ltd (the “Purchaser”) dated 04 August 2008 which, following variation, required the delivery of 10,000 mt of gasoil, plus or minus 10% at the Seller’s option, by way of offshore Benin ship to ship transfer in October 2008 with delivery on free on board (FOB) terms.

The clauses of the contract relevant to the dispute were, as noted by the Court, not particularly well drafted but contained express provisions in relation to (paraphrasing):

  • quality – stated to be “Gasoil 0.3% sulphur”;
  • restriction on quality – no warranty was given in relation to quality, fitness or suitability of the product and merchantability extending beyond the descriptions and specifications in the contract;
  • quantity and quality inspection – determination to be made by an independent inspector as to the:
    • quantity of the product at the Load Port using the average of the discharge of the mother vessel and daughter vessel received quantities; and
    • quality of the product at the time of loading on the mother vessel,

    with such determination to be final and binding save for fraud or manifest error (but giving the Purchaser a 5 day challenge period as to quantity or quality from the date of the bill of lading); and

  • governing law – the “English High Courts in London” were given exclusive jurisdiction and the contract was to be governed by and construed in accordance with English law (along with a somewhat confused arbitration clause).

The Seller delivered approximately 9,865.69 mt of gasoil to the Purchaser in early October 2008 as evidenced by two bills of lading. Upon loading, the gasoil was tested, and a certificate of quality was issued by Saybolt Nederland BV confirming that the sulphur content of the gasoil was on-specification at 0.261%. No claim was submitted by the Purchaser in respect of the quality of the gasoil within the contractual five day period from the date of the bill of lading.

Perhaps relying on the “fraud or manifest error” exclusion in the contract (which is not clear from the judgement), the Purchaser filed a petition on 10 June 2009 with the Nigerian Economic and Financial Crimes Commission (the “EFCC”), contending that the gasoil was “off-spec” and contaminated with other cheaper cargoes. This petition was, however, withdrawn on 4 June 2010. A further petition was then filed by the Purchaser with the EFCC on 20 September 2016 in relation to the same matter leading to the Seller commencing legal proceedings against the Purchaser in Nigeria for maliciously filing the second petition. The Purchaser was, at the time of the hearing before the English Courts, defending the Seller’s legal proceedings in Nigeria on the basis that the contract submitted disputes to the exclusive jurisdiction of the English Courts and that proceedings had already been raised in England.

The Seller sought a declaration, inter alia, that the cargo was not off-spec and applied for summary judgment against the Purchaser.

Decision

The Purchaser attempted to resist the application for summary judgment by the Seller on a number of grounds including, including:

  1. the contract required this dispute to be resolved by arbitration;
  2. the Purchaser did have a real prospect of success in defending the claim; and
  3. the declaratory relief sought by the Seller being time barred.

Arbitration clause

The Commercial Court decided that the dispute resolution clause was a poorly drafted hybrid jurisdiction clause. The first paragraph provided for all disputes to be submitted to the exclusive jurisdiction of the High Court in London. The second provided that arbitration shall be claimed within 5 days from the bill of lading date failing which the claim shall be deemed waived and absolutely barred without recourse to litigation and arbitration (with a carve out for claims and disputes in respect of demurrage, port costs, shifting, freight differential, heating and/or AWRP).

The principal function of the arbitration clause was to address any Purchaser claims as to quantity and quality. It did not apply to a claim for a declaration of non-liability which could only sensibly be made after a claim has been made against the Seller and which, in this case, was only made several years after the cause of action allegedly arose.

If the Purchaser was correct then the Seller would have no contractual remedy in circumstances where the Purchaser brought a claim against the Seller which is both out of time and in breach of the jurisdiction clause. That would be a commercially absurd result.

Prospect of success

The Commercial Court held that the Purchaser had no reasonable prospect of successfully defending the claim, as:

  1. First, the cargo was on-specification. This was confirmed by the certificate of quality, which confirmed that the cargo had a sulphur content of less than 0.3% and therefore complied with the only express warranty given by the Seller as to the quality of the cargo. Pursuant to clause 14 of the contract, the certificate of quality was final and binding on the parties. The purpose of a conclusive evidence clause such as this is to avoid disputes as to quality and to achieve finality once a proper and independent certificate of inspection has been issued (see e.g. Toepfer v Continental Grain [1974] 1 Lloyd’s Rep 11);
  2. Secondly, the Purchaser did not submit a claim in respect of quality within 5 days. There is a vague assertion that it did so in the Nigerian proceedings, but no evidence in support was produced. It follows that even if there were any basis for making a claim in respect of the quality of the cargo, that claim has been waived and is absolutely barred; and
  3. Thirdly, any claim is time barred by reason of section 5 of the Limitation Act 1980, which requires contractual claims to be commenced within six years of the accrual of the cause of action.

Time bar for declaratory relief

The Purchaser argued that the declaration of non-liability is time-barred in very much the same way as any claim by the Purchaser in respect of off-spec cargo would be time-barred. However, the Commercial Court decided that, if correct, this argument would lead to the absurd position that the Seller is effectively precluded from contending in the contractually agreed forum that the Purchaser’s claims are time-barred in circumstances where the Purchaser has wrongfully brought a time-barred claim in a non-contractual forum. Accordingly the Commercial Court held that this argument could not be correct.

Comment

The decision of the Commercial Court emphasises that the English Courts will seek to uphold the parties’ bargain concerning the resolution of differences over quality and specification. It is common for contracts to require such issues to be resolved swiftly through a process of expert determination. Further, in the absence of a speedy challenge, the independent certificate on quality should be conclusive evidence as to the cargo’s quality. By introducing appropriately drafted conclusive evidence clauses into contracts, parties can ensure that determinations on quality are made swiftly and in a manner that allows the commercial consequences that may impact third parties to be actively managed. The attempts by the Purchaser in this case to belatedly raise issues outside the specified time period for resolution and their seeking to circumvent the conclusive evidence clause was given short shrift.

Perhaps less usually, it was found that the arbitration clause did not operate concerning the dispute. The Commercial Court decided that the dispute resolution clause was a hybrid clause and the arbitration element addressed other issues. This doubtless turned on the specific wording of the arbitration clause where the time-bar mechanism, specifically in the arbitration clause, might have had the unsatisfactory outcome of leaving the parties without a forum for disputes if a stay for arbitration were granted pursuant to section 9 Arbitration Act. In this respect, the case should perhaps be seen in a class of its own, turning on its own specific facts.