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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Veba Oil Supply and Trading GmbH v Petrotrade Inc [2001] EWHC 542 (Comm) (01 May 2001) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/542.html Cite as: [2001] EWHC 542 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand. London. WC2A 2L1-
		1 May 2001.

Morison J.

1. This is the Defendant's application for summary dismissal of the claim brought against them. They contend that it is bound to fail or has no reasonable prospect of succeeding.

2. The claim for just under US $250,000 arises from the sale by the Defendants to the Claimants of 25,000, plus, metric tonnes of gasoil. Clause 10 of the contract provided that the quantity and quality of the cargo was

"...to be determined by a mutually agreed independent inspector at the loading installation [Antwerp], in the manner customary at such installation, such determination shall be final and binding for both parties save fraud or manifest error. Inspector to be appointed by seller. Costs to be shared equally between buyer and seller..."

Clause 3 of the contract dealt with quantity, and under clause 4, against the Marginal heading "PRODUCT/QUALITY", the following words appear:

"Gasoil Meeting the following guaranteed specifications:

Test	Limit	Method
Density at 15 deg C	+0.876 KG/L max	ASTM D1298"

3. Celeb Brett were the appointed independent inspectors at Antwerp and were instructed to carry out the determination under clause 10. As they carried out their task they were `observed' by a Buyers' representative. In due course the Inspectors produced an Inspection Report, dated 22 August 1999 and a Sampling and Analysis Report dated 26 August 1999 [the Report]. In the latter document, Celeb Brett determined both the quantity, about which there is no issue, and the density. They found that the density was 0.8750kg/l. The Claimants say, in their pleadings, that the Report is not final and binding upon the parties for a number of reasons and they say that they on-sold the oil to the Lebanese Ministry of Oil on similar quality terms, but that on arrival and testing, it was found that the density of the cargo exceeded the contractual maximum. Hence the claim for damages.

4. In their defence, the Defendants say that the Claimants were bound by the determination, and they challenge each of the reasons advanced by the Claimants for saying why the Inspection was not binding in accordance with the contract.

5. The first ground upon which the Claimants challenge the determination is that the method of testing the product was ASTM method D4052 rather than method D1298. The Defendants say that the fact that the Inspectors departed from their instructions in this respect does not amount to a material departure rendering the determination invalid on grounds of manifest error. The test they used is, they say, a more accurate and widely used method of calculating density of gasoil. It has a lower margin of error [0.0001% as opposed to 0.0007%]. Given that the D4052 is a more modern and accurate method of testing density it is improbable that the Claimants could have had any sensible objection to its use. Furthermore, the Defendants say that during the sampling procedures, no objection was made by the Buyer's Inspector to the method of sampling and either the term as to the method of testing was waived or the Claimants are estopped from relying upon it.

6. The Claimants also say that the determination contained a manifest error. First, they say that the wrong test was used; second that it referred to samples taken from 4 shoretanks, including 2289, yet the composite figure in the report is said to represent the combined result (or composite) from three tanks excluding 2289; and finally, in the Inspection Report there is a reference to yet another tank, number 2246, which was not one of the three from which the composite sample was taken and from which it is said that oil was loaded onto the vessel. The Defendants say the relevant sample is the result of testing the oil from the three relevant tanks. No oil was loaded from the fourth tank and the fact that a sample may have been taken from it is irrelevant.

7. In fact, the position appears to be, according to the evidence filed in support of this application, that no product from tank 2246 was in fact loaded onto the vessel. The difference in the two accounts is said to relate to the way gasoil is sampled and loaded at Antwerp. The pipeline ultimately attached to the vessel at the loading terminal already contains product which must be flushed back into the refinery. The blend which was ultimately to be used for loading was used as the flushing agent. The records show that the blend was a composite taken from the three tanks for which Caleb Brett gave the reading. The pipeline attached to the vessel must be `full' as it is pumped into the vessel and, as is commonly done, gasoil from a tank other than the loading tanks may be used at the end to provide the continuous drive or push to the load. In this case, as the refinery records show, approximately 90 metric tonnes was extracted from tank number 2246 to fill the pipeline, rather than to fill the vessel, and was never loaded. At the end of the process the vessel will have received the whole of its cargo from the three sampled tanks and none from tank 2246. The gasoil in the pipeline which will comprise, at the end nearest the tanks, fuel from tank 2246 will then have to be flushed back into the refinery tanks for the next customer. But even had any oil from 2246 been received by the vessel, the results would not have been affected since its density was within specification and the amount involved was de minimis: 0.26% of the total loaded. In summary, the certificate does not say that any part of tank 2246 was loaded; the terminal says it was not loaded, the inspectors say it was not loaded.

8. As to tank, 2289, the evidence shows that during the blending process, which requires a complicated calculation to ensure the right mix, it was thought that gasoil from this tank might be used: hence it was sampled. There was no significance to be attached to this fact since no oil from that tank formed part of the load.

9. At the hearing, the Claimants supported their claim by reference only to the type of test used, rather than by reference to any of the other pleaded arguments. They were right to do so, I think, as there appears to be no factual merit, having regard to the evidence filed and the refinery reports, in their claims about the other two tanks. The determination identifies the composite sample and the density readings obtained from it, and, pace the method of sampling, there would have been no room for avoiding the finality of the determination by Caleb Brett.

10. For his part, Mr Nolan for the Sellers, very wisely did not pursue the waiver or estoppel arguments. In the light of the legal requirement that an election must be in clear and unequivocal terms, and that estoppel is based upon a clear and unequivocal representation (see The Kanchenjunga [1990] 1 Lloyd's Reports 391 at 398), at this stage of the proceedings the evidence would not have persuaded me that the Claimants were not entitled to rely on the `wrong method' argument, if it has merit.

11. The real dispute centred on the test used by Celeb Brett. Mr Nolan says that the test they used was the one which was customary at the Antwerp loading installation. Clause 4 should be read subject to clause 10. There was no need to refer back to clause 4 when looking at the determination. The determination was designed to avoid disputes precisely of the type which the Claimants were wishing to have litigated, and the Court should give full effect to the commercial purpose of these provisions. In any event, any error, if such constituted an error, could have had no material effect on the result since the overwhelming evidence was that the margin of error in the test used by Caleb Brett was 0.0001 as opposed to the test in clause 4 which had a margin of error of 0.0007. It made no sense to say that the use of a more accurate test made any material difference; and if no material difference then the determination should dispose of the Claimants' claim.

12. For the Buyers, Mr Goldstone submits that clause 10 did not stand alone since the determination required was of volume and quality and those were specified in clauses 3 and 4. Clause 10 made no sense without knowing the amount and quality contracted for. The words "in the manner customary at such installation" did not mean "in the method". Both words (`manner' and `method') were used in the contract and each should be given a meaning; they were not interchangeable. Clause 10 made good sense if it reads as though the words "using the method prescribed in clause 4" were inserted after the words "to be determined" in clause 10. The manner customary at the installation were apt to include, for example, the customary place for carrying out the test and at what stage the tests were carried out; for example, a test on each tank separately or a test after the fuel had been coalesced. As to materiality, where an independent expert fails to carry out his instructions then the determination is not binding and the court does not go on to inquire whether the error was `material'. The parties are only bound by a stipulation as to finality if the expert has done what he was asked to do. In any event, Caleb Brett plainly misunderstood their instructions and did not apply the stipulated test and that was a manifest error which, ex hypothesi, was material.

13. It seems to me that Mr Goldstone is right. In my view, the parties had only agreed to be bound by a determination of quantity and quality which, using the test prescribed, complied with the contractual specification. It seems to me that clause 10 cannot be read on its own. Clause 4 identifies both the standard and the means for assessing whether the standard had been reached. What was required was a test done under the stipulated method, and none other. The fact that the method used was more modern or more accurate is not to the point. The parties had agreed a method of testing which had to be followed to lead to the consequence specified in clause 10.

14. As I read the decided cases, a contractual stipulation as to an expert determination must be observed. In some cases, such as the unreported decision of mine in Conoco v Phillips, the expert is entitled to choose a method or procedure and the parties will normally be bound by his choice. In some cases, the departure from what was agreed might be so trivial as to be described as de minimis and such a departure will not affect the validity of the result. Take for example a case where a valuer of assets is required to attend a particular place at a particular time for the purpose of his inspection and subsequent valuation, it would be most unlikely that a court would not treat the final certificate as binding merely because the valuer was one half hour late.

15. The word `material' as used by Dillon LJ in Jones v Sherwood [1992] 1 WLR 277 at page 287 ("if the mistake made was that the expert departed from his instructions in a material respect") is capable of meaning either that the mistake must be more than trivial or that the mistake must have made a material difference to the result. If it were the latter, then the protection afforded by a final certificate clause would become less effective since the court would have to try the facts to see if the error made a material difference. Since the whole purpose of the final determination provision is designed to avoid such a trial, I cannot think that the Court of Appeal meant more by the word material than `not de minimis'. As Knox J pointed out in Nikko Hotels v MEPC [ 1991 ] 2 EGLR 103, it is not the business of the court to weigh the importance of a stipulation in a contract. If the requirement to use the method specified in clause 4 was contractual that is an end of the matter, whether or not the court thinks it was important or would have made a difference. The assumption the court makes, on normal principles of construction, is that the parties have chosen to define their rights and obligations according to their own needs, whatever they may have been. In this case, with an on-sale, one can envisage the possibility that the Buyers wanted the old fashioned test for reasons connected with it. However, that is speculation. The position is, I think, that it is no business of the court to inquire why the Buyers asked for this particular test. This is what was agreed and had Celeb Brett been aware of this contractual requirement, as I understand the evidence, they would have used it. The test was not so outmoded as to amount to any kind of obvious mistake in the wording of the contract.

16. In my view, this approach has recently been approved by the Court of Appeal in Bouyges UK Ltd v Dahl Jensen UK Ltd [unreported] 31 July 2000, and is consistent with what Lightman J said in British Shipbuilders v YSEL Consortium PLC [1997] 1 Lloyd's Reports 106 at 109 where he said:

"If the expert in making his determination goes outside his remit eg by determining a different question from that remitted to him or in his determination fails to comply with any conditions which the agreement requires him to comply with in making his determination, the Court may set his decision aside. Such a determination which the parties agreed should affect the rights and duties of the parties, and the Court will say so."

17. Applying this approach to the present case, Celeb Brett were asked to determine the quality of the gasoil using method D1298. They have not done so and the parties have not agreed to be bound by a determination as to quality by any other method. Issues as to what difference it would have made had they used the older but contracted for method will have to be determined at a trial.

18. As to "manifest error" I am inclined to the view that there was a manifest error here, due to the wrong test being used, but I would prefer to rest my decision on the basis that clause 10 cannot operate unless the determination has been made in accordance with the method stipulated in clause 4.

1. The result is that I dismiss this application. When this judgment is handed down, I would like to give directions for trial in the light of this judgment. The only triable issue is whether the gasoil loaded into the vessel was up to the contractual specification or not.
2. I would like to thank both counsel for their helpful and informative submissions.