|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> R G Grain Trade Llp (UK) v Feed Factors International Ltd  EWHC 1889 (Comm) (20 July 2011)
Cite as:  2 Lloyd's Rep 433,  EWHC 1889 (Comm)
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| R G GRAIN TRADE LLP (UK)
|- and -
|FEED FACTORS INTERNATIONAL LTD
Henry Byam-Cook (instructed by Mills & Co) for the Defendant
Hearing dates: 8 July 2011
Crown Copyright ©
Mr Justice Hamblen:
(1) 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; and
(2) Whether the Buyers were entitled to reject the documents and the goods despite the terms of clause 5 of GAFTA No. 119.
"Commodity: UKRAINIAN ORIGIN SUNFLOWER EXPELLER
In bulk, sound, loyal and merchantable quality.
Protein min 32% - Moisture max 7% - Fiber max 23% - Fat min 11%
All tests as per as is basis (GAFTA), allowances as per GAFTA.
Quality and condition to be final at time and place of loading as per certificate of first class superintendent approved by GAFTA at seller's choice and expense.
The buyers have the right to appoint their own GAFTA approved supervisor at their expense. In this case the sampling to be done conjointly, as per GAFTA terms and conditions.
2nd analysis, if any, as per Salamon and Seaber, London.
Quantity: 1500 metric tons
10% +/- in Buyer's option at contract price.
Weight final at place and time of loading, as per first class superintendent certificate at Sellers' choice and expense.
Payment: 100% CAD by telegraphic transfer within 2 banking days after receipt of shipping documents at BNP Geneva.
Seller to provide the following documents:
Contract: Gafta 119...
Special Conditions: Other terms and conditions not in contradiction with above as per GAFTA 119 ..."
Official…………certificate of inspection, at time of loading into the ocean carrying vessel, shall be final as to quality.
Warranted to contain not less than
% of oil and protein combined and not more than 1.5% of sand and/or silica. Should the whole, or any portion, not turn out equal to warranty, the goods must be taken at an allowance to be agreed or settled by arbitration as provided for below, except that for any deficiency of oil and protein there shall be allowances to Buyers at the following rates viz:1% of the contract price for each of the first 3 units of deficiency under the warranted percentage: 2% of the contract price for the 4th and 5th units and 3% of the contract price for each unit in excess of 5 and proportionately for any fraction thereof. When the combined content of oil and protein is warranted within a margin (as for example 40%/42%) no allowance shall be made if the analysis ascertained as herein provided be not below the minimum, but if the analysis results below the minimum warranted the allowance for deficiency shall be computed from the mean of the warranted content. For any excess of sand and/or silica there shall be an allowance of 1% of the contract price for each unit of excess and proportionately for any fraction thereof. Should the goods contain over 3% of sand and/or silica the Buyers shall be entitled to reject the goods, in which case the contract shall be null and void, for such quantity rejected. For the purpose of sampling and analysis each mark/parcel shall stand as separate shipment. The right of rejection provided by this Clause shall be limited to the mark/parcel or marks/parcels found to be defective.
16. SAMPLING, ANALYSIS AND CERTIFICATE OF ANALYSIS- the terms and conditions of GAFTA Sampling Rules No.124, are deemed to be incorporated into this contract. Samples shall be taken at time and place of loading. The parties shall appoint superintendents, for the purposes of supervision and sampling of the goods, from the GAFTA Register of Superintendents. Unless otherwise agreed, analysts shall be appointed from the GAFTA Register of Analysts."
1.3 If one of the parties is not represented for sampling or refuses to draw and/or seal samples as called for under the contract, the other party shall under advice to that party call upon a competent independent organisation for the appointment of a superintendent to act on their behalf to draw and/or seal samples according to these Rules. Extra expenses incurred in this connection shall be borne by the defaulting party.
1.4 The word "sealed" shall mean jointly sealed samples by the Buyers and Sellers or their superintendents and shall be sealed in such a manner as to prevent any access to the sample without breaking or removing the seal. The seal's mark should be clearly identifiable and clearly visible.
4. QUALITY CERTIFICATION AT TIME OF LOADING
Where the contract provides that a certificate of inspection of a superintendent, government or authority at time of loading shall be final as to quality, then the superintendent, government or authority shall be solely responsible for drawing samples and Rules 1:3, 1:4 and 5 do not apply."
5. CONTRACTUAL SAMPLES REQUIRED FOR ANALYSIS TESTS AND ARBITRATION PURPOSES
5:1:6 For Marine and Animal Products Sold on Contracts No.9 at Discharge and No.113 and for Feedingstuffs on Contract No.119 at Loading
One Set of samples is required consisting of the following:-
MPC – analysis
MPC – arbitration
Buyers may accept Sellers' analysis but if required by Buyers, any one of the sealed samples together with instructions shall, within 14 consecutive days of sealing, be dispatched to Salamon & Seaber. In the event that this option is not decided at the time of arrival, the choice of analyst shall be that of the instructing party. This analysis shall be final and any claim arising from it shall be made within 14 consecutive days of the date thereof, accompanied by the certificate of analysis or a true copy."
1st question – 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
(1) The contract provided "2nd analysis, if any, as per Salamon and Seaber London": para 7.5 of the Award;
(2) The contract referred to the governing contract as GAFTA 119. Under the terms of clause 16 of GAFTA 119, the terms and conditions of GAFTA Sampling Rules No 124 were deemed to be incorporated: Award para 7.6;
(3) "Of the GAFTA Sampling Rules No 124, particularly paragraph 5.1.6 applied". Under that paragraph, the Buyers had the right to require samples to be sent to Salamon and Seaber for an analysis, which analysis should be final: Award para 7.7;
(4) The parties had not expressly excluded the rules in GAFTA 124 or any part of them, so that those rules applied and the Salamon and Seaber analysis superseded the Inspectorate Certificates and was to be treated as final: Award paras 7.8 to 7.12.
(1) Rule 4 of GAFTA 124 expressly provides that Rule 5 does not apply "Where the contract provides that a certificate of inspection of a superintendent ... at time of loading shall be final as to quality", as the present contract does. Paragraph 5.1.6 is part of Rule 5. Accordingly contrary to what the Board concluded at paragraph 7.9 of the Award, there was an exclusion of a section of the Sampling Rules, namely Rule 5, so that paragraph 5.1.6 and the provision that a Salamon and Seaber analysis should be final, were not applicable to the present contract.
(2) In any event the provision that "Quality and condition to be final at time and place of loading as per certificate of first class superintendent approved by GAFTA at seller's choice and expense" was part of the written contract made between the parties and was inconsistent with paragraph 5.1.6 of GAFTA 124 insofar as it provided that the Buyers could require a sample to be sent to Salamon and Seaber and that that company's analysis of that sample (which may or may not have been a second analysis depending on whether the Sellers had carried out an analysis at the time of the Buyers' request) should be final. "If clauses are incorporated by reference into a written agreement, and those clauses conflict with the clauses of the agreement, then, in the ordinary way, the clauses of the written agreement will prevail" – see Chitty on Contracts (30th Edn) para 12-079.
(3) Further the written contract provided that "Other terms and conditions not in contradiction with above as per GAFTA 119 including arbitration clause as per GAFTA 125" [emphasis supplied]. The provision in Rule 5.1.6 from GAFTA 124 to the effect that a Salamon & Seaber analysis should be final was incorporated into GAFTA 119 by virtue of paragraph 16. Since that was "in contradiction with above" it was not incorporated into the contract.
(4) The contract gave the Buyers the right to appoint its own supervisor in which case sampling of the cargo would be carried out jointly with the Sellers' superintendent. It also provided that any second analysis would be carried out by Salamon & Seaber but it did not provide that the results of that second analysis should in any way bind the parties although, of course, had they been set out in the certificate of the GAFTA approved superintendent chosen by the Sellers, they would have done so.
(1) The provision "2nd analysis, if any, as per Salamon and Seaber, London" indicates that the analysis certificate of the Sellers' appointed supervisor will not be final and binding in all cases. If it were to be final and binding in all cases, there would be no scope for a 2nd analysis, the only purpose of which would be to test the accuracy of the Sellers' supervisor's certificate. The Board recognised this in Award para. 7.9 – "the parties must have been aware that a second analysis was…possible".
(2) The "Commodity" clause contemplates two possible scenarios at the loadport: (1) the Sellers choose and pay for a superintendent and that supervisor will act on behalf of both parties or (2) the Buyers also appoint and pay for their own supervisor, in which case each party will have its own separate representation at loading. Scenario (2) was contemplated by the option expressly granted to the Buyers – "The buyers have the right to appoint their own GAFTA approved supervisor at their expense".
(3) Which of Scenario (1) or (2) would end up applying, would depend on whether or not the Buyers exercised this option. In Scenario (1), the Sellers' supervisor, being the only supervisor present, would sample the cargo on his own and have those samples analysed. The parties agreed that under this scenario the analysis certificate of the Sellers' supervisor would be final and binding. In Scenario (2), there are two key differences. First, the samples will not be taken just by the Sellers' supervisor, rather "the sampling to be done conjointly" by both supervisors. Secondly, the Buyers have the right to submit a sample for their own 2nd analysis – "2nd analysis, if any, as per Salamon and Seaber, London". They are not bound by the Sellers' supervisor's analysis certificate.
(4) The next question which arises is, if (as in this case) the Buyers send a sample to Salamon & Seaber for a 2nd analysis and that analysis differs from the Sellers' supervisor's analysis, how is this difference to be resolved? The Board correctly held that the answer to this lies in GAFTA No. 124 Rule 5.1.6. Rule 5.1.6 provides that the 2nd analysis performed by Salamon & Seaber is to be final. As a result, the Board were correct to find that the Salamon & Seaber analysis in this case was final and binding. The application of Rule 5 was not excluded by Rule 4 of GAFTA 124 because:
(i) Rule 4 applies where the parties have agreed that a superintendent's certificate will be final as to quality. However, the parties had agreed that the Sellers' superintendent's certificate was not final in the context of Scenario (2).
(ii) In any event the parties had expressly overridden the provisions of Rule 4 in the main terms of their agreement in the context of Scenario (2) because Rule 4 provides that the Sellers' superintendent shall be solely responsible for drawing samples but (a) the parties expressly agreed that "the sampling to be done conjointly" and (b) the parties expressly agreed that "2nd analysis, if any, as per Salamon and Seaber, London".
(1) The starting point is, as the Sellers submit, that quality is final as certified by the superintendent appointed by them. In circumstances where the Buyers do not appoint their own supervisor there can be no doubt that that is the applicable regime. There can also be no doubt that in such a case Rule 4 of GAFTA 124 means that Rule 5 does not apply. In that case the contract does provide that a "certificate of inspection of a superintendent…at time of loading shall be final as to quality" and that superintendent "shall be solely responsible for drawing samples".
(2) An alteration to that contractual regime is, however, made when the Buyers appoint their own supervisor. In that case sampling is to be done conjointly in accordance with GAFTA 124. That means that, contrary to Rule 4, the seller's superintendent will not be "solely responsible for drawing samples". It also means that although Rule 4 states that Rule 1.4 does not apply, that cannot be the case. Rule 1.4 clearly does apply where there is joint sampling.
(3) A further alteration to the contractual regime is made when a 2nd analysis is called for by the Buyers. Although the "Commodity" clause does not state in terms that this is the Buyers' right I agree with the Buyers that this is clearly what is contemplated. In particular: (1) it appears immediately following the provision dealing with the Buyers' right to appoint their own supervisor and it is linked to and follows on from that right; (2) given that the first analysis will be done by at the direction of the Sellers' (through their appointed superintendent) it is difficult to see why they should have or need a right to call for a 2nd analysis; (3) in GAFTA 124 the right to call for a "2nd analysis", which appears in various provisions, is generally a right given to the counterparty to that who had arranged for the first analysis (see, for example, Rules 5.1.3; 5.1.5).
(4) The only purpose for having a right to call for a "2nd analysis" is if doing so has some effect or consequence. If, however, quality is final as certified by the Sellers' superintendent then there will be no purpose in doing so. Realistically the only circumstances in which a second analysis is likely to be called for is where the Buyers are not satisfied with the analysis results recorded in the Sellers' superintendent's certificate. Unless and until that certificate is produced the Buyers will not know what the relevant analyses are and whether there is any need or warrant for a second analysis. 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. I therefore agree with the Buyers that the effect of conferring a right on the Buyers to call for a second analysis necessarily means that, where that right is exercised, the certificate final regime does not apply.
(5) It follows that, where the Buyers call for a "2nd analysis" the contract does not provide that a "certificate of inspection of a superintendent…at time of loading shall be final as to quality". If so, it equally follows that there is no exclusion of Rule 5, which is the Rule which deals with second analyses in various cases, including in relation to GAFTA 119. In such a case there is neither a quality final provision nor sole sampling and the exclusion of Rules 1.3, 1.4 and 5 has no application.
(6) That being the case the clear effect of Rule 5.1.6 is to make the results of the second analysis "final". The Sellers submitted that it was not clear that this applied to a Salamon and Seaber analysis, as opposed to the analysis contemplated by the rather obscure penultimate sentence in the Rule, but I am satisfied that it does so apply and that there is no sensible reason for drawing the proposed distinction, nor was any suggested.
(7) It follows that I agree with the Buyers that Rule 5 of GAFTA 124 has the effect that the "2nd analysis" carried out by Salamon and Seaber is final and binding.
(1) When the first analysis produced obviously aberrant results so that the Sellers' superintendent did not think that they could possibly reflect the condition of the cargo and wished to have another analysis carried out before producing his certificate. However, it is not the role of a seller's supervisor to question his own analysis results. Even if he did, he would simply have the goods retested. Further, this example does not explain why the contract granted the Buyers the right to have a 2nd analysis performed.
(2) When the results of the first analysis were mislaid before the Sellers' superintendent saw them and was able to produce his certificate (although, realistically, this was not pressed at the hearing). However, if the results were mislaid, the supervisor would simply ask for another copy.
(3) If the Buyers wished to have an analysis performed themselves with a view to providing it to the Sellers' superintendent for comparison and cross-checking with the analysis obtained by him before he issued his inspection certificate. However, this ignores the fact that the Buyers will only find out the Sellers' analysis results when the Sellers' supervisor provides the Buyers with his certificate. Under the Sellers' construction it would, by then, be too late for the Buyers to do anything.
(4) If the first analysis was vitiated for fraud or admitted error and a second analysis was accordingly required. However, these rare circumstances are unlikely to be established until much later and the provision is clearly addressing an analysis to be performed at the time of the transaction.
"1. The court should read an arbitral award as a whole in a fair and reasonable way. The court should not engage in minute textual analysis.
"2 Where the arbitrator's experience assists him in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of his own trade or industry, the court will accord some deference to the arbitrator's decision on that question. The court will only reverse that decision if it is satisfied that the arbitrator, despite the benefit of his relevant experience, has come to the wrong answer."
Question 2 - Whether the Buyers were entitled to reject the documents and the goods despite the terms of clause 5 of GAFTA No. 119.
"If a contract does not contain a scale of allowances for deficiency in certain specifications (viz fibre) and the goods subsequently fall outside this then it must follow that the goods can be rejected unless the parties agree to any other course of action."
(1) The Board failed to give effect to clause 5 of GAFTA 119 which is a non-rejection clause.
(2) The Board proceeded on the erroneous basis that any failure of the goods to meet the specification would justify rejection.
"Warranted to contain not less than ..... % of oil and protein combined and not more than 1.50% of sand and/or silica. Should the whole, or any portion, not turn out equal to warranty, the goods must be taken at an allowance to be agreed or settled by arbitration as provided for below...." [Emphasis supplied].
(1) It is apparent from the terms of clause 5 that:(a) the clause provides for an allowance to be agreed or settled by arbitration where the quality of the goods is not as warranted;
(b) as an exception to the general rule that allowances are to be agreed or settled by arbitration, a specific scale of allowances is specified in respect of deficiencies of oil and protein and for excesses of sand or silica;
(c) further an express right of rejection is given where the sand or silica content exceeds 3%.
(2) If, as the Board found, the clause only applied to deficiencies of oil and protein and excesses of sand and silica, there would be no need for it to provide for allowances to be settled by agreement or arbitration because the allowances in respect of those four elements are expressly set out in the clause itself. Indeed the fact that immediately after the words "the goods must be taken at an allowance to be agreed or settled by arbitration as provided for below", the clause:(a) says "except that for any deficiency of oil and protein ..." and
(b) then goes on to specify the scale of allowances for oil and protein and for sand and silica,
shows that the general provision as to allowances being agreed or decided by arbitration is intended to apply to all departures from specification apart from those in respect of oil, protein, sand and silica.
(1) The opening words of the material part of clause 5 at lines 35-36 make no reference to the fibre content of the goods. They provide the confines within which the rest of the clause operates – it only addresses matters relating the combined oil and protein content and the sand and/or silica content of the goods and nothing more.
(2) The provision that "the goods must be taken at an allowance to be agreed or settled by arbitration as provided for below, except that for any deficiency of oil and protein there shall be allowances to Buyers at the following rates…" does not broaden the scope of clause 5 beyond the limit already set down by lines 35-36. They reflect the fact that under clause 5, matters of (i) the amount of the cargo to which an allowance is to be applied and (ii) the degree of deficiency are left to be agreed or arbitrated but the question of what rate of allowance is to be used has been fixed in advance.
(1) The warranty which is set out in clause 5 begins with the words at lines 35-36:
"Warranted to contain not less than…% of oil and protein combined and not more than 1.50% of sand and/or silica".
(2) It is therefore specifically a warranty relating to oil and protein and sand and/or silica. No reference is made here or elsewhere to the fibre content of the goods or to any other quality characteristics.
(3) The reference in lines 36-38 that "Should the whole, or any portion, not turn out equal to warranty.." would naturally be read as a reference back to the warranty set down in lines 35-36 (i.e. the warranty regarding the combined oil and protein content and the sand and/or silica content of the goods).
(4) As to the Sellers' argument that since the "allowance" for the oil and protein, sand and/or silica is "provided for below" the allowances "to be agreed or settled by arbitration" must relate to other warranted quality specifications, it is perfectly possible for the applicable allowance in respect of oil and protein and sand and/or silica to require agreement or arbitration. In particular, as the Buyers submitted, in any case where it is alleged that an allowance is due in respect of oil and protein or sand and/or silica, there are three matters which will go towards deciding the amount of that allowance:(i) The amount of cargo to which the allowance is to be applied;(ii) How deficient the cargo is as compared to the warranty; and(iii) What rate of allowance is to be used.
(5) Absent express provision, each of these matters may well be the subject of disagreement between the parties. For example:(i) Clause 5 itself contemplates in line 36 that it may only be a "portion" of the goods which does not comply with the warranty rather than "the whole". The parties may well disagree over the precise amount of that portion.(ii) The degree of deficiency will depend on the quality analyses carried out on the cargo. If each side has its own analysis, then they may disagree over how deficient (if at all) the cargo is.(iii) Each side may disagree over the effect of the deficiency on the value of the cargo and so disagree over the rate of allowance.
(6) Issue (iii) is settled by the rates of allowance fixed by clause 5. However, the other matters are not so settled and therefore may require agreement or arbitration. It follows that these words are not necessarily referring to other specifications of quality.
"What I have to decide is not whether the certificate is conclusive but whether the documents can be refused because the certificate shows that there was a percentage of impurities greater than that specified and which on any view entitles the buyers to an allowance.
If the documents did not include a quality final certificate or if the quality final certificate which was included dealt with goods other than barley it seems to me that the buyer could refuse the documents. Equally if the certificate dealt only with weight and failed to deal with quality it may well be that the documents could be refused without more. But here the certificate is a good certificate in that it does state what is the quality, what is the percentage of impurities. It shows that there was not a full compliance with the contractual term as to quality and it does what it was intended to do. It is a valid document capable, as Mr. Hallgarten says, of being transferred as part of a subsequent sale.
The question here, it seems to me, is not whether the document can be rejected because it did in itself not comply with the contractual terms relating to the provisions as to a certificate, but because it shows that the goods did not comply with the contractual terms.
It is accepted that the provision as to impurities was not part of the description of the goods so there was no implied condition under s. 13 of the Sale of Goods Act, 1893, entitling rejection on non-compliance. Nor is any condition implied by s. 14 of the Sale of Goods Act, 1893, relied on. Accordingly it seems to me that on the basis of what was said in the case of The Hansa Nord,  2 Lloyd's Rep. 445;  Q.B. 44 at pp. 451 and 61 by Lord Denning, M.R., and at pp. 457 and 70H-71B by Lord Justice Roskill and what was said in Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.,  2 Lloyd's Rep. 478;  2 QB 26, in the absence of any clear agreement or prior decision that this was to be a condition, the Court should lean in favour of construing this provision as to impurities as an intermediate term, only a serious and substantial breach of which entitled rejection.
At pp. 445 and 61 of The Hansa Nord, Lord Denning, M.R., stresses that in the ordinary case where there is a deviation between the goods and the contractual provisions the buyer does not have the right to reject the whole cargo unless the breach was serious and substantial. Where the discrepancy is a minor discrepancy the buyer is bound to accept the goods. He should not reject them unless there is a serious and substantial breach clearly attributable to the seller. At pp. 457 and 70, Lord Justice Roskill said:
In my view, a Court should not be over ready, unless required by statute or authority so to do, to construe a term in a contract as a "condition" any breach of which gives rise to a right to reject rather than as a term any breach of which sounds in damages-I deliberately avoid the use of the word "warranty" at this juncture. In principle contracts are made to be performed and not to be avoided according to the whims of market fluctuation and where there is a free choice between two possible constructions, I think the Court should tend to prefer that construction which ensure performance and not encourage avoidance of contractual obligations.
If there had been no provision as to a quality final certificate I would have had no doubt whatever that the present breach of the provision as to impurities would not have entitled rejection of the goods but would have entitled the buyers only to an allowance. Does it make any difference that the quality final certificate whose purpose is to finalise quality between the buyer and the seller (and which is otherwise valid) shows this minor breach, which but for the final certificate must be met by a prior allowance.
In my judgment, on the terms of the present contract, it does not make any difference. The buyers here had to consider whether the breach established by the quality final certificate was substantial and serious or went to the root of the contract or, on the other hand, whether it was of such a kind that they should have been satisfied with the price adjustment. There was, on the findings of the Board of Appeal, only one answer to that. Those findings are in strong terms and show that commercial men (to whose conclusions on these matters I must and do attach great weight) considered that this kind of deviation in quality would not be treated as entitling a rejection either of a quality final certificate (the quality final certificate being otherwise valid) or the goods. Accordingly I hold that the buyers were not entitled automatically to reject the document because of this statement in the quality final certificate that the goods contained 4.1 per cent. impurities."
(1) On a true construction of the contract, the certificates of quality and condition issued by the superintendent chosen by the Sellers were not final and binding; and
(2) The Board of Appeal did err 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.