![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales Court of Appeal (Civil Division) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> AIC Ltd v ITS Testing Services (UK) Ltd "The Kriti Palm" [2006] EWCA Civ 1601 (28 November 2006) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/1601.html Cite as: [2007] 1 Lloyd's Rep 555, [2007] 1 All ER 667, [2007] 2 CLC 223, [2007] 1 Lloyds Rep 555, [2007] 1 All ER (Comm) 667, [2006] EWCA Civ 1601 |
||
[New search] [Printable RTF version] [Help]
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
The Honourable Mr Justice Cresswell
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE RIX
and
SIR MARTIN NOURSE
____________________
| AIC LIMITED |
Respondent/ Claimant |
|
| - and - |
||
| ITS TESTING SERVICES (UK) LIMITED "The Kriti Palm" |
Appellant/ Defendant |
____________________
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Nicholas Hamblen QC & Mr Michael Ashcroft (instructed by Messrs Holman Fenwick & Willan) for the Respondent
____________________
Crown Copyright ©
Lord Justice Rix :
| Index | Para |
| 1. Introduction | 1-19 |
| 2. The essence of ITS's case | 20-22 |
| 3. The essence of AIC's case | 23-27 |
| 4. The dispute | 28 |
| 5. The effect of the certificate | 29-44 |
| 6. The parties | 45-48 |
| 7. The inspection contract | 49-52 |
| 8. Events at the loading port | 53-60 |
| 9. Events at the discharge port, and their consequences | 61-68 |
| 10. The Cooper retest (and further events of 16 April) | 69-82 |
| 11. 17 April: Mr Rackham briefs Mr Lucas. What Mr Lucas knew | 83-95 |
| 12. 17 April: the telephone conversation. What Mr Lucas said | 96-122 |
| 13. The follow up correspondence | 123-129 |
| 14. The premium parcel RVP | 130-131 |
| 15. Other witnesses of the telephone conversation | 132-145 |
| 16. After the telephone conversation | 146-153 |
| 17. AIC's Swiss and Galaxy's English litigation | 154-163 |
| 18. The expert evidence | 164-168 |
| 19. International and ITS internal guidelines | 169-186 |
| 20. ITS's practice and duties with regard to sample retention | 187-192 |
| 21. Mr Lucas's evidence | 193-205 |
| 22. The judge's findings about Mr Lucas | 206-215 |
| 23. A third element | 216-218 |
| 24. Mr Chalmers' evidence | 219-245 |
| 25. The judge's findings as to Mr Chalmers | 246-249 |
| 26. The issues considered by the judge | 250 |
| 27. Deceit: the law | 251-260 |
| 28. Deceit: the representation | 261-280 |
| 29. Deceit: dishonesty | 281-293 |
| 30. A third element; and the respondent's notice | 294-300 |
| 31. Deliberate concealment | 301-314 |
| 32. Section 32(1)(b) | 315-325 |
| 33. The four tests | 326-327 |
| 34. (1) Did ITS owe a duty to disclose the relevant information? | 328-351 |
| 35. (4) Was the information relevant to AIC's right of action? | 352-362 |
| 36. (2) and (3): consciousness of duty and deliberate decision to conceal | 363-366 |
| 37. Section 32(2): a fallback case | 367-369 |
| 38. Continuing duties | 370-374 |
| 39. Causation, remoteness and loss | 375 |
| 40. Conclusion | 376-377 |
| 41. Annex A: The transcript of the 17 April Telephone conversation | A |
1. Introduction
"Quality and quantity at loadport: as determined by mutually acceptable independent inspectors, appointed by sellers, results to be final and binding for both parties save fraud and manifest error. Costs to be shared 50/50 buyer/seller."
"TW: Well I have a quality certificate from you that says it is on specification.
NL: We will be standing by that certificate."
"The representation that the certificate (which stated 'Fuel meets Specification') was and remained a good and valid certificate, was a false representation made by Mr Lucas who was reckless as to its truth."
2. The essence of ITS's case
3. The essence of AIC's case
4. The dispute
5. The effect of the certificate
"Before coming to the arguments I should record certain further matters of agreement. First, that test method D4052 is more modern and accurate than D1298, having a margin of error of .0001 per cent. as opposed to 0.0007 per cent. Second, that had the inspectors used method D1298, they would still inevitably have found the density test satisfied in respect of the actual samples tested."
"Once a material departure from instructions is established, the Court is not concerned with its effect on the result. The position is accurately stated in par. 98 of Mr. Justice Lloyd's judgment in Shell U.K. v. Enterprise Oil: the determination in those circumstances is simply not binding on the parties. Given that a material departure vitiates the determination whether or not it affects the result, it could hardly be the effect on the result which determines the materiality of the departure in the first place. Rather I would hold any departure to be material unless it can truly be characterized as trivial or de minimis in the sense of being obvious that it could make no possible difference to either party."
"whether the parties would reasonably have regarded the departure as sufficient to invalidate the determination".
"Turning to the present case, I am in no doubt that the fact that the use of the wrong method cannot have affected the "result" does not save the determination. As Mr. Goldstone has pointed out, it cannot be assumed that the choice of a particular method of testing is a consequence solely of the parties' desire to achieve an accurate result. There may be different reasons which have been dictated by the terms of other related contracts and/or related letters of credit. The possibility that there may be such other reasons is by no means far-fetched in the context of a commercial contract which is likely to be one of a chain. These are not matters about which the Court can or should speculate. The starting point is that if the parties have agreed that a determination using method A is to be binding, then a determination using method B will not be binding because the parties have not agreed that it will be. It follows that the determination is not binding and the appeal must be dismissed."
"TW: …because I believe this other [method ie D5191] will give a higher RVP reading.
NL: Ok well I don't know whether that is true or not, I don't think there is any correlation between the two methods…"
"The use of ASTM D323 resulted in a lower reading than that which would have been shown by the correct test and gave the impression that the cargo met the contractual specification."
That plea was presumably premised at least in part on expert advice tendered to AIC.
"The following points should be noted. It would not have been easy for a client such as AIC inexperienced in the purchase and sale of gasoline (see issue 1) to determine whether a departure from instructions was trivial or de minimis. I refer under issue 6 below to test methods which are technically equivalent and would be expected to give results that are not significantly different. If the tests ASTM D323 and ASTM D5191 had been performed correctly the results should be comparable. Once it was clear that ITS had departed from instructions as to the test method (and used D323 instead of D5191) it was perfectly understandable commercially that AIC (with its very limited experience) would look to ITS (as an independent inspection company) for an answer one way or the other as to whether ITS was standing by the certificate which said "Fuel meets specification", and act accordingly vis-à-vis Mobil or Galaxy."
"15. Before turning to the authorities most closely in point, it is convenient first to recognize two principles which inevitably touch on the issue. The first, and that on which Mr. Nolan understandably places reliance, is to be found in Lord Justice Cairns' judgment in Toepfer v. Continental Grain Co., [1974] 1 Lloyd's Rep. 11 at p. 14:
When parties enter into a contract on terms that the certificate of some independent person is to be binding as between them, it is important that the Court should not lightly relieve one of them from being bound by a certificate which was honestly obtained and not vitiated by fraud or fundamental mistake on the part of the certifier. When, for instance, as in this case, the certificate called for by the contract is one relating to the quality of the goods sold, the business purpose is to avoid disputes about quality, and that purpose is defeated unless it is made difficult for a party to go behind a valid certificate.
16. The second, clearly countervailing, principle is surely this: inspectors should be astute to comply with their instructions and, if they depart from them, there should not then be much scope for dispute and litigation as to whether their determination is nevertheless binding. In short, the interests of finality cut both ways although, of course, one bears in mind that if a determination is set aside the underlying dispute is left unresolved."
6. The parties
7. The inspection contract
"Contractor [ie ITS] shall hold retained samples for ninety days (unless instructed otherwise by Company) [ie Mobil, and thus Mobil/AIC]."
"192. Thus in my opinion ITS' duty to take reasonable care to ensure that any certificate it issued was accurate as to those matters on which it was instructed to report, included the following implied obligations to both Mobil and AIC:
i) to determine whether Mobil had performed its contract with AIC in the relevant respects, applying the test methods ITS was instructed to apply.
ii) to exercise independent and impartial judgment and to act as an independent inspection company at all material times.
iii) to report the result of tests independently, accurately, clearly, unambiguously and objectively.
iv) to include in any certificate all information relevant to the validity and application of the test results and all information required by the test method and procedure used;
v) to make it clear whether the results reported referred to tests carried out on a single item, or on a batch of items, including where relevant details of any sampling carried out.
vi) to include in any certificate: - any departures from standard condition; reference to the test method and procedure used; any standard or other specification relevant to the test method or procedure or deviations, additions to or exclusions from the specification concerned.
vii) to issue material amendments to any certificate in the form of a further document by way of Supplement to the certificate, with a statement to the effect that the same should be passed onto any person to whom the original certificate had been provided.
viii) where a complaint or any other circumstance raised doubt concerning the quality of the tests, to ensure that the relevant work/tests were promptly audited/reviewed. Where the audit/review findings cast doubt on the correctness or validity of the test results such as to necessitate a Supplement to the certificate, to write to Mobil and AIC immediately enclosing the Supplement, with a statement to the effect that the Supplement to the certificate should be passed onto any person to whom the original certificate had been provided."
8. Events at the loading port
"Analysis was performed as [sc at] shore tanks as soon as the tanks were available. The final tank for the regular parcel was to be outside the required specifications, however after re-testing with a columetric composite of all four tanks, the results were found to be acceptable."
9. Events at the discharge port, and their consequences
"Problem: ITS as Disport Inspectors declare high RVP and Octanes. Discharge is suspended awaiting further testing…
CR [Mr Rackham] called Linden and advised Jules Balogh (Lab Manager [at ITS USA]) of loading problems with quality…ITS Linden to re-sample and re-test multilayer samples all tanks…
A.M. 16/04/96
CR received call from Giovanni Sampino (GS) of AIC asking for list of retain samples and individual shore tank results prior to load. CR contacted Mobil and Mobil declined to issue individual shore tank results as cargo sold FOB and final document was bench blend as representative of cargo loaded. This passed to AIC."
"0845hr. GS called CR and stated that vessels retained loadport comp samples had been tested with Saybolt [another inspection house] as independent witness and results concur with load port C of Q. However not possible to perform RVP test as all samples comped in tin cans. ALSO ITS Grays loadport C of Q states RVP by ASTM D 323 whilst Colonial Pipeline Spec (stipulated load port spec) states RVP to be by ASTM D 5191.
RVP was tested by ITS lab Tech at Coryton to ASTM D 323 as an oversight and error not picked up at reporting stage by Inspection office.
Very early days yet but AIC state that vessel is held on demurrage and also if RVP method is found to be erroneously used they will hold us for total quality failure of cargo."
10. The Cooper retest (and further events of 16 April)
"JC re Kriti Palm. Harass U.K. Need low RVP."
11. 17 April: Mr Rackham briefs Mr Lucas. What Mr Lucas knew.
"John, subsequent to our telecons.
Mark, subsequent to e mail from M Stokes.
Current situation is that MV Kriti Star loaded two grades Prem/Reg ums at Coryton a/c Mobil/AIC. AIC purchased FOB on Load C of Q.
Quality by ITS at Coryton to CPC spec grades R2/M2.
On arrival New York AIC had sold to Galaxy and ITS appointed for Q and Q [quantity and quality].
Regular pcl at disport found off on RVP. Spec max 9.0 load C of Q states 8.22.
Checking with Mobil Lab tech it appears RVP done by ASTM D 393 [sic] and NOT 5191 as per CPC. C of Q checked and passed by local inspection office and C of Q states 393. This has been queried but I have not responded as yet.
AIC called in Saybolt to witness ITS in New York. Galaxy then appointed SGS.
Vessel has discharged premium pcl but Galaxy refuse to accept reg pcl. Vessel remains alongside on demurrage.
Late PM yesterday AIC served written telex notice of claim against Mobil London with cc copy to me at West Thurrock.
To date no admission of liability by ITS has been made.
Have managed to obtain original RVP samples ex Coryton and whilst these have been broached for original tests have had Grabner RVP's conducted at West Thurrock and overall average for four tanks loaded ex shore onto 17 ship tanks find RVP to be 9.33.
Am trying to stall AIC/Mobil but things becoming very heated."
"198. The experts agreed that in the light of the ship/shore quantity figures, any contamination would have been very limited and would not have caused a significant increase in the Vapour Pressure.
199. I accept Mr Revell's evidence [he was the expert witness for AIC], in relation to the broached/opened samples re-tested by Mr Cooper, as follows. The Vapour Pressure of the samples when tested would probably have been lower than when they were first tested at Coryton. The results of the Cooper re-tests established on a balance of probabilities that the tests ITS carried out before loading significantly understated the Vapour Pressure of the regular grade gasoline. (In cross-examination Mr Lucas agreed that because of the loss of light ends in the case of a broached sample, one would expect the RVP figure on re-test to be lower).
200. I accept Mr Revell's opinion that the information now available (particularly the Cooper re-test results) indicates that the original ASTM D323 tests carried out by Mr Mailey of ITS were not in accordance with the stated test procedures and that at least some of the ASTM D323 results, as reported by ITS, were probably incorrect and significantly understated the Vapour pressure in at least two of the shore tanks at Mobil Coryton.
201. The ASTM D5191 results reported by both ITS (US) And SGS at disport were broadly comparable. These two sets were also broadly similar but marginally higher than the Cooper re-test results, which were performed on broached samples. I accept Mr Revell's opinion that the ITS (US) and SGS Vapour Pressure results broadly corroborated each other and when viewed together with the Cooper re-test results confirmed that the regular motor gasoline on board the Kriti Palm was on a balance of probabilities off-specification.
202. I find that the Vapour Pressure results by test D323 stated in the ITS certificates of quality for the regular cargo were probably wrong. The results of the Cooper re-tests were a key piece of evidence, highly relevant to this conclusion.
203. I find that Mr Lucas and Mr Chambers knew, understood and appreciated the matters set out in the last four paragraphs."
"d) Mr Lucas knew that the results of the Cooper re-tests established on a balance of probabilities that the tests ITS carried out before loading significantly understated the Vapour Pressure of the regular grade gasoline; and
e) Mr Lucas knew that the Cooper re-test results indicated that the original D323 tests carried out by Mr Mailey were not in accordance with the stated test procedures and that at least some of the D323 results, as reported by ITS, were probably incorrect and significantly understated the Vapour Pressure of the gasoline in at least two of the shore tanks at Mobil Coryton; and
f) Mr Lucas knew that the ITS (US) and SGS Vapour Pressure results broadly corroborated each other and when viewed together with the Cooper re-test results confirmed that the regular motor gasoline on board the Kriti Palm was probably off-specification; and
g) Mr Lucas knew that the Vapour Pressure results by test method D323 stated in the ITS certificates of quality for the regular cargo were probably wrong and that the results of the Cooper re-tests were a key piece of evidence, highly relevant to the conclusion".
"h) Mr Lucas knew from the results of the Cooper re-tests that the cargo would probably have been shown to be off-specification, if DVPE had been tested in accordance with D5191; and
i) Mr Lucas knew that in all the circumstances then known to him it was wrong for ITS to maintain that a certificate which said "Fuel meets Specification" was and remained a good and valid certificate."
12. 17 April: the telephone conversation. What Mr Lucas said.
"I guess what I am looking from you is a confirmation that, written confirmation that Caleb Brett has indeed used the wrong test method…and I am going to have to be looking for some sort of compensation from yourselves…Are you prepared to give me that information?"
To that Mr Lucas replied:
"I could certainly give you a statement of fact, a written statement of fact what happened on the events and I would get that to you by fax if you wish or line mail."
"I would then also need a statement saying that the said cargo on the Kriti Palm does not meet and I don't believe it does meet the Colonial M2 grade."
"Ok, Tom, there is two things there. The statement of facts as to what we actually did I can produce that. Whether the material was offspec leaving Coryton or not we cannot really comment on that because our work was on the shore tanks. Ok.
"Ok well I don't know whether that is true or not, I don't know whether there is any correlation between the two methods that you are talking about at this time. Our problem now with RVP is that it is impossible to go back into any of the samples because no samples are kept under ice…"
"So I have to find out some way of proving that it actually is off specification. You are telling me that I cannot do that."
"NL. Not to the load port but you can at the discharge port.
TW. Well, I have a quality certificate from you that says it is on specification.
NL. We will be standing by that certificate."
"NL. I can't give advice on that Tom, all I know is that the loading sorry the tanks at the loading ports were analysed. The certificates were produced on a tank by tank basis and decisions were made on that information.
TW. Alright I know that that happened but that was inaccurate information.
NL. Well I can't comment on that over the telephone. I really don't know."
"TW. Or was it inaccurate information?
NL. I can't say that. I don't know.
TW. Well if the test 323 was done where test 5191 should have been done, do you not see that as inaccurate?
NL. I can't comment on that. I can't say whether it is inaccurate or not."
"I have hired you to give me a colonial specification to prove the colonial test, you did not give me that according to your employee Chris Rackham. You gave me tests 323 which is not the colonial test."
"TW. Which, is therefore, which is therefore inaccurate. Now I have a certificate from you saying that it meets colonial specification.
NL. You have a certificate from us. I can't recall what it says."
"TW. And I have a certificate that says that on that ship the shore tank composite meets colonial M2 and R2 grades and that is something that is issued by Caleb Brett and what I am finding out at the disport by Caleb Brett that I don't have colonial so there is something there. I don't know all I am asking you to do is give me a statement saying that it does not meet. That's what I need and if you are not willing to give me that then I am going to have to get with your legal counsel quick because I have got a ship waiting to complete the discharge.
NL. Well, I guess the answer to that is Tom I can give you statements of fact which is what we have done. It is probably not going to save what you are looking for in this case or I can refer you onto somebody who would provide a service on behalf of legal counsel.
TW. What's that?
NL. Well you need to talk to somebody who can deal with this in a legal way. I think that's what you are saying to me isn't that Tom?
TW. Yea I am going to have to at this point. It is a law case for me right now. I mean I have a ship waiting to discharge."
"You either can change the certificate and tell me what I bought. If you can't do that then I am going to have to sue you…My legal counsel is a New York firm called Colt, Mallet- Prevost. My lawyer's name is Robert Gruendel."
"283. The telephone conversation must be considered as a whole. I accept Mr Hamblen's submission on behalf of AIC that the overall impression conveyed by Mr Lucas during the telephone conversation was that the certificate for the regular cargo was and remained a good and reliable certificate…
284. The representation that the certificate (which stated 'Fuel meets Specification') was and remained a good and valid certificate, was a false representation made by Mr Lucas who was reckless as to its truth. I find that Mr Lucas intended that AIC should act in reliance on the representation and I find that AIC did so…
288. For the reasons set out above, in my judgment the representation that the certificate (which stated 'Fuel meets Specification') was and remained a good and valid certificate, was false and misleading.
289. Further, I find that Mr Lucas was reckless as to the truth of this representation made during the telephone conversation…
292. For the reasons set out above I hold that ITS are liable to pay damages to AIC for deceit."
13. The follow up correspondence
"You requested that we change the certificate in relation to the above cargo. This we cannot do as this would be a fraudulent act.
You indicated that the alternative position is that you will take legal action against us. Sadly we await the next communication from you on this matter."
"1. We were informed yesterday am by Chris Rackham and confirmed by you that Caleb Brett used the incorrect test method on RVP at the loading of the Kriti Palm. Our question yesterday was very simple – was the original binding irrevocable quality certificate issued by Caleb Brett still valid or does it need to be reissued with corrected results due to Caleb Brett's error? We under no circumstance would make a request for a fraudulent document. You are as likely to incur legal action against yourself by suggesting the same as you are by providing inaccurate test information…
3. We understand that you "stand by your previous results" even though you cannot now be certain that it does or does not meet colonial specifications per Lucas/Whitaker phone conversation…
6. We hold you responsible for all costs and consequences in this matter and reserve all our legal rights and remedies in this matter.
7. Our legal counsel in London and New York is Robert Gruendel of Colt, Mallet-Prevost…"
"We, as an inspection company, can only issue certificates of quality stating what we found using the test methods we used.
In the present case, we issued certificates of quality only in relation to the shore tanks…
In all cases, it was plain on the face of the certificates that the test method was ASTM D323.
The results reported were what we found. We are unable to produce a reporting stating a result which we did not obtain by a test method which we did not use."
14. The premium parcel RVP
15. Other witnesses of the telephone conversation
"Nigel was very calm and very careful during the conversation. He obviously did not wish to give the client incorrect information but also did not want to implicate the company in respect of any liability…I am also informed that AIC say in their Points of Claim that ITS knew that the two tests gave different results but did not reveal this to the Claimant. Neither Nigel Lucas nor I knew whether there was any correlation between the two methods. We did not conceal anything from AIC."
"My role in relation to the retests on the cargo was simply to pass on the results to Mr Chalmers and Mr Loughead. Mr Chalmers, as Head of Compliance, would have taken over responsibility for handling the matter after AIC began complaining about problems with the cargo. It would have been for Mr Chalmers, along with Mr Lucas, to decide whether to inform AIC about the retests and the results of them…Mr Chalmers and Mr Lucas would certainly have been anxious to obtain the results of the retests because by 16/17 April 1996 ITS were coming under pressure from AIC and Mobil."
He appears to have forgotten that both Mr Chalmers and Mr Lucas were out of the office for much of this time. There was further oral evidence at trial of this nature: thus he thought that Mr Lucas's main briefing would have come from Mr Chalmers rather than himself, and he could not really recall his own briefing of him. He thought that his "Harass UK" log entry was Mr Chalmers chasing for a low RVP result.
"Q. So [Mr Lucas] is saying in essence, "You cannot now check the RVP of the samples". Now bearing in mind that ITS had done exactly that -
A. Yes
Q. – were you not a bit uncomfortable about Mr Lucas telling Mr Whitaker, "There is nothing you can do about it" even though ITS themselves had just carried out a check?
A. No, not at all. Any retests that ITS did on those samples was purely for their in-house satisfaction. The results that they gave would not be – could not be considered binding by anybody. They are RVP samples. They had previously been broached.
Q. As we discussed this morning, they were a test which you regarded as being important tests.
A. We wanted to see what we were getting, but there was no way that we could actually use those results in the public domain. They were an in-house operation.
Q. But you told us this morning, Mr Rackham, that if the retests had shown that or had supported the figures in the load port certificates –
A. Yes.
Q. – then that information would have been communicated to AIC probably through SGS, through ITS (USA).
A. We would have informed the New York office more than likely, yes.
Q. Or AIC would have been told direct?
A. Yes, but we could not have put any confidence in those results.
Q. Given that it is likely that AIC would have been told either directly or through ITS (USA) if the retests had shown that or indicated that the RVP was less than 9 and supported load certificate of quality, did you not consider they should also be told if the results showed something else?
A. That was not a decision that I was empowered to take.
Q. I understand that. It was not your call.
A. No.
Q. But did you not feel that really in fairness they ought to be informed?
A. No, I would have waited for an instruction from senior management."
"132. Mr Rackham said that he regarded the Cooper re-tests as being an important matter and that he hoped and anticipated that the results would lead to the situation being resolved. He added that had the re-tests come out in the way that he had hoped, he would have informed AIC of the results.
133. At a later stage of his evidence Mr Rackham added that "we could not have put any confidence in those results" because the samples had been broached. This answer was out of line with some of his earlier evidence."
"I can recall a heated conversation between [Mr Whitaker] and Nigel Lucas of ITS. At one point it appeared that ITS were recording the conversation, and I was concerned that Mr Lucas was trying to set up AIC in some way. I have seen an incom