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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

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Neutral Citation Number: [2006] EWCA Civ 1601
Case No: A3/2005/2351

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
The Honourable Mr Justice Cresswell

[2005] EWHC 2122 (Comm)

Royal Courts of Justice
Strand, London, WC2A 2LL
28th November 2006

B e f o r e :

LORD JUSTICE BUXTON
LORD JUSTICE RIX
and
SIR MARTIN NOURSE

____________________

Between:
AIC LIMITED
Respondent/ Claimant
- and -

ITS TESTING SERVICES (UK) LIMITED
"The Kriti Palm"
Appellant/ Defendant

____________________

(Transcript of the Handed Down Judgment of
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 Jonathan Gaisman QC, Mr James Brocklebank & Ms Jessica Mance (instructed by Messrs Hill Dickinson LLP) for the Appellant
Mr Nicholas Hamblen QC & Mr Michael Ashcroft (instructed by Messrs Holman Fenwick & Willan) for the Respondent

____________________

HTML VERSION OF JUDGMENT
____________________

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

  1. On 2 April 1996 Inchcape Testing Services (UK) Limited ("ITS") issued its certificate of quality in respect of a cargo of regular gasoline grade M2 due to be loaded on the Kriti Palm for carriage to New York (the "certificate"). The sample analysed was described in the certificate as that of a "Shore Composite Blend". It was a composite sample derived that day, before loading of the vessel, from four separate shore tanks at the refinery of Mobil at Coryton in England. The certificate described a large number of properties of the gasoline, the test methods applied, and the results. The property with which this case is concerned was the gasoline's Reid Vapour Pressure ("RVP"). The Colonial Pipeline Specification ("CPS") on which the gasoline had been sold and for which ITS had been instructed to provide a certificate of quality required that RVP should be maximum 9 psi as found by test method ASTM D5191. Unfortunately, in error ITS tested the RVP by an alternative test method ASTM D323. The certificate stated that the RVP as tested by D323 produced a result of 8.22. Both that and all the other results listed on the certificate were within the nominal result requirements of the specification. The certificate stated, at its foot, "FUEL MEETS SPECIFICATION".
  2. The certificate did not in terms refer to CPS as the required specification. However, the reference to test method D323 showed that the required specification had not in fact been complied with.
  3. On the same day ITS faxed the certificate to AIC Limited, in Bermuda, ("AIC") with a copy to Mobil. AIC and Mobil had jointly instructed ITS.
  4. AIC had bought the gasoline from Mobil (Mobil Sales and Supply Corporation), FOB Coryton Mobil Refinery Installation, in March 1996 as part of a total contract purchase of 38,000 tonnes composed of two parcels, one of regular and the other of premium (grade R2) unleaded gasoline.
  5. The "Inspection" clause of the sale contract provided:
  6. "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."

  7. Apart from the incorporation of the CPS, RVP of 9 psi max was expressly guaranteed. English law was chosen as the proper law.
  8. Also on 2 April 1996, AIC sold the cargo on the Kriti Palm ex ship basis New York harbour. The on-sale was to Galaxy Energy (USA) Inc ("Galaxy"). The on-sale contract's quality clause relating to the regular gasoline parcel stated "meeting statutory baseline" ie the CPS which had statutory force in the United States "with the following guarantees…RVP 9.0 psi". The determination of quality clause stated: "As ascertained at loadport and confirmed by Calebrett". Caleb Brett is an internationally famous name in the world of testing houses, and it resided within the Inchcape group. (The ultimate holding company is now known as Intertek Group plc.) ITS's associate company in the US is ITS (or Caleb Brett) USA ("ITS USA"), which was appointed discharge port inspector under AIC's on-sale. The on-sale determination of quality clause was not expressly stated to be final and binding. The determination of quantity clause, however, was stated to be binding: quantity was to be ascertained at discharge port by Caleb Brett (viz ITS USA) "whose findings are binding". The contract's payments clause stated that "Payment to be made against telexed invoice, telexed inspection report of out-turn quantity and quality…". No mention was there made of any load port certificate of quality. The "general terms" clause incorporated the Inco terms of 1990 with latest amendments for "ex-ship duty-paid". There was no express choice of law clause.
  9. The Kriti Palm completed loading at Coryton on 3 April 1996 and sailed for New York. It sailed with sealed samples from the shore tanks from which the cargo had been loaded: in particular with a sealed composite blend sample covering the four tanks from which the regular gasoline parcel had been loaded. Equivalent sealed samples were retained by ITS at its headquarters in West Thurrock.
  10. On 14 April 1996 the Kriti Palm arrived at New York, and began discharging on the next day. On that day, 15 April, Galaxy faxed AIC to report that discharge tests gave an RVP for the regular gasoline parcel of 9.11 to 9.56. Those results were obtained from an analysis of samples of cargo taken from the vessel's tanks. Galaxy complained that AIC was refusing to release loadport samples for testing. Galaxy said that it would refuse to discharge further until such retesting had proved the parcel to be on specification. AIC's initial refusal to allow access to the loadport samples appears not long to have been persisted in, because on the same day ITS USA issued an analysis report on the regular gasoline parcel stating that its RVP as tested by D5191 was 9.04 and that analysis was carried out on the sealed sample for the composite blend ex shore tanks at the loading port. The seal number was recorded in the report. There was also an ITS USA D5191 test on a loadport sample ex the vessel's tanks after loading, which recorded an RVP of 9.3.
  11. These results led to disputes between AIC and Mobil, AIC and Galaxy, and AIC and ITS. The discharge of the vessel was delayed, and Galaxy only took delivery of the regular gasoline after 5 July 1996. By then, still further analyses had been performed at Galaxy's request by another well known testing house, SGS, on further samples obtained from the vessel's tanks at New York, and these provided RVP results of 9.3 to 9.69.
  12. In the meantime, on 16 April 1996 Mr Chris Rackham, international coordinator at ITS, was fielding urgent messages from AIC. It soon emerged that ITS had tested by the wrong method for the purposes of its certificate. He initiated a retest by the right method, D5191, on surviving residues of the testing (and therefore unsealed) samples, taken from the four individual shore tanks, which had been tested at the time of the blending of the original cargo. These residues were by then some two weeks old. The retest was not carried out on a composite blend from the four shore tanks. The results therefore had to be subject to a further calculation to provide an overall result. This calculation was performed by Mr Rackham. The calculated result was 9.33. The tests were carried out by Mr Michael Cooper, an ITS chemist, and have therefore become known in this litigation as the "Cooper retest".
  13. On 17 April 1996 an important telephone conversation took place between Mr Tom Whitaker of AIC and Mr Nigel Lucas of ITS. Mr Whitaker was a trader at AIC. Mr Lucas was ITS's general manager. AIC had already intimated a claim, and the failure of the conversation led to the appointment of lawyers on both sides. The majority of that conversation was recorded by Mr Lucas, and a transcript of it survives. Mr Rackham was present with Mr Lucas and heard the conversation, but did not participate in it. There was a dispute at trial as to whether Mr Lucas then knew of the Cooper retest or its results. Mr Rackham certainly knew of them. The judge found that Mr Lucas did as well. In that conversation it was common ground between Mr Whitaker and Mr Lucas that for the purpose of its certificate ITS had tested the RVP by the wrong method. Mr Lucas also told Mr Whitaker that he did not know whether the D323 test had been inaccurate or not. However, at what has turned out to be a critical point in the conversation, there was the following exchange:
  14. "TW: Well I have a quality certificate from you that says it is on specification.
    NL: We will be standing by that certificate."

  15. The judge, Cresswell J, found that in that remark, and in the conversation as a whole, Mr Lucas had been guilty of deceiving Mr Whitaker, rendering ITS liable to AIC in the tort of deceit. He therefore found that ITS was liable for all the financial consequences of AIC's reliance on the certificate in an ongoing dispute and ultimately unsuccessful litigation with Galaxy. He found that implicit in what Mr Lucas said was a representation that the certificate was good and valid, or good and reliable, and that, by reason of his knowledge of the Cooper retest results, Mr Lucas was reckless as to the truth of that implied representation, which was "probably wrong". He said (at para 284 of his judgment):
  16. "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."

  17. In this appeal, ITS, defendant at trial and now appellant, seeks to discharge what it accepts as the difficult burden of showing that the judge was wrong, indeed of showing, as Ward LJ said in Assicurazioni Generali SpA v. Arab Insurance Group [2002] EWCA Civ 1642, [2003] 1 WLR 577 at para 197, that the judge was "plainly" wrong in that finding of deceit. That is the first main issue on appeal – "deceit".
  18. The second main issue is this. AIC commenced these proceedings on 17 May 2002, one month more than six years after the telephone conversation of 17 April 1996, and six weeks more than six years after the issue of the certificate. AIC explains the delay by reference to legal advice it received from its Swiss lawyers to the effect that the commencement of such proceedings against ITS would prejudice its defence of Galaxy's counterclaim in Switzerland in proceedings brought there by AIC. The effect, however, of the running of more than six years is that, subject to an argument concerning continuing duties, AIC is time barred in respect of any of its other causes of action for breach of contract or duty, apart from deceit, unless it can bring itself within section 32 of the Limitation Act 1980 and in particular section 32(1)(b) which prevents time running in the case of the deliberate concealment of "any fact relevant to the plaintiff's right of action". In this respect AIC has complained that ITS has deliberately concealed the Cooper retest and its results until their disclosure in these proceedings in June 2004. There are a number of sub-issues implicit in this point, but in general it may be described as "deliberate concealment".
  19. The cause of action in deceit was also prima facie time barred after six years. However, no time bar was relied upon at trial in connection with deceit, for reasons which are not transparent (but may be connected with the fact that section 32(1)(a) extends the running of time where "the action is based on fraud…until the plaintiff has discovered the fraud"). In any event, the judge did not deal with fraud on the basis that it was prima facie time barred – even though at para 12 of his judgment he recorded that ITS said that all claims (other than a claim for contribution from ITS to AIC's liability to Galaxy) were time barred. Indeed, we were told on this appeal that there is no time bar in fraud, which is not correct.
  20. The judge, having found deceit, said that it was not strictly necessary to consider section 32(1)(b), and dealt with it relatively lightly towards the end of his judgment (at paras 293/332). He concluded that there had been deliberate concealment of the Cooper retest results, which he described as "a key piece of evidence, highly relevant to the conclusion that the Vapour Pressure results by test D323 stated in the ITS certificates of quality for the regular cargo were probably wrong" (at para 328). The judge found that the deliberate concealment had been carried out both by Mr Lucas and by his colleague Mr John Chalmers. In 1996 Mr Chalmers was the ITS claims manager. The judge found that both Mr Lucas and Mr Chalmers knew about the Cooper retest at latest shortly after the conversation of 17 April 1996. It is not, however, immediately clear which of many pleaded causes of action the judge had in mind in coming to this (obiter) conclusion about deliberate concealment, but possibly all.
  21. It is common ground, that were it to be necessary, that is to say in the absence of deceit, to come to a firm conclusion as to alternative causes of action and section 32 (or continuing duties), and if ITS remained liable on that basis to AIC in respect of such other causes of action, there would have to be a remission back to the commercial court for it to determine consequential issues of causation and quantum.
  22. In sum, for the purposes of this introduction: there are two main issues, those of deceit and of deliberate concealment. Both depend on the unavailability to AIC until June 2004 of information about the Cooper retest and results. The finding of the judge at trial was that the original D323 results were probably wrong; that Mr Lucas was reckless as to the truth of his implied representation in his telephone conversation with Mr Whitaker on 17 April 1996 and was therefore guilty of deceit; and that both he and Mr Chalmers thereafter deliberately concealed the Cooper retest and its results from AIC in respect of unidentified causes of action. ITS challenge both these conclusions on appeal.
  23. 2. The essence of ITS's case

  24. It may be helpful at the outset of this judgment to attempt to express as briefly as possible what the essence of the parties' respective cases on this appeal is.
  25. On behalf of ITS, Mr Jonathan Gaisman QC, who was not ITS's counsel at trial, put the matter thus. There was no deceit. Mr Lucas, who had been away until the morning of 17 April 1996, had only a hurried briefing from Mr Rackham before his telephone conversation with Mr Whitaker. He was not told about the Cooper retest. Even if he was, he did not take in what he was told nor was he alive to its ramifications. And even if he had known about the Cooper retest, his honest judgment would have been that he was entitled, in a situation where the conversation was the prelude to the imminent appointment of lawyers by both parties to deal with a claim which AIC had already intimated, to reveal nothing. In fact, his dominant concern during the conversation was that Mr Whitaker was asking him to do something which he felt he could not do, which was to amend or supplement or replace the certificate. It was in that context that he said that ITS would stand by the certificate, meaning that it was a historical record which could not be tampered with. The judge, in finding deceit, erred in his interpretation of the conversation and in extracting from it an implied representation which accorded neither with what Mr Lucas actually said, nor with what he intended to say nor with what Mr Whitaker understood him to say. The judge failed to address the immediately following correspondence between the parties, which was a better guide to what was then intended and understood. In any event, he did not find that Mr Lucas knew that what he said was false, only that he was reckless as to the truth, but he applied a concept of recklessness which was more akin to negligence than the necessary dishonesty. Moreover, his reasoning was inadequate, and he paid scant if any attention to the need to address and to rationalise the rival factual cases, or to get into Mr Lucas's mind. His finding of deceit could not stand. It was plainly wrong.
  26. As to deliberate concealment, Mr Gaisman said there was none. Such a concept required an unconscionable flouting of a duty to disclose, none of which existed. There was no unconscionableness, because the Cooper retest was not regarded as important, having been performed on unsealed residues of a testing sample, rather than on an official sealed and formally retained sample. There were better guides in the sealed loadport composite sample tested at New York, or in the sealed samples retained by ITS but untested by AIC. As for a duty to disclose, there was none. ITS's duty was to carry out its instructions properly and carefully. It had not carried out its instructions, because it had used the wrong test. On the judge's findings at trial, that even its D323 findings were probably wrong, it was open to conclude that there was additional negligence in the performance of the (wrong) test badly. All this was a breach of contract, but there was no additional duty of disclosure. As for those breaches of contract (or equivalent breaches of duty), AIC knew all that it needed to know, or could with reasonable diligence have learned all that it needed to know, in order to plead its right of action, back in April 1996. Therefore it was time barred, and section 32 did not avail it.
  27. 3. The essence of AIC's case

  28. On behalf of AIC, Mr Nicholas Hamblen QC relied for the essence of its case on the judge's findings of deceit and deliberate concealment.
  29. As to deceit, Mr Hamblen stressed that the judge had found that Mr Lucas (and Mr Chalmers) knew, understood and appreciated, at the relevant time, that the Cooper retest showed that the original D323 test had significantly understated the RVP of the regular gasoline and that the D323 certificate test result was therefore probably wrong. Thus the cargo, if it had been originally tested by the right D5191 test, would have been shown to be off-specification. The judge described the Cooper retest and its results as "key". Moreover, he regarded the retest as having been done clandestinely, with the purpose of using its results against AIC if they had turned out favourably; but as it was, they were deliberately kept from Mr Whitaker. In coming to his conclusion of deceit, the judge had been unimpressed by both ITS's principal witnesses, Mr Lucas and Mr Chalmers, whose credibility he regarded as suspect. If, as the judge concluded, Mr Lucas and Mr Chalmers were not telling the truth about the Cooper retest results and their respective knowledge of and understanding of their importance, then the implications were clear: they were lying because they appreciated that these were matters which AIC should have been told and were seeking to explain away their deliberate failure to do so. In such a case, where the principal witnesses had been disbelieved, it was particularly hard to reverse a finding of fraud made at trial.
  30. As for deliberate concealment, that also followed from the judge's findings as to the knowledge and understanding of Mr Lucas and Mr Chalmers. Mr Lucas himself acknowledged, in his evidence, that AIC should have been told about the Cooper retest results. It also followed from applicable international and internal ITS guidelines, as the judge found. Moreover, the Cooper retest was performed on samples which were held to AIC's (and Mobil's) order, or were even their property, and was therefore unauthorised: these were additional or cumulative reasons why ITS was under a duty to disclose both the fact of the retest and the nature of the results.
  31. In certain respects, moreover, AIC sought, by its respondent's notice, to improve on the findings and holdings of the judge. In deceit, Mr Hamblen submitted that even if Mr Lucas's mind had not been dishonest during the telephone conversation, he knew enough shortly thereafter to have become guilty of deceit when he failed, in breach of a duty to speak, to correct the way in which he had left matters during that conversation. Moreover, Mr Chalmers, as claims manager, was in the same position, and was also guilty of deceit in failing to correct the outcome of Mr Lucas's conversation. These submissions went beyond the judge's findings, but Mr Hamblen submitted were inherent as a matter of law in such findings as he had made about those witnesses' knowledge and understanding.
  32. There were also further submissions relating to continuing duties and to section 32(2) of the Limitation Act.
  33. 4. The dispute

  34. Thus, in a nutshell, the dispute was this. ITS had undoubtedly erred, and broken its contract, in failing to provide a contractual certificate relating to the testing of the cargo in accordance with its required specification. However, that cause of action had expired six years after 2 April 1996. The question was whether any cause of action survived the expiry of that limitation period. One answer was in deceit, premised not on a fraudulent certificate, but on a dishonest representation that the certificate was still effective when it was known to ITS, but in breach of contract and of duty not to AIC, that a retest demonstrated its inadequacy. The other answer, somewhat different but bound up in the first, was in the statutory concept of deliberate concealment which enabled some cause of action to survive limitation. A far distant third answer is said to be found in the nature of continuing duties.
  35. 5. The effect of the certificate

  36. Halfway through his judgment, at a fulcrum of it, immediately after finding the facts and stating the agreed issues at trial, and before turning to answer those issues, the judge wrote a section headed "6. Mistake and departure from instructions contrasted" (at paras 166/174). He there considered the effect of a decision of this court in 2001 in Veba Oil Supply and Trading GmbH v. Petrotrade Inc [2001] EWCA Civ 1832, [2002] 1 Lloyd's Rep 295.
  37. Veba Oil involved a dispute between traders, not between a trader and an inspection company. The defendant there had sold a cargo of gasoil on the basis of a certificate which, as here, was to be "final and binding for both parties save fraud or manifest error". Again as here, the inspection company (Caleb Brett) had erred by testing a property (density) by the wrong test, by D4052 rather than D1298. It was common ground at trial that the use of the wrong test was entirely irrelevant in practical terms. Thus Simon Brown LJ recorded (at para 7):
  38. "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."

  39. Nevertheless, at trial Morison J [2001] 2 Lloyd's Rep 731 and on appeal this court both held that Caleb Brett's error in using the wrong (albeit superior) test rendered Caleb Brett's certificate uncontractual, invalid and ineffective: the defendant seller was therefore potentially liable to its buyer for the consequences of the ultimate receiver's complaint, under a sub-sale from the buyer, that the gasoil was found at discharge to be out of specification as to density. That litigation was at the stage of an attempt by the seller to obtain summary judgment against the buyer on the basis of reliance on Caleb Brett's certificate. That defence failed completely and decisively.
  40. The dispute before Morison J and this court was as to whether the certificate was effective or not. If it was, the seller had a complete defence. The buyer said that, even though use of the wrong test had made no practical difference, the certificate was ineffective. The seller's argument, however, was that the certificate remained valid and effective, because the buyer had to show that the error in using the wrong test had been material. That argument failed.
  41. Thus Simon Brown LJ pointed out that an error in carrying out instructions is to be distinguished from a departure from instructions. In the former case, the error was only relevant if it was material in the sense of actually affecting the ultimate result, and the question would then be whether the error was "manifest" for the purposes of the clause. In the case of a departure from instructions, however, such as employing the wrong test method, it was irrelevant that the practical effect was immaterial. Only an immaterial departure from instructions, such as one that could not even potentially affect the scientific or commercial process, would be irrelevant. That certainly did not apply to the use of the wrong test method, even where that could not affect the result. As Simon Brown LJ said at para 26(vi):
  42. "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."

  43. Tuckey LJ agreed (at paras 36/40). Dyson LJ agreed with the result, viz that the certificate even in that case was not binding, but disagreed about the test of immateriality of departure, preferring as his test (at para 46) –
  44. "whether the parties would reasonably have regarded the departure as sufficient to invalidate the determination".

  45. As to that, Dyson LJ said (at para 49):
  46. "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."

  47. Thus Veba Oil was in all respects a parallel case to the present and demonstrates that the certificate here was invalid and not binding on AIC. Indeed, this is a much stronger case for that conclusion than Veba Oil itself, for in the present case it was never common ground that use of the wrong test was obviously immaterial. In the first place, and critically, conformity with CPS was necessary under US law for importation of the cargo into the US as regular gasoline of the appropriate grade. Thus, the cargo could not be imported as such, without either being blended anew so as to render its RVP to conform to CPS or being downgraded from regular gasoline to a blend stock. Moreover, although at trial, after hearing expert witnesses and choosing between them, Cresswell J found that the two tests, D323 and D5191, gave "comparable" results, that was a conclusion reached by the judge only after trial. Indeed, at the time of the conversation on 17 April 1996, it was believed that D323 would tend to give a lower, or at any rate a different, RVP reading vis a vis D5191. Thus the following exchange occurred between Mr Whitaker and Mr Lucas:
  48. "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…"

  49. Moreover, AIC pleaded, until an amendment shortly before trial which deleted the following citation from para 22 of its points of claim, that –
  50. "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.
  51. At the appeal, it was acknowledged on both sides that Veba Oil demonstrated that the certificate in this case was in truth invalid. Although Mr Hamblen at one point submitted that this was new law in 2001, he was unable to maintain this position. Simon Brown LJ's judgment shows that the same doctrine had already been inherent in this court's judgments in Jones v. Sherwood Services Ltd [1992] 1 WLR 277 and in Lloyd J's judgment in Shell UK Ltd v. Enterprise Oil plc [1999] 2 Lloyd's Rep 456. It was the answer which Morison J gave at first instance in Veba Oil itself. The first of that trilogy, a decision of this court, had already been decided some years before the events of the present case.
  52. An oddity of the present case, however, is that at trial neither of the parties nor the judge, despite dealing with Veba Oil, appears to have focused at any rate consistently on the invalidity of the certificate. It is not clear why that is so. It may have suited AIC to discount the certificate's invalidity for the purposes of arguments concerning causation. It may have suited ITS to do the same in the context of accusations about its failure to withdraw its certificate. Even so, Veba Oil was discussed in ITS's closing written submissions. It was there submitted that the law was still uncertain in 1996 and was only clarified in Veba Oil. It was therefore said that Mobil "(who are no slouches in this area of the law)" could be understood in the attitude it took in 1996 that it could continue to rely on the certificate even after the use of the wrong test was clear. Mr David Mildon QC, who was leading counsel at trial for ITS, then submitted that "That approach was correct on the then state of the law because the burden would have been on AIC to show that the use of the wrong method had materially affected the result." In my judgment, that analysis was wrong for 1996, but in any event it was definitively wrong, even on Mr Mildon's approach, at the time of trial.
  53. What in these circumstances did the judge derive from Veba Oil? Having quoted from the judgments in it, he said this (at para 174):
  54. "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."

  55. On this appeal, Mr Hamblen on behalf of AIC has not sought to rely on the judge's finding about AIC's inexperience. It is not clear how the judge himself deployed it later in his judgment. In any event, the status of the certificate in the circumstances was ultimately a question of law – and AIC appointed (US) lawyers almost immediately. During the argument of the appeal, the court made it clear that it regarded the question of AIC's inexperience as irrelevant, and Mr Hamblen did not seek to dissuade us otherwise. In any event, I do not think the judge was right to regard ITS, whether AIC was to be regarded as inexperienced or not, as being placed in the position of an adviser. ITS was an independent testing, inspecting and certifying house, but not a professional or commercial adviser, and least of all to one only out of a number of traders who might be affected by a certificate and because of that trader's absence of experience in need of advice.
  56. It is to be observed moreover that the judge did not say expressly that one of the points to be noted about Veba Oil was its teaching that the certificate was in law – and thus in fact too – neither valid nor binding. This may or may not matter where questions of honesty or dishonesty are concerned, or even, if the point is not squarely taken, where causation is concerned: but it is very likely to be relevant to the question of what duties may or may not have existed in law as a result of the failure of a valid certificate. The judge did not subsequently refer to Veba Oil, although, as will appear below, he repeatedly returned in his questions to Mr Lucas and Mr Chalmers to the problem of a certificate drawn up on the basis of the use of the wrong test.
  57. Thus Veba Oil is somewhat like Banquo's presence at the feast. I am therefore concerned that Veba Oil figures, but figures so inconsequentially, in the judgment below. I am also concerned to note in the passage cited above that, although the judge was prepared to assess AIC's reactions according to its inexperience at the time, he was nevertheless also prepared to assess ITS's reactions on the basis that the two tests, D323 and D5191, were known to be technically equivalent and to produce comparable results. One significant question will be whether the judge gave reasons for finding that this was known at the time.
  58. Two further points may be made about Veba Oil. One is that, although it is unnecessary to find a further reason for the invalidity of the certificate, I would have thought it reasonably obvious that the statement on the certificate that D323 had been the RVP test method employed rendered this also a case of "manifest error". Secondly, it is relevant to refer to what Simon Brown LJ said by way of background to the specific problem in that case:
  59. "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

  60. I have already introduced the claimant, respondent to this appeal, AIC (and its Mr Whitaker); the defendant and appellant ITS (and its managers, Messrs Rackham, Lucas and Chalmers, as well as its chemist, Mr Cooper; and its associate ITS USA); the first seller of the gasoline, Mobil, and its ultimate receiver at New York, Galaxy.
  61. It will be necessary to say something further about ITS and its set up, about the main witnesses, as well as about other persons who have parts to play in these events. For the present it suffices to say that there are three ITS locations in England which should be distinguished. The first is the laboratory within Mobil's Coryton facility where Mr Mailey performed his original D323 tests. The second is ITS's offices at West Thurrock at Caleb Brett House: this was where the ITS Inspection Division, also known as "Gray's", was based, and where the certificates had been issued. The third was a separate laboratory, also at West Thurrock, where Mr Cooper worked.
  62. By the time of trial Mr Lucas had worked in the inspection industry for 25 years. In 1996 he was ITS's general manager and by the time of trial vice president, corporate compliance, for the Intertek Group. He was also then a council member of the International Federation of Inspection Agencies ("IFIA"), and had been chairman of a body responsible for producing professional standards for the inspection industry.
  63. Mr Chalmers had by 2005 been in the industry for 22 years. In 1996 he was ITS's claims manager (and has since become global claims manager for Caleb Brett). He had been professional standards director for the Intertek Group, and had since 1999 been chairman of the legal committee of the IFIA.
  64. 7. The inspection contract

  65. As of 1 January 1996, ITS and Mobil had entered into a contract for the provision by ITS of cargo inspection services. Although this contract was only between ITS and Mobil, it was pleaded by AIC and common ground at trial that, for the purposes of the joint instructions which Mobil and AIC had issued to ITS in respect of the Kriti Palm cargo, the contract bound ITS and AIC in addition. The terms of that contract therefore are at the basis of the relationship between those parties. The only term in that contract to which our (or the judge's attention) was drawn is in its Schedule A, which is introduced in clause 1 of the contract as describing the "Work" to be performed by ITS. The important clause in Schedule A is:
  66. "Contractor [ie ITS] shall hold retained samples for ninety days (unless instructed otherwise by Company) [ie Mobil, and thus Mobil/AIC]."

  67. There was another clause in Schedule A which related to "Quality and Performance Standards" and provided that certain consequences should follow if ITS received a less than "good" rating in any inspector audits performed by ITS, but that clause was not relied upon.
  68. At paras 178ff the judge posed the agreed issue: "6. Was ITS retained by Mobil and AIC in any kind of advisory capacity? What was the proper scope of the contractual duties owed by ITS to AIC?" It is not clear how the judge answered the first of those questions, but he stated his answer to the second of them in the following terms:
  69. "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."

  70. In drawing out these implied obligations the judge had primary regard to international and ITS internal guidelines, to which I will refer below. Suffice it to say at present that there is a dispute as to whether the judge had regard to the applicable guidelines. ITS says that he did not, and has erred accordingly. To some extent, the judge supported his implied obligations by reference to admissions made by ITS's principal witnesses, to which I will also refer below. Mr Hamblen accepts that the judge's implied obligations are at the cutting-edge of the law, in that no other authority has stated an inspecting house's duties in these detailed terms before. The judge himself recognised that his treatment of such duties rendered an appeal necessary. The first paragraph of his judgment stated that "This case raises important issues about the duties owed by inspection companies in domestic and international trade." When asked by ITS to grant permission to appeal to this court, he refused to do so on the ground that there was a realistic prospect of appeal, and only did so on the alternative ground that there is some other compelling reason why the appeal should be heard, adding "The judgment contains an analysis of the duties of inspection agencies. This is of wide international importance." Moreover, the judge did not derive his implied obligations by the traditional method of asking whether they were necessary. I will content myself for the moment with saying that the judge's implied obligations read rather like legislation. An obligation to take reasonable care in the performance of services may, I suppose, be broken in all kinds of ways: but the duty is at any rate easily stated. Mr Gaisman on behalf of ITS did not agree with the judge's restatement, and in particular challenged obligations (vii) and (viii). It will be necessary to consider the extent of ITS's duties below.
  71. 8. Events at the loading port

  72. The Kriti Palm arrived at Coryton to load on 27 March 1996. No Mobil product was ready to be loaded, nor could it be loaded until ITS had certified that it complied with specification. On 30 March, ITS issued its first certificate, for one of the four shore tanks nominated for loading, namely tank 75 x 1. This individual shore tank certificate stated that RVP tested by D323 measured at 8.91/8.98 (upper and lower tank level readings). The vessel commenced loading.
  73. On 2 April ITS produced further individual shore tank certificates, as well as its composite certificate referred to in the opening paragraph of this judgment. An individual shore tank certificate, again for shore tank 75 x 1 but in respect of a second parcel, stated the D323 RVP results at 7.69/7.60. Another individual shore tank certificate, for shore tank 100 x 1, stated the D323 RVP at 7.83/7.81. A fourth individual shore tank certificate, for shore tank 61 x 4, stated the D323 RVP test results at 8.85/9.01. It is agreed that the average of these last figures is 8.93 and thus would have been within specification if performed by the right test. Nevertheless, because the gasoline from that shore tank failed the tests for MON and Olefins, that certificate stated "Fuel does not meet specification". As for the overall blend certificate, the tests in respect of that were performed on a weighted lab blend from the other four samples. This produced a calculated overall RVP result of 8.22 and the other tests also fell within specification, possibly after some reblending. AIC and Mobil received all five certificates (the "certificates").
  74. On the same day AIC faxed the composite blend certificate to brokers of its on-sale to Galaxy. It was not at that stage passed on to Galaxy, and the individual shore tank certificates were never passed on to Galaxy: but certain "oral indications" were given by the brokers to Galaxy over the telephone.
  75. On 3 April the vessel completed loading and sailed for New York. Her master gave ITS a receipt for four 5 litre sealed samples, representing before loading shore and after loading ship's blends of the regular and premium gasoline parcels respectively. On the same day ITS drew up a "Sample List" of formal samples for retention for 90 days. The list referred to the four samples sent with the vessel together with their seal numbers, but also listed 29 other samples (which were retained by ITS in England), of which there were 4x2.5 litre samples of the shore tank blend, before loading, of the regular gasoline. No seal numbers are given, so that these samples may not have been sealed at that time. A manuscript internal draft of that sample list also exists.
  76. Also found in manuscript internal draft dated 3 April (but only internal draft) is an additional sample list of the RVP testing samples on which ITS had performed its RVP tests: 4 500ml samples drawn before loading from the shore tanks from which the four parcels of regular gasoline derived. These were not sealed and of course had been already broached. The draft nevertheless said, in the style of the formal lists, that "Retained samples are intended to be held for a period of 90 days".
  77. ITS's formal report to AIC and Mobil was dated 10 April 1996. The report commented that there had been a lack of available cargo on the vessel's berthing and that loading operations were protracted due to the unavailability of cargo. It continued:
  78. "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."

  79. Among the documents attached to the report were the certificates and the "Sample List" referred to above (at para 56) relating to the retained samples both kept by ITS and despatched to the vessel. This formal report was addressed to AIC c/o Banque Paribas in Paris.
  80. There is a dispute between AIC and ITS about the status of the various samples. ITS submits that a contractual "retained sample" is a term of art and refers to those samples formally preserved (for 90 days) and listed on the formal Sample List. ITS would accept in respect of these samples, which were intended to be consulted, with the authority of the clients, should any dispute arise, that ITS would not be entitled to use them unilaterally for its own purposes. However, ITS says that that did not apply to the testing samples, which could have been thrown away and in any event were no longer fit for official use. AIC on the other hand submits that all the samples brought into existence, both the unused retained samples and the testing samples used by ITS for the purpose of its tests were contractually or at any rate professionally to be retained for 90 days, were the property of AIC and Mobil, and could not be used again without their authority. AIC accepts that the results obtained by retesting the already used testing samples could not be made certifiable, but nevertheless regards them as potentially valuable evidence. That was disputed by ITS's principal witnesses, albeit, as will appear below, its witnesses were not entirely unanimous on the subject.
  81. 9. Events at the discharge port, and their consequences

  82. The Kriti Palm arrived at New York, in fact berthing across the Hudson River in Linden, New Jersey, on 14 April. On the following day the tests referred to at paras 9/10 above were performed, showing the cargo to be off-specification in respect of RVP when tested by D5191. The load port shore tank and ship's tank blend samples, which had travelled with the vessel, and post-voyage samples obtained at the discharge port from the ship's tanks, all showed the regular gasoline to have an RVP in excess of 9, to a greater or lesser extent. The important pre-loading shore tank composite blend sample which had travelled with the vessel, when tested by ITS USA, produced a result of 9.04.
  83. This caused Galaxy to order the cessation of all discharge of the vessel, which up to that moment had only been discharging the premium parcel.
  84. By 16 April the problem had come into the hands of Mr Rackham at ITS. He was its south east area manager. He kept a manuscript log book of telephone communications, which the judge described as careful and helpful. The first relevant entry is at 0843 on 16 April (a call from Mr Giovanni Sampino, by the time of trial AIC's senior trader, but then more of an operations man). Mr Rackham's internal email to Mr Chalmers at 1010 on 16 April (headed: "Possible Claim for Grays Inspection") takes up the story from the moment he first learned of the difficulties from AIC at 2200 on the previous night:
  85. "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."

  86. Pausing there, I comment that AIC had already been sent by ITS, attached to the latter's formal report dated 10 April 1996, a full set of certificates, not only for the composite blend, but for the individual shore tanks as well. They were resent directly to Mr Whitaker, by Mr Rackham at Mr Lucas's request, on 17 April.
  87. Mr Rackham's email continued:
  88. "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."

  89. At this stage, therefore, the wrong test error had become known to the parties, there was a report of high RVP (and octanes) levels being found at the discharge port, but otherwise this report is rather confusing to the present reader and may indeed have involved an element of confusion. Thus "results concur with load port C of Q" does not appear to be correct: the whole problem was that they did not. This may possibly have been a reference to the premium gasoline parcel. Moreover, "not possible to perform RVP test" is also problematic, since high RVP had been found on the retained shore and ship's loading port samples: and this is Mr Sampino reporting to Mr Rackham. The possible meaning is that it was not possible to perform a reliable RVP test on the samples retained on board ship, owing to the nature of the samples and their containers. The judge does not comment on this email, neither when setting it out (at para 35), nor when dealing with Mr Sampino's and Mr Rackham's evidence.
  90. At 0915 Mr Rackham had spoken to Mr Paul Mailey about the RVP problem. Mr Mailey was the chemist who had performed the original load port tests at Mobil's Coryton facility. The note reads "393 [sic] – RVP. 5191 Grabner". This may, in a compressed form represent Mr Rackham querying with Mr Mailey the "wrong test" information passed to him by Mr Sampino, and Mr Rackham learning of the reason for the error from Mr Mailey. Apparently it stemmed from the fact that RVP or Reid Vapour Pressure suggests the "Reid" method, which in essence involves a "wet" procedure, the D323 test. However, D5191, which requires the Grabner machine, is in essence a "dry" procedure or its equivalent, and results, with the help of a calculation using a correlation equation, in a dry vapour pressure equivalent or DVPE. I put the matter rather simplistically and unscientifically, but I hope sufficiently. It may be during this telephone call to Mr Mailey that Mr Rackham asked Mr Mailey to investigate whether the testing samples used by Mr Mailey still survived: as a result of learning that they did, Mr Rackham had them delivered to Mr Cooper and asked him to retest them by the D5191 method (see below).
  91. At 1030 and 1055 Mr Rackham logged two further calls from AIC's Mr Sampino and Mr Whitaker, but without any further relevant note of their contents.
  92. 10. The Cooper retest (and further events of 16 April)

  93. At some time that morning Mr Rackham, on his own initiative, commissioned the Cooper retest. No mention is made of it in his 1010 email, but there is an entry in his log at 1100: "LD retest regular unleaded. RVP ceta 8.67. ASTM D5191 Grabner 8.57". This is understood to be an initial report from Mr Cooper on the result of his retest using the Grabner machine which is necessary to the D5191 test method. Mr Cooper worked in ITS's Light Distillate (hence "LD") West Thurrock laboratory, where he was a senior chemist. This was a separate laboratory from that at Coryton, within the Mobil facility, where the original tests had been performed by Mr Mailey.
  94. A manuscript note, prepared by Mr Mailey, faxed at 1128 on 16 April and addressed to Mr Rackham, is headed "Re Retain Samples ex 'Kriti Palm'". It describes 2 x 500ml RVP samples for each of the four shore tank parcels (and a 1 litre composite blend sample). The reference to two samples per shore tank is a reference to upper and lower levels within the tank. It would seem that these are the original testing samples used by Mr Mailey, and located with his help. His note states: "Samples will be retained until further notice". Mr Hamblen submits that this is evidence that these testing samples had been formally retained as "retained samples". So far as the document is concerned, I am not sure that it demonstrates much more than that as of 16 April Mr Rackham had asked Mr Mailey to locate the testing samples and retain them until further notice. It would seem that they had already by then been delivered to Mr Cooper for his retest.
  95. When he had completed his retest, Mr Cooper prepared a manuscript note of his findings, dated 16 April. It is not known exactly at what time that day his retest was completed or his note was compiled. His note stated that all sample bottles were 500 ml containers 50/75% full. The findings were that RVP on the individual samples varied from 8.47 to 9.46. Two shore tanks gave results below 9 and two above 9. However, his note did not provide a composite calculation. His witness statement said that the samples were noted to be broached and therefore not valid for vapour pressure testing. He repeated this in his oral evidence, when he said that, being broached, they were not samples which would normally be analysed at all for vapour pressure and "should not really be analysed". That is something which he said he had mentioned to Mr Rackham at the time. However, as recorded in the judgment, he also said that if the broached samples remained intact and in good order one would generally expect vapour pressure to go down – because of the risk of light ends being lost. In this connection he also said that it would depend on how the samples were stored, and on the risk, with broached samples, of contamination. The judge found that both D323 and D5191 tests state "do not perform tests on broached samples" (at para 261).
  96. At 1217 on 16 April Mr Rackham sent another internal email, addressed primarily to ITS USA, saying (inter alia) that "We are very sure at this end that overall vessel will show RVP under 9.0." This, as it turned out, optimistic and soon to be disappointed expectation, was presumably based on the early result so far gleaned from Mr Cooper from only one of the individual shore tank samples. Thus at 1409 Mr Rackham said in a further email to ITS at Rotterdam (where help had been offered) that "present indications are that situation is resolved".
  97. At 1333 Mr Rackham's log contained an important entry:
  98. "JC re Kriti Palm. Harass U.K. Need low RVP."

  99. JC is a reference to Mr Chalmers, who, as ITS's claims manager was senior to Mr Rackham. Mr Chalmers was out of the office, away on a course. At 1300 the log had recorded: "JC ? K.Thurlow [Mr Chalmer's secretary] + Kriti Palm". The probable explanation of this note is that Mr Rackham had telephoned Mr Chalmers, had got on to his secretary in his absence, and had asked for her help in speaking to Mr Chalmers about the Kriti Palm. In these circumstances the call at 1333 probably came from Mr Chalmers, ringing in to Mr Rackham during a lunch break. Mr Chalmers had his laptop with him, which would have enabled him at some time to read Mr Rackham's 1010 email. So much is clear. However, the note at 1333 is disputed. AIC's case, which was accepted by the judge, was that this recorded Mr Chalmers telling Mr Rackham that he should harass Mr Cooper to come up with the results of his retest, so that a low RVP, ie under 9, could be established in order to resolve the issue. ITS's case, on the other hand, remains that this is not a report of what Mr Chalmers said to Mr Rackham, but of what Mr Rackham explained to Mr Chalmers, namely that AIC was harassing ITS UK (whereas Mr Cooper had been referred to in Mr Rackham's log as "LD") because it, AIC, needed a low RVP (vis-à-vis Galaxy).
  100. The judge found: (1) that Mr Rackham accepted in cross-examination that the note suggested that Mr Chalmers was anxious to get the results (paras 110 and 275); (2) that this was to be contrasted, to the detriment of Mr Chalmers, with his own evidence that the Cooper retest was a "botched up job on a spent sample" and that he would probably have "blown up all over the telephone" when he became aware of it (para 110); (3) that the 1333 note demonstrated the importance and significance attached by ITS to the results of the Cooper retest (para 138); and (4) that Mr Rackham accepted when giving evidence that if the results of the Cooper retest had come out the way ITS hoped, the results would probably have been communicated to AIC (para 259).
  101. Thus the judge viewed this note as a critical piece of contemporaneous documentary evidence which led him to reject witness evidence from Mr Cooper (to which I have referred above), Mr Rackham, Mr Chalmers and Mr Lucas (to which I will refer below) that they regarded the Cooper retest at the time as invalid and unreliable.
  102. At some time on 16 April, but I do not think that it can be timed precisely – save that it was after Mr Rackham's email to Rotterdam at 1409 (see para 72 above), Mr Rackham received Mr Cooper's test results and tabulated them in a manuscript document of his own. He calculated what the judge described as "some kind of" average for the regular parcel as a whole (the nature of the calculation is not apparent from his document) and derived a figure of 9.16. He also "applied an EPA seasonal correction factor" (which has not been explained to us), deriving individual shore tank sample figures not found in Mr Cooper's document. He then averaged those figures, and calculated an average of 9.33. This 9.33 figure is the one that Mr Rackham reported to his senior colleagues (see his 17 April email below) and has been used as the critical figure for the purposes of argument in connection with the claim in deceit. Ironically, Mr Rackham's calculations were inaccurate. We have been told that the correct average figure to be derived from Mr Cooper's results, accepted at trial, was 9.1, a figure with which Mr Lucas was at times cross-examined. At the foot of Mr Rackham's document are to be found the words "Repeatability" and "Reproducibility", but without further explanation.
  103. At 1515 Mr Rackham received a call from ITS USA. It is not mentioned in the judge's chronology. ITS reported that Saybolt had been appointed by AIC and SGS (yet another inspection house) by Galaxy. It also reported the results of its own tests (of 15 April) on the retained samples carried on the vessel: viz 9.3 for the composite blend ex ship's tanks after loading and 9.04 for the important composite blend ex shore tanks before loading (already referred to at para 61 above). Those figures are set out in Mr Rackham's log, together with the seal number in respect of the latter sample (0060969).
  104. At 1615 another call is logged from Mr Sampino. Between that time and the next time at 1720, Mr Chalmers is mentioned twice. The first time is just the line "John Chalmers" and nothing further. The second time is "See John Chalmers" and nothing more.
  105. Following the early entry at 1100, there is no other entry on Mr Rackham's log as to the Cooper retest or its results.
  106. At 1741 on 16 April AIC telexed Mobil with copy to ITS, to hold them "fully responsible" in all costs and damages incurred by reason of the off-specification cargo, and concluding "This serves as a official notice".
  107. There was also an exchange between AIC and Galaxy on that day. Galaxy made a proposal to resolve the problems caused by findings that both the premium gasoline was off-specification on its octane value and the regular gasoline on its RVP and octane values. Galaxy suggested a discount of 50 points per barrel on the premium and 150 (for the RVP) plus 60 (for the octane) points per barrel on the regular, which has been calculated to amount to a total discount of some $241,000. However, AIC, in a faxed letter signed by Mr Sampino, repudiated any liability, saying, somewhat strangely, that "the load port samples have been tested and the results show that the product is fully within spec, thus proving that the disport samples are not representative of the actual cargo". Galaxy replied to say that it was concerned to minimise costs and damages.
  108. 11. 17 April: Mr Rackham briefs Mr Lucas. What Mr Lucas knew.

  109. 17 April began early for Mr Rackham, for his email to Mr Chalmers (and to Mr Mark Loughead, who was ITS regional manager for Europe, Africa and the Middle East) was timed at 0640. (There is a still earlier timed version sent at 0551. This has "VNL", ie Mr Lucas, written in Mr Chalmers' manuscript, presumably as someone being copied in to the email at some later stage, see below at para 220.)
  110. The email stated:
  111. "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."
  112. Mr Lucas had also been out of his office on 16 April, and, unlike Mr Chalmers, had not been contacted by telephone. He had been in Aberdeen. He returned to West Thurrock by an early flight on the morning of 17 April. He thought he might have reached his office by 1100. He knew nothing of the Kriti Palm.
  113. At just before 1100 Mr Rackham received by fax from ITS USA its analysis report on samples taken from the vessel's tanks at New York. RVP (by D5191) was given at 9.11 ranging to 9.56. At almost the same time Mr Rackham received another call from Mr Whitaker. Mr Rackham's note reads: "AIC $1 million – vessel sitting on berth." Mr Whitaker demanded to "speak to somebody NOW".
  114. That appears to have been the catalyst for the involvement of Mr Lucas. As Mr Rackham said in his witness statement: "I briefed [Mr Lucas] about the matter and that Mr Whitaker wanted to speak to somebody more senior than me". Mr Chalmers was still at his course.
  115. Mr Lucas gave evidence about the circumstances of that briefing. In his witness statements he said that he had not seen Mr Rackham's email to him of 16 April. Mr Rackham came to see him and told him that in 15 minutes he would be getting a call from Mr Whitaker of AIC. He was briefed as quickly as possible. He learned that the cargo had been tested on arrival and been found out of specification for RVP both by ITS and SGS. Mr Rackham had a file of documents with him, from which he showed him some, including the certificate itself, pointing out the error over the test method used. That error was the one concrete fact he had in his mind. He also had in mind that one of the shore tank certificates had found the relevant parcel to be out of specification (the one ex tank 61 x 4, with an RVP result at 8.85/9.01 but also out of specification results for MON and Olefins: see para 54 above), but that AIC had ordered loading nevertheless. He did not know and was not told of the Cooper retest or its results and he had not seen Mr Rackham's early morning e-mail of 17 April. In his cross-examination he said that the telephone conversation had taken place immediately after his briefing, with Mr Rackham still in his office with him.
  116. The judge found that "Mr Rackham informed Mr Lucas" of the Cooper retest and its results by the time of his telephone conversation with Mr Whitaker. He said that the "overwhelming probability" was that Mr Rackham had told him of those matters in his briefing prior to the call (at para 274). He recalled Mr Rackham's witness statement that he was "sure that I gave Nigel as full a briefing on events as possible, but I cannot now recall the detail" (at para 270); and also that, when asked if "the pertinent points would obviously include the facts of the re-tests and the re-tests results?", Mr Rackham had answered "I would presume so, yes" (at para 272). He referred to the note in Mr Rackham's log ("JC re Kriti Palm. Harass UK. Need low RVP") as demonstrating the "importance and significance attached by ITS to those results" (at para 273). However, the judge made no findings as to the urgency with which, on the evidence, Mr Lucas had had to be briefed. The judge did not expressly find that, in addition to Mr Rackham informing Mr Lucas of the Cooper retest and its results, Mr Lucas knew, that is took in and assimilated, the information and its contextual significance. On behalf of ITS, Mr Gaisman complains of those omissions.
  117. The judge's findings of Mr Lucas's knowledge, however, went well beyond being informed of the Cooper retest and its results. At an earlier and critical stage of his judgment, in the course of answering a technical issue, viz "4. Were the RVP results by test method ASTM D323 stated in the ITS certificates…(i) accurate and/or accurately stated? (ii) wrong?", the judge said this:
  118. "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."

  119. Mr Gaisman criticises this passage, or at any rate the last paragraph of it, on the basis that the judge was here conflating two different things. One was the answer to the question posed in issue 4, which had to be answered at trial, with the help of a full and probing examination of the accumulated evidence and the assistance of expert witnesses. The other was what Mr Lucas or Mr Chalmers knew at the material time, nearly ten years earlier. Mr Gaisman submits that this conflation is unfair to Mr Lucas and Mr Chalmers. Ex hypothesi they could not have known of Mr Revell's opinion. Dr Marshman, who gave expert evidence for ITS, disagreed with Mr Revell in significant respects. Moreover, the judge's conclusion on issue 4 was expressed in somewhat cautious terms ("on a balance of probabilities…probably…on a balance of probabilities"). This, he submitted, is to be contrasted with the cogent evidence which is needed to prove a guilty mind for fraud.
  120. At this stage, I would merely observe as follows. First, the judge does not say that Mr Lucas or Mr Chalmers knew, understood and appreciated the matters set out in paragraph 198 of his judgment. This is possibly important because, unless one has been able to eliminate contamination from a comparative exercise, it is impossible to find that a retest of loading samples and comparable disport figures are mutually corroborative. Secondly, the judge at this point does not explain why he states that Mr Lucas and Mr Chalmers knew, understood and appreciated what Mr Revell had opined or what the judge found to have occurred on the balance of probabilities. It remains to be seen whether that is subsequently explained. Thirdly, the judge does not say at what stage Mr Lucas and Mr Chalmers had the requisite knowledge.
  121. In this last respect, the judge returned to this subject under (inter alia) issue 28, "Was Mr Lucas dishonest in what he said and did not say during the telcon on 17 April 1996". He there found, at para 283, as follows as to Mr Lucas's knowledge as of 17 April, in terms which are a close parallel to his earlier findings at paras 199/203:
  122. "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".

  123. The judge then went on to make two further findings:
  124. "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."

  125. The issues which the judge was answering at this stage of his judgment were concerned (inter alia) with Mr Lucas's honesty at the time of his telephone conversation, and not directly with Mr Lucas's state of knowledge. No previous issue had asked a question as to Mr Lucas's state of knowledge at that time, except issue 23, which was limited to the Cooper retest and its results: "Did Mr Lucas know of the re-tests and the results thereof (i) by the time of the telcon on 17 April 1996 and (ii) thereafter?" The judge had dealt with that issue briefly, making the findings set out in para 89 above. It appears therefore to have been treated as axiomatic or implicit in those findings, relating to what Mr Rackham told Mr Lucas, that Mr Lucas assimilated the information, contextualised it, and immediately and consciously derived all the knowledge which the judge had considered was to be derived on the balance of probabilities with the help of expert witnesses by the conclusion of the trial.
  126. 12. 17 April: the telephone conversation. What Mr Lucas said.

  127. The telephone conversation between Mr Lucas and Mr Whitaker was in the presence of Mr Rackham, still in Mr Lucas's office. The conversation, or most of it, was recorded by Mr Lucas. Mr Lucas said that there came a moment in the conversation when he realised that he ought to record it, and he switched on his dictaphone recording device and held it close to the telephone. He presumably did so for his own, or ITS's, protection.
  128. Within 24 hours Mr Lucas caused a transcript to be made from the recording. His secretary typed it up. When, as they did almost immediately, the parties resorted to their lawyers, Mr Lucas gave a copy of the transcript to ITS's lawyers. The transcript survives and therefore provides a verbatim account of the conversation, or most of it. A copy of the transcript is annexed to this judgment as Annex A. It can be read for itself.
  129. There was no evidence at trial from Mr Whitaker. Apparently, he was no longer employed by AIC and declined to become involved.
  130. There is some dispute about who initiated the call, and also how much of the conversation was not recorded.
  131. Mr Lucas's recollection was that Mr Rackham had told him that he would be receiving a call within 15 minutes. The transcript does not record the opening of the conversation. However, at a very early stage of the transcript [at 1B] Mr Whitaker says: "why I am calling you on a fairly urgent way is…". That, it seems to me, is a clear indication that it was Mr Whitaker who initiated the call.
  132. As for the unrecorded part of the conversation, Mr Lucas's estimate was that his recording began some 5 or 6 minutes into it. That might be right, but there is no real way of telling. All one can say is that the transcript, from where it begins, reads as though it is quite close to the start of the serious part of the conversation, for Mr Whitaker's first comment is to make the point that D323 had been used instead of the CPS requirement for D5191, and his second comment is that already cited of "why I am calling you on a fairly urgent way". Once started, the transcript reads as though it is complete, and it ends with Mr Lucas saying "Bye".
  133. In his evidence Mr Lucas may have elaborated somewhat on the transcript, for instance, in answer to Mr Hamblen's question "Q. You say, "We will be standing by that certificate"?", saying "A. That is what I said, several times." (Day 6.156). If he meant that he had said that several times in the conversation, as distinct from agreeing several times in his cross-examination that he had said that, then there is no evidence from the transcript itself that he did so.
  134. What did Mr Whitaker and Mr Lucas say to one another? I will leave for a later stage the question of what Mr Lucas may have thought that he was saying, or what Mr Whitaker understood him to be saying. What did they say?
  135. The first thing to note is that it was common ground between them that the wrong test method had been used and that in that respect ITS could assist AIC with a written statement. In that connection, Mr Whitaker said this:
  136. "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."

  137. Mr Whitaker then made a further request:
  138. "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."

  139. To which Mr Lucas said:
  140. "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.

  141. Mr Whitaker persisted, saying that he had an off-spec cargo "verified by Caleb Brett and SGS" and that he believed that D5191 ("the other method") would give a higher RVP reading, to which Mr Lucas responded:
  142. "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…"

  143. It is submitted by Mr Hamblen that that was a lie, coming from someone who knew that the Cooper retest had been performed. If so, it is a lie which the judge did not find, although he did refer to the remark twice (at paras 281 and 283). It will be recalled that Mr Rackham had said in his first email (that of 16 April) that Mr Sampino had reported to him that it was not possible to perform a RVP test "as all samples comped in tin cans". Mr Gaisman submits that the impossibility of which Mr Lucas was speaking was the impossibility of a certifiable or reliable further certificate. Mr Lucas was not denying the existence of available samples, and all parties would have known about the formally retained samples, some of which had already been tested at New York by ITS USA (Caleb Brett), something to which Mr Whitaker had just referred. All this was in the context of a request by Mr Whitaker (his second request) for a statement from ITS that the cargo was out of specification, in effect a request for a new certificate.
  144. A little later Mr Whitaker put his point like this:
  145. "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."

  146. There then followed what the judge regarded as the critical exchange:
  147. "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."

  148. Mr Whitaker persisted, confirming that what he was concerned with was conflicting statements from independent inspectors, with ITS UK saying one thing and ITS USA saying the other: "I have got two, I have got the same company independent…both saying they are right. Where do I go from here?" The transcript then reads:
  149. "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."

  150. There was a similar exchange a little later:
  151. "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."
  152. Mr Whitaker next came very close to taking the Veba Oil point. In effect, speaking as a layman, he did so. He said:
  153. "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."

  154. To which Mr Lucas said "Right". There followed this:
  155. "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."

  156. Mr Hamblen criticised Mr Lucas for that answer, saying it was disingenuous. However, the certificate did not say that it met colonial specification. It said that the RVP met specification on test D323. The certificate did not refer to the CPS. The trouble was, as Mr Whitaker and Mr Lucas had already agreed, that the reference to D323 was not in accordance with colonial specification.
  157. The next important exchange was as follows:
  158. "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."

  159. In that exchange, Mr Lucas repeats that there is no problem in giving Mr Whitaker his first request, but avoids responding to Mr Whitaker's second request, for a statement that the cargo failed to meet specification. Mr Lucas also recommended Mr Whitaker to do what Mr Whitaker said he needed to do, which was to obtain legal advice.
  160. Finally, Mr Whitaker came straight to the point and said:
  161. "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."

  162. The judge's findings on this conversation were as follows:
  163. "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."

  164. Mr Gaisman submits that the judge had failed to consider the telephone conversation as a whole; that the overall impression conveyed by Mr Lucas could not be said to be that the certificate remained a good and reliable, or good and valid certificate; that it was not right to dissipate the requirement of a clear and unequivocal representation into an overall impression; that it was wrong to speak about what was conveyed or what impression was given without considering carefully three separate matters, namely what was said, what was intended and what was understood, and that it was only where all three matched that a finding of fraud could be made; that in reaching his conclusions the judge paid either no or wholly insufficient regard to either Mr Lucas's own evidence, or to the lack of any proper challenge to it on the issue of his honesty, or to contemporaneous evidence of the parties' understanding of the conversation.
  165. Mr Hamblen submits that the judge was fully entitled to come to these conclusions, and in circumstances where Mr Lucas knew of the Cooper retest and its results, but said he did not, that the judge should have gone further.
  166. I therefore turn to set out the circumstances relevant to these submissions, beginning with the contemporaneous evidence following the telephone conversation.
  167. 13. The follow up correspondence

  168. Later that afternoon Mr Lucas sent a fax to Mr Whitaker, referring to their conversation. He said:
  169. "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."

  170. That is contemporaneous evidence as to how Mr Lucas regarded the telephone conversation. It was in that context that he had said that ITS would be standing by its certificate. It was perhaps unfortunate that Mr Lucas sent so indignant a written response. Yet that was how he committed himself in writing. He clearly felt strongly about the request to change the loading certificate, ie provide a certificate that the cargo was off specification in respect to RVP. There would never have been any difficulty, as the telephone conversation demonstrates, about a written statement as to the use of the wrong test.
  171. On 18 April Mr Whitaker replied to Mr Lucas's fax in a telex which included the following:
  172. "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…"

  173. This is a significant document, for it is Mr Whitaker's immediate statement of what he took away with him from the conversation. In the light of the absence of Mr Whitaker's evidence from the trial, it is also Mr Whitaker's only statement. Like Mr Lucas's fax to which it is a reply, it is not at any rate in substance mentioned in the judgment below. It is quite likely to have been drafted with legal assistance. It will be noted that the issue raised in the first paragraph is an issue of validity of the certificate – the Veba Oil point. The paragraph seeks to downplay Mr Whitaker's telephone demand for a new certificate stating the cargo to be off specification to a mere enquiry: if the old certificate is not valid does it need to be reissued with corrected results for the right test? As for the critical third paragraph, this properly links Mr Lucas's "stand by" comment with his repeated comments that he cannot be certain about the quality of the goods tested by the right test. It is somewhat inaccurate, however, in glossing what Mr Lucas said about standing by the certificate with standing by its results.
  174. On 19 April Mr Lucas faxed his response to Mr Whitaker's telex:
  175. "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."

  176. Mr Lucas also supplied details of his solicitors, Hill Taylor Dickinson (Mr Pople).
  177. The judge mentioned these three communications, but only in passing, quoting very briefly from Mr Lucas's faxes and not at all from Mr Whitaker's telex.
  178. 14. The premium parcel RVP

  179. A small point on Mr Lucas's fax of 17 April emphasises something about the telephone conversation to which so far I have not drawn attention. Mr Lucas's fax is headed "Cargo: Reg. Unleaded/Prem. Unleaded", ie referring to both parcels of gasoline. This was the "above cargo" of which he spoke in the fax. This was in one sense an error, because the RVP problem had only arisen about the regular gasoline parcel. That had been clear to Mr Rackham, see, for instance, his resumé email of early on 17 April. Nevertheless, in the telephone conversation Mr Whitaker had more than once referred to a problem with both parcels. Thus, Mr Whitaker had spoken of a certificate for both M2 (regular) and R2 (premium) grades as having erroneously stated the relevant parcels to be on specification when the wrong test had been used: and it was in that context that he had said that "I don't have colonial" and asked for a new certificate. In an important sense he was right, for of course Galaxy was also making a fuss about another property of the premium parcel, although not about its RVP.
  180. When Mr Rackham asked Mr Cooper to retest the residues by D5191, the retest had been performed on the premium parcel shore tank sample residues as well as on the regular parcel shore tank sample residues. Mr Cooper had found the premium parcel RVP result by D5191 to be 8.12/8.17. Mr Rackham had recalculated it (erroneously) at 8.34/8.54. The original premium parcel certificate of quality had given the D323 result at 8.12/8.26. At New York, the ship's composite blend sample for the premium parcel had been tested by the D5191 method at 8.11 and the on discharge test had resulted in readings of 8.37/8.43: in terms of RVP there was no specification problem, for the limit for premium R2 grade was again 9.
  181. 15. Other witnesses of the telephone conversation

  182. Since the transcript of the telephone conversation survives, other witnesses of it (apart from Mr Lucas and Mr Whitaker), such as Mr Rackham, are not needed to help to identify what was said. But any such witnesses may be relevant to an understanding of how the conversation was understood; and in general to the question of deceit.
  183. Mr Rackham was a witness to the conversation. He said that he could hear both sides of it, because Mr Lucas was using the speaker facility on his telephone. Up to that time he had the conduct of AIC's complaints and of Mr Whitaker's urgency. He above all undoubtedly knew of the Cooper retest and its results.
  184. By the time of the trial he had left ITS (in October 2003) and was international co-ordination manager at another inspection house. He gave three statements. The first, made on 27 September 2004, was provided to ITS. It gives the impression of being in large part a reconstruction from the documents. As for the Cooper retest and results, he could not remember who had asked for them, he was inclined to think it was Mr Chalmers rather than himself; they were done for internal purposes; he would not regard them as valid for testing as they had already been broached. He said that he did not think that he told Mr Lucas about them, and he repeated that evidence at trial. He also said in his first statement that he was sure he gave Mr Lucas as full a briefing on events as possible but could not recall the detail. The judge preferred Mr Rackham's general remark as supporting a finding that he did tell Mr Lucas about the Cooper retest and results. On that basis, Mr Rackham above all, although the more junior manager, could have been expected to be fully complicit with any dishonesty involved in the conversation. He said of the conversation, after being shown the transcript and confirming that it accorded with his recollection:
  185. "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."

  186. Mr Rackham's second and third statements, made on 7 and 16 October 2004, were given to AIC. In the second statement, he said nothing about the Cooper retest or results, presumably because he was not asked about them. He said that he knew about the transcript of the conversation, but had not read it: that was incorrect, he had read it and commented about it in his statement to ITS two weeks earlier. In his third statement, he said that he had been shown some further material, and commented on the Cooper retest and results. His response was to distance himself from them, eg
  187. "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.
  188. Mr Rackham was cross-examined on behalf of both parties at the trial. He was cross-examined by Mr Hamblen about the telephone conversation. The relevant passage is as follows (Day 5.92/93):
  189. "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."

  190. That was the limit of his cross-examination on the telephone conversation. It was not explored with him that Mr Lucas had made a false representation during that conversation; nor put to him that Mr Lucas had, to his, Mr Rackham's, own knowledge, been dishonest in that conversation. In essence, he was asked about what Mr Lucas had not said, not about what he had said. He was asked, according to his own standards, to criticise Mr Lucas, but declined to do so.
  191. In dealing with Mr Rackham's evidence (at paras 129/139), the judge said nothing about the telephone conversation itself. He regarded Mr Rackham's critical evidence as consisting in that part of it from which it could be inferred that he had briefed Mr Lucas about the Cooper retest and its results (although Mr Rackham thought that he did not) and that part of it which suggested that Mr Chalmers and he had thought that the Cooper retest was potentially important ("Harass UK"). In that latter connection the judge said this:
  192. "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."

  193. The evidence referred to at para 132 of the judgment was in the context of Mr Rackham's hope, at any earlier stage, that good RVP results on the D5191 Cooper retest would have resolved matters. So it may have done. The evidence referred to at para 133 was taken from the passage at the later stage (which I have cited above), when Mr Whitaker was requiring a new certificate and Mr Rackham said in that context that the figures could not have been relied upon. The questions arise: Was that inconsistent? Was Mr Rackham's view (or Mr Chalmers') at the earlier stage to be ascribed to Mr Lucas? Mr Gaisman submits not.
  194. Mr Robert Hatcher had been managing director of AIC's associated service company from January 1996 to July 2004. He was also a senior trader. He sat at adjacent desks with Mr Whitaker and others in Monaco. In his witness statement for AIC (admitted under a hearsay notice and otherwise not commented on by the judge), he said this about the telephone conversation, which he had obviously witnessed:
  195. "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