Court Of Appeal Decision on Implied Terms as to Quality In FOB Sale Contract - 'The Mercini Lady'

KG Bominflot Bunkergesellschaft fűr Mineraloele mbH & Co v Petroplus Marketing AG (The Mercini Lady) [2010] EWCA Civ 1145

The Dispute

KG Bominflot were the FOB Buyers of a cargo of gas oil from Petroplus. Although the load port inspector found that the "Total sediment" specification was within the contractual limits at the load port, the Buyers were more than a little put out when four days later, following an unremarkable voyage, the cargo failed the sediment test and was rejected by Bominflot's receivers. Bominflot claimed in excess of US$ 3m from its Sellers, Petroplus, for the difference in the value of the cargo, freight and other consequential losses.

Commercial Court Decision

The parties agreed that it may save them both time and costs to have the Commercial Court decide various questions by way of preliminary issue as opposed to having a full trial. As often happens, this best of intentions has probably had quite the opposite effect. Nevertheless, as we reported in our February International Trade Update, this did result in Field J being posed some interesting questions. In a nutshell, at first instance the Judge decided that terms should be implied into the original FOB contract that the goods would be of satisfactory quality, not only when delivered onto the vessel but also for a reasonable time thereafter. The Judge found that it was appropriate for terms to be implied both at common law and under Section 14 of the Sale of Goods Act 1979 and that the absence of a reference to "conditions" in the express exclusion clause failed to stop such terms being incorporated. The Sellers appealed.

Court of Appeal Decision

Lord Justice Rix gave the judgment of the Court. Running through the judgment, there appears to be a slight expression of frustration on the Judge's part that the case came to Court as an appeal on preliminary issues rather than following a trial and with an explanation as to how the sediment in a cargo of gas oil could change from within specification to off specification after an unremarkable four day voyage. It was common ground between the parties that the load port inspection was not invalid as a result of "fraud or manifest error" (both of which would have prevented its finding being final and binding) and no point was taken in this case by the Buyers about the fact that the load port inspectors did not use the contractual test method. Further, the Buyers made it clear that they did not allege that the cargo was off...