Damages For Breach Of Terms As To Quality - Does The Sale Of Goods Act Limit Such Damages To Depreciation In Value?

Saipol SA v. Inerco Trade SA [2014] EWHC 2211

This sale contract dispute provides a useful refresher with regard to the proper application of the provisions of Sections 53 and 54 of the Sale of Goods Act 1979 (the "SGA") dealing with the determination of the appropriate measure of damages for breach of warranty.

The background facts

Pursuant to a FOB contract (the "Contract"), Inerco Trade SA (the "Seller") agreed to sell and Saipol SA (the "Buyer") agreed to purchase 3,000 MT of Ukrainian crude sunflower oil (the "Product") in bulk, at a price of US$1,275 per MT. Delivery was due to take place at Ilyichevsk, between 15 March and 15 April 2008.

The Seller shipped the Product, as part of a total cargo of about 16,600 MT of Ukrainian crude sunflower seed oil, on board the MT Selandra Swan (the "Vessel") on 16 March 2008. The balance of the cargo loaded onto the Vessel (approximately 13,600 MT) was shipped by four other sellers. Before shipment, all five consignments of cargo had been comingled and the whole cargo was loaded, comingled into the ship's tanks ("the entire cargo").

The entire cargo was discharged at Dunkirk on 31 March 2008. In the weeks following discharge, it had become clear that the entire cargo had been contaminated prior to loading on board the Vessel.

The Buyer's claim

The Buyer pursued a claim for damages against the Seller for breach of S. 13 (sale by description) and S. 14 (implied terms as to quality and fitness) of the SGA. The Seller denied the Buyer's claim and the dispute was referred to FOSFA arbitration.

The Tribunal upheld the Buyer's claim that, in respect of the 3,000 MT of Product sold by the Seller to the Buyer, the Seller was in breach of Sections 13 and 14 of the SGA.

The quantum of the Buyer's claim

The Buyer sought to recover damages from the Seller in respect of:

the difference in value between sound and contaminated Product; costs incurred by the Buyer in respect of storage and financing of the contaminated Product; and sums paid by the Buyer to sub-purchasers to whom the contaminated Product had been sold. The Buyer also contended that it was entitled to damages in respect of the contamination of the entire cargo and not only in respect of the 3,000 MT sold by the Seller.

The law on damages

Not all losses that flow from a breach of contract are necessarily recoverable. As a matter of English law, the recoverability of damages for breach of contract may be restricted on the grounds of remoteness. In...