Case briefing: The risk of relying on the unenforceability of "inconsistent" commercial clauses

In this case, Septo was the buyer and Tintrade the seller of a cargo of fuel oil. Septo alleged that the fuel oil supplied was off-spec (i.e. not in accordance with the specification) and claimed breach of contract and damages against Tintrade. Tintrade argued that Septo did not have the right to bring such a claim because a “binding” certificate of quality which had been issued following an inspection of the fuel oil prior to it being loaded onto the vessel. There was no disagreement between the parties that the fuel oil when delivered to Septo was in fact off-spec: the samples which had originally been collected and tested before the vessel was loaded were subsequently re-tested by a new inspector and, although the majority of those samples were within the contractual specification, it appeared that some were off-spec. The fuel oil had been inspected and tested prior to loading while it was held in seven storage tanks and the off-spec oil in some of those tanks had contaminated all of the cargo when it was loaded onto the vessel.

The contract between the parties was evidenced by a “Recap” dated 20 June 2018 which recorded the agreed terms. The Recap contained a provision that an independent inspector’s certificate of quality in relation to the fuel was to be “binding on parties save fraud or manifest error”.

The Recap, however, also contained a general provision that “Where not in conflict with the above, BP 2007 General Terms and Conditions for fob sales to apply”. The BP General Terms provided that any certificates of quality “shall, except in cases of manifest error or fraud, be conclusive and binding on both parties for invoicing purposes and the Buyer shall be obliged to make payment in full in accordance with Section 30.1 but without prejudice to the rights of either party to make any claim pursuant to Section 26”.

The “most important issue to be resolved” was therefore whether the parties had agreed that the certificate of quality issued was to be binding for all purposes (which would prevent Septo’s claim) or only for invoicing purposes.

Tintrade argued that the certificate was binding for all purposes; the BP Term was inconsistent with what was agreed by the parties in the Recap, and therefore should not form part of the overall contract.

Septo argued that the BP Term did not conflict with the Recap, and that the role of the BP Term was to clarify the purposes for which the certificate was binding (i.e. for invoicing and payment purposes only). The BP Term did not prevent the certificate from being binding, as provided in the Recap, it just prevented it from being “final”. This, Septo argued, was not in conflict with the Recap, which only stated that the certificate was binding (and not “final”). The two clauses could be read together and by doing so the effect would be that the certificate was binding on the parties, but, because of the BP Term, only binding as to invoicing and payment.

The Court agreed with Septo, and held that there was no conflict between the two terms. The certificate of quality was not binding and final, meaning Septo was not prevented from bringing a claim for breach of contract. In explaining its decision, the court stated that the two terms in question were part of the same contract and that the parties chose to make the contract subject to the BP Terms. It would therefore be incorrect “to approach the question of construction with any predisposition to find inconsistency between [the two terms]”. The court summarised that the BP Term qualified the Recap, and therefore “concluding that it was in conflict with the Recap would require the court to ignore the construction which fairly gives effect to both clauses.”

This case serves as a further reminder that, to be inconsistent, it is not enough for one clause simply to qualify or modify the effect of another. Before the Court will find that two clauses are inconsistent, the clause in question “must contradict another or be in conflict with it, such that effect cannot fairly be given to both clauses.” Parties should therefore avoid placing heavy, and potentially misconstrued, reliance on ‘order of priority’ or similar clauses; the focus should always be on having a clear and well-drafted contract from the outset with apparent conflict or inconsistencies ironed out at that stage (whilst acknowledging that this advice is © the counsel of perfection!).