02.09.2021

When Contracts Contradict: Septo Trading Inc v Tintrade Ltd

Contracts in international trade are often formed by a combination of emails recording expressly agreed terms, but with a reference to standard terms and conditions being incorporated.

Sometimes terms agreed in emails contradict the incorporated standardised terms.

The English Court of Appeal considered this issue in Septo Trading Inc v Tintrade Ltd [2021] EWCA Civ 718 and concluded that what is expressly agreed is to prevail.  

Background

Tintrade Limited (Tintrade) sold a cargo of fuel oil to Septo Trading Inc (Septo) on a FOB basis.

Confirmation of the essential terms of the contract was by way of an email recap (Recap).  As is typical, the Recap stated the quality certificate issued by the loadport inspector would be binding save for fraud or manifest error.

The Recap also incorporated the BP 2007 General Terms and Conditions (BP Terms), where the BP Terms were “not in conflict with the above”.  The BP terms stated that the quality certificate was binding “for invoicing purposes” only, and without prejudice to the buyer’s right to bring a quality claim.

The loadport inspector issued the quality certificate at loadport, but the cargo was later discovered to be outside contractual specification. 

A dispute arose regarding liability for the off-specification cargo.

Tintrade argued the quality certificate was final and binding as per the Recap, since there was no evidence of fraud or manifest error.  Therefore, Septo was barred from bringing a quality claim. 

Septo contended the quality certificate was binding for invoicing purposes only, and so it was not precluded from advancing a claim against Tintrade for breach of contract.

The English High Court held that the terms did not contradict and that the BP Terms qualified the Recap.  Accordingly, Septo was entitled to bring a claim against Tintrade.

The Court of Appeal Decision

The Court of Appeal reversed the High Court ruling and concluded the Recap and BP Terms could not be read together, and consequently the Recap terms were to be preferred.  Central to this finding are the following factors:

  • To implement the BP terms would deprive the Recap of all practical effect. The Recap was for all purposes, while the BP Terms were for the very limited purpose of invoicing only; these are contradictory and cannot be interpreted consistently.
  • A regime in which a quality certificate is binding is fundamentally different from one in which it is not. Where parties have chosen to incorporate this as a condition, they do so as a means of achieving a conclusive determination as to quality.
  • The binding nature of the quality certificate is a central feature of the contract that provides an important measure of certainty for both parties.
  • When considering the intention of the parties in a commercial context, it is not reasonable to conclude they had agreed to circumvent the certainty of the Recap through a backdoor standardised term.

Comment

This case serves as a useful reminder to New Zealand companies contracting internationally and forming contracts by email recap that:

  • Express provisions need to be clear and unambiguous.
  • If standardised terms are incorporated, these should be checked against the express provisions to avoid inconsistency, or it is made clear which terms are to prevail.
  • The agreement when viewed holistically can be sensibly read together.

Courts and arbitral tribunals will generally try to construe competing clauses to have a consistent interpretation where possible.  However, where this cannot be achieved, terms that have been specifically agreed will be preferred to standardised terms that have been incorporated. 

If you have any questions about this case, or trade terms generally, please get in touch with our Trade and Commodities Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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Contact the expert team at Hesketh Henry.
Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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