Rejection of goods - Right to reject - Parties using terms and conditions from GAFTA 119
RG Grain Trade LLP (UK) v Feed Factors International Ltd: QBD (Comm) (Mr Justice Hamblen): 20 July 2011
The contract incorporated a number of terms and conditions from GAFTA 119. Clause 4 of the contract provided that: ‘Quality and condition to be final at time and place of loading as per certificate of first-class superintendent approved by GAFTA at seller’s choice and expense. The buyers have the right to appoint their own GAFTA-approved supervisor at their expense.
In this case the sampling to be done conjointly, as per GAFTA terms and conditions.’ Clause 5 of the contract provided a warranty as to the quality and proportion of ingredients of the products. It stated that: ‘Official… certificate of inspection, at time of loading into the ocean carrying vessel, shall be final as to quality.’ GAFTA 119 incorporated terms and conditions from GAFTA sampling rules no 124.
Those rules provided that, inter alia: ‘Where the contract provides that a certificate of inspection of a superintendent, government or authority at time of loading shall be final as to quality, then the superintendent, government or authority shall be solely responsible for drawing samples and rules 1:3, 1:4 and 5 do not apply.’ When the cargo had been loaded, the defendant opted to appoint its own supervisor, CU, to act on its behalf.
Sampling of the cargo was therefore carried out conjointly by the CU and the inspectorate Ukraine LLP (the inspectorate), the superintendent chosen by the claimant. While loading was underway, the defendant wrote to the claimant, saying that its analysis results suggested that the cargo was off specification for protein and fibre content. It then sent samples to an independent expert (the expert) for analysis.
The expert produced a certificate stating that the protein content of the cargo was less than the minimum specified in the contract, and that the fibre content was more than the maximum specified. The defendant rejected the goods and documents. The claimant sold the goods on and claimed for the balance of the purchase price. The defendant claimed for damages. The claimant’s claim succeeded before the first-tier arbitrators.
However, the GAFTA board of appeal (the board) allowed the defendant’s damages claim and dismissed the claimant’s claim for the balance of the price. In finding for the defendant, the board held that pursuant to the terms of the contract, analysis by the expert superseded the analysis certificates issued by the inspectorate. The claimant appealed under section 69 of the Arbitration Act 1996 against the award.
Two issues arose: (i) whether, on a true construction of the contract, the certificates of quality and condition issued by the superintendent chosen by the claimant were final and binding. In considering the first issue, the defendant contended that it was wrong to contend that the expert superseded the analysis certificates issued by the Inspectorate, under GAFTA cl 4; and (ii) whether the defendant was entitled to reject the documents and the goods, despite clause 5 of the GAFTA 119 terms.
Consideration was given to the court’s approach to arbitral awards. In relation to that issue, the claimant contended that, inter alia, the board appeared to have proceeded on the basis that unless a scale of allowances for deficiency was provided for in the contract, then it had to follow that any failure of the goods to meet the specification would justify rejection.The appeal would be allowed.
(1) The starting point would be that quality was final as certified by the superintendent appointed by the claimant. An alteration to that scheme could occur where the defendant appointed its own supervisor, in which case sampling would have to be done conjointly. Further, where a second analysis was called for by the defendant, a different contractual regime would apply (see  of the judgment).
It was established law that the court needed to read an arbitral award as a whole in a fair and reasonable way and ought not to engage in minute textual analysis. Where the arbitrator's experience assisted him in determining a question of law, such as the interpretation of contractual documents or correspondence passing between members of his own trade or industry, the court would accord some deference to the arbitrator’s decision on that question.
The court would only reverse that decision if it was satisfied that the arbitrator, despite the benefit of his relevant experience, had come to the wrong answer. The independent expert’s certificate of analysis rather than the certificate of inspection of the inspectorate would be final and binding.
First, the contract provided for a second analysis, if any, by the independent expert. Second, the contract referred to the governing contract as GAFTA 119. Under the terms of clause 16 of GAFTA 119, the terms and conditions of GAFTA sampling rules no 124 would be deemed to be incorporated. Third, under paragraph 5.1.6 of the GAFTA sampling rules no 124, the buyer had the right to require samples to be sent to the experts for an analysis, which analysis would be final.
Fourth, the parties had not expressly excluded the rules in the GAFTA sampling rules 124 or any part of them, so that those rules applied and the expert analysis superseded the inspectorate certificates and was to be treated as final (see ,  of the judgment).
On the true construction of the contract, rule 5 of the GAFTA sampling rules no 124 would have the effect that the second analysis carried out by the expert was binding (see  of the judgment).
(2) Reading the award in a fair and reasonable way, the board had proceeded on the basis that there would be a right of rejection for quality matters unless the contract provided otherwise. That approach had involved a clear error of law. There had been no hint in the board’s reasons that it had considered whether the fibre content provision should properly have been regarded as a condition, as opposed to a warranty of an innominate term.
The board had wrongly assumed that the term was a condition unless there was a clear indication to the contrary. Accordingly, the board had erred in concluding that the defendant was entitled automatically to reject the document because of the statement in the quality final certificate that the goods contained impurities (see ,  of the judgment).
The matter would be remitted to the board (see  of the judgment).
Michael Nolan (instructed by Swinnerton Moore) for the claimant; Henry Byam-Cook (instructed by Mills & Co) for the defendant.