Saipol SA v Inerco Trade SA

Factual and Procedural Background

The dispute arises from a contract between Company A as buyer and Company B as seller for the sale and purchase of 3,000 metric tons of Ukrainian crude sunflower seed oil. The contract incorporated arbitration provisions under a standard arbitration framework. The product was shipped commingled with other sellers' parcels totaling approximately 16,600 metric tons on a vessel. After discharge, contamination of the oil was discovered, leading to claims by Company A against Company B for breach of warranty under the Sale of Goods Act 1979 ("SGA"). The matter proceeded to arbitration, where liability was found against Company B for the 3,000 metric tons sold. The arbitration tribunal limited damages to the difference in value between the sound and defective goods and awarded consequential damages on a pro-rata basis for storage and financing costs. Company B appealed the quantum of damages, and Company A cross-appealed, seeking broader consequential losses including those related to the entire commingled cargo. The appeal was heard by the court with leave under the Arbitration Act 1996, focusing on two legal questions concerning the measure of damages under the SGA and the effect of commingling on liability.

Legal Issues Presented

1. Whether the Sale of Goods Act 1979 limited recoverable damages to the difference in value between sound and defective goods.
2. Whether the commingling of the respondent's 3,000 metric tons with other sellers' parcels meant that the respondent was not liable for third party liabilities or expenses.

Arguments of the Parties

Appellant's Arguments

• The arbitration tribunal erred in ignoring the contract price in assessing damages.
• The tribunal was wrong to find no market for the unsound goods when calculating damages.
• No award should have been made for storage and financial costs as these were consequential losses recoverable only as per section 53(3) of the SGA.

Appellee's Arguments

• Entitled to consequential losses under section 53(2) of the SGA, which takes primacy over section 53(3), alternatively under section 54.
• Claimed consequential losses related to the entire commingled cargo, arguing that each seller was liable for the whole contamination due to joint contribution.
• Referenced the House of Lords decision in The Achilleas anticipating it would be relied upon by the appellant, though the appellant did not ultimately rely on it.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the legal framework under the Sale of Goods Act 1979, focusing on sections 53 and 54 which govern damages for breach of warranty. The tribunal had confined damages to the difference in value between sound and defective goods per section 53(3) and awarded limited consequential damages. The court found this approach too restrictive, noting that section 53(2) allows recovery of consequential losses that naturally arise from the breach, aligning with the first limb of Hadley v. Baxendale. The tribunal’s exclusive reliance on section 53(3) and section 54 was an error of law.

Regarding the commingling issue, the tribunal had held that liability was confined to the seller’s own consignment and rejected any joint liability for the entire cargo without giving proper reasons. The court found this rejection lacked sufficient reasoning and dismissed arguments that the tribunal’s decision was based on a break in causation. The court emphasized that the contention was that each seller contributed causally to the contaminated cargo as a whole, a point the tribunal failed to address adequately.

The court also considered the tribunal's reference to The Achilleas. It rejected the submission that the tribunal applied The Achilleas principles, clarifying that the tribunal’s reasoning was based on an absence of perceived risk and special damage considerations in the trade, not on the exceptional principles in The Achilleas. Even if The Achilleas had been applied, the court found it was inappropriate given the different commercial context.

Finally, the court endorsed postponing the valuation date for damages to when the defect was discovered and mitigation actions commenced, consistent with established legal authority.

Holding and Implications

The court ALLOWED THE APPEAL on both legal questions presented. It held that:

• The tribunal erred in law by limiting damages solely to the difference in value under section 53(3) of the Sale of Goods Act 1979 and failing to properly consider consequential losses recoverable under section 53(2) and section 54.
• The tribunal erred in rejecting the claim for joint liability arising from commingling without giving proper reasons.
• The tribunal’s reliance on The Achilleas was misplaced and legally erroneous.

The case was remitted to the arbitration tribunal to reconsider the assessment of damages applying the correct legal principles, including whether the consequential losses claimed are recoverable. No special directions were made regarding costs, leaving that to the tribunal’s discretion upon final resolution.

No new precedent was established beyond clarifying the correct application of existing statutory provisions and case law principles in the context of commercial arbitration disputes involving commingled goods and consequential loss claims.