Exxonmobil Sales and Supply Corporation v Texaco Ltd.

Factual and Procedural Background

The Plaintiff and Defendant entered into a contract for the sale of 15,000 metric tonnes of Ultra Low Sulphur Auto Diesel (ULSADO) to be delivered CIF Cardiff. The cargo was shipped on approximately 10 September 2001 aboard a vessel at a loading port in The City and arrived in Cardiff on 15 September but was not discharged. The Defendant rejected the cargo on the basis that it was off specification, specifically alleging that its flashpoint was below the contractual minimum of 58°C. The Plaintiff contended this rejection was a repudiatory breach of contract, accepted the breach, terminated the contract, and sought to resell the cargo elsewhere while claiming damages exceeding US$785,000. The Plaintiff applied for summary judgment pursuant to Part 24 of the CPR.

Legal Issues Presented

1. Whether the Defendant could successfully argue that the contract included an express or implied term requiring retention of a representative portion of tested samples at the loading terminal for 90 days to allow retesting.
2. Whether such a term could be implied based on business efficacy or established usage or custom.
3. Whether the entire agreement clause in the contract excluded the implication of terms based on usage or custom.
4. The legal effect of clause 20 excluding liability for loss of prospective profits or special, indirect, or consequential damages on the Plaintiff's claims for damages.
5. Whether the claim for damages relating to the difference between the substitute sale price and the contract price was too remote due to different terms of resale.
6. Whether judgment should be granted on the claim for demurrage in the absence of permission to defend.

Arguments of the Parties

Defendant's Arguments

• The contract contained an express term (clause 2.4 of Part II) requiring retention of representative portions of tested samples at the loading terminal for 90 days, which was not complied with, rendering the inspection determination not binding.
• Alternatively, this term should be implied either on grounds of business efficacy or based on a customary usage in the industry.
• The entire agreement clause did not exclude implied terms based on usage or custom.
• The Plaintiff’s failure to retain samples constituted a material breach affecting the binding nature of the inspection certificate.
• The claim for damages was too remote because the substitute sale was on different terms, specifically a lower flashpoint.

Plaintiff's Arguments

• Part I clause 6 of the contract, which provided for final and binding determination by a mutually agreeable independent inspector, prevailed over Part II clause 2.4 due to conflict, excluding the retention requirement.
• The retention of samples procedure in clause 2.4 was integral to a different determination regime and thus was not incorporated into the contract.
• The entire agreement clause effectively excluded implied terms based on usage or custom.
• Manifest error, as defined by case law, could be shown without retesting retained samples, negating the necessity of the implied term.
• The failure to retain samples, if it occurred, did not affect the finality of the inspector’s determination as it was a non-trivial but final procedural step after testing.
• The claim for damages based on the difference between the contract price and the substitute sale price was not excluded by clause 20 as a claim for loss of prospective profits.
• The issue of remoteness related to the substitute sale terms was a factual matter unsuitable for summary judgment.
• Judgment should be entered for demurrage as the Defendant was not granted permission to defend.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Veba Oil v Petrotrade [2002] 1 LR 295	Definition of "manifest error" as obvious oversights or blunders affecting determination; consideration of procedural departures affecting binding nature of determinations.	The court adopted the definition of manifest error and considered whether failure to retain samples was a trivial procedural departure or one affecting the binding nature of the inspector's determination.
Heald Foods Ltd v Hyde Dairies Ltd and others (6 December 1996)	Whether retesting evidence may be considered in establishing manifest error.	The court noted this precedent in discussing the permissibility of relying on retesting evidence to establish manifest error, with some doubt cast on its permissibility.
Deepak v ICI [1998] 2 ER 139	Interpretation of entire agreement clauses excluding implied terms.	Referenced in argument regarding whether the entire agreement clause excluded implied terms based on usage or custom; court found that the clause was effective to exclude such implied terms.
Inntrepreneur v East Crown [2000] 2 LR 611	General principles on entire agreement clauses.	Used to support the court's interpretation that entire agreement clauses constitute binding agreements that terms are contained only in the contract documents, excluding implied terms based on usage or custom.

Court's Reasoning and Analysis

The court first examined the contractual framework, noting that the contract was in two parts with potentially conflicting clauses governing quality and quantity determination. The Part I clause 6 provided for a mutually agreed independent inspector whose determinations were final and binding save for fraud or manifest error, while Part II clause 2.4 outlined a different regime involving retention of sample portions for possible retesting.

The court held that clause 2.4 of Part II conflicted with clause 6 of Part I and therefore was not incorporated into the contract, as Part I took precedence under the contract’s conflict resolution clause. The retention of sample portions was integral to the procedure in clause 2.4 and could not be severed from it.

Regarding the implied term argument, the court applied the business efficacy test and the principles governing implied terms. It found that the implied term was not necessary to make the contract work because manifest error could be demonstrated by obvious errors on the face of the determination without retesting. Hence, the implied term based on business efficacy was not established.

The court acknowledged that there was evidence supporting a possible usage or custom requiring retention of samples but concluded that the entire agreement clause expressly excluded terms based on usage or custom. The court interpreted the clause as a clear intention by the parties to exclude such implied terms.

The court considered whether failure to retain samples, if a term had existed, would have affected the binding nature of the inspector’s determination. It found that the retention step was part of the agreed procedure and a failure to comply could mean the other party was not bound by the determination, provided the failure was not trivial or de minimis. The evidence showed a real prospect that the departure was not trivial, so the Defendant’s defense on this ground was arguable.

However, since the Defendant had no real prospect of establishing the express or implied term on which they relied, permission to defend was refused.

On damages, the court held that clause 20 excluding liability for loss of prospective profits did not exclude the Plaintiff’s claim for the difference between the contract price and the substitute sale price, as this was a recognized measure of damages under the Sale of Goods Act 1979 and not a claim for lost prospective profits per se.

The court declined to make a declaration on the remoteness of the claim related to the substitute sale terms, finding that issues of reasonableness, causation, remoteness, and mitigation involved factual disputes unsuitable for summary judgment.

Finally, the court granted judgment for the Plaintiff on the demurrage claim, which the Defendant accepted should be awarded if no permission to defend was granted.

Holding and Implications

The court GRANTED SUMMARY JUDGMENT in favor of the Plaintiff on the principal claim for damages and the demurrage claim, refusing the Defendant permission to defend based on the lack of real prospects of success on the express and implied term arguments.

The court declared that clause 20 of Part I did not exclude the Plaintiff’s claim for damages measured by the difference between the contract price and the substitute sale price.

The court did not resolve factual issues relating to remoteness and mitigation, leaving those for trial.

This decision results in judgment for the Plaintiff for damages and demurrage, but does not establish new precedent beyond the application of established principles regarding contractual interpretation, implied terms, and the effect of entire agreement clauses.