Legal Roundup Q3 2021

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UK High Court ruled buyer was not entitled to reject off-spec oil

In a recent UK High Court judgement, a seller delivered off-spec fuel oil to a buyer that rejected the cargo and claimed for costs it had incurred in doing so. The seller disputed the buyer’s entitlement to reject the cargo, and brought a counterclaim for losses it incurred when the cargo was returned.

One of the key issues was whether the contract specified terms relating to the quality of the product amounted to a condition or an intermediate term.

If product quality was considered a condition of the contract, the buyer would have legitimate reason to reject the shipment. But if it was an intermediate term, only a serious and substantial breach would entitle the shipment to be rejected.

The court ruled that the list of guaranteed specifications in the contract were not strict “conditions” of the contract, but were intermediate terms, stating that "…in the absence of any clear agreement or prior decision that this was to be a condition, the court should lean in favour of construing this provision as to impurities as an intermediate term.” The court added, "…terms considered to be intermediate stipulations, so that a breach not going to the root of the contract, would give the buyer no more than a price allowance.”

Therefore, the buyer would only be entitled to reject the goods if the seller’s breach deprived the buyer of the whole benefit of the contract. This judgment highlights that where an exact specification of a product is of fundamental importance to a buyer, the buyer should specify quality related terms in the contract as a condition of the sale.

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Legal roundup

UK High Court ruled buyer was not entitled to reject off-spec oil