- The recent case of KG Bominflot Bunkergesellschaft fur Mineralole mbH & Co Kg v Petroplus Marketing AG [2009] EWHC 1088 (Comm) has addressed the exclusion of implied conditions in a commercial contract. The case highlights that for an implied term to be excluded it must be properly defined.
- The use of ICC INCOTERMS needs to be clearly defined.
- Certain implied terms are conditions and others are warranties. It is important to exclude both conditions and warranties in order to avoid liability.
In this case a buyer purchased oil under a contract where delivery was under the ICC INCOTERMS FOB such that the quality of the oil should be both satisfactory and fit for purpose not only on delivery to the ship but also subsequent to delivery.
According to the Court, the use of FOB implied that goods would be of satisfactory quality both at delivery of the oil to the ship and for the reasonable voyage after delivery. Such a term was held to be a condition of the contract. Certain rights and obligations were also implied into the contract under the Sale of Goods Act 1979.
The seller's contract used language that sought to exclude certain implied terms, namely "guarantees, warranties or representations express or implied". Failure to adequately and specifically identify the implied term to be excluded meant that the exclusion was ineffective. The contract therefore still contained the condition that the oil delivered must have been of satisfactory quality.
Under English law a term of a contract that goes to the core of the contract and where any breach would be material to the performance of a contract is deemed a condition whereas any other term, the breach of which would be not material to the performance of a contract, is treated as a warranty. A breach of a condition gives a right to rescind the contract and claim compensation whereas breach of a term that is a warranty gives right to damages only.
As a consequence, the lack of clarity in the drafting of the contract was critical to the issue of liability and it is important to ensure that precise wording is used to achieve minimization of risk in any contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.