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Bunker trader liable for failed transaction

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Legal news
calendar 5 November 2014
globus Denmark

The Danish Maritime and Commercial High Court has decided that a bunker trader must pay around EUR 140.000 in damages to a shipping company. The bunker trader was obliged to bear the risk that a deal regarding delivery of bunkers would fail.

A bunker trader had requested quotes from a shipping company regarding a large delivery of bunkers to a customer. The bunker trader then confirmed towards the customer and accepted that delivery was subject to approval of the ship and that the so-called Q88 questionnaire (Intertanko’s Standard Tanker Chartering Questionnaire 88) was sent to the customer prior to final approval.

As agreed, the shipping company sent the questionnaire with detailed information about the ship. The bunker trader replied to the shipping company the same day with an order confirmation, which also stated: “Waiting for final confirmation on bunker tankers acceptance, but do not anticipate any issues on acceptance”.

Later the bunker trader informed the shipping company that the ship had been accepted to carry out the bunkering. But, the customer asked for a visual inspection as well, stating that this was “like a vetting”. At the same time the bunker trader explained that the customer would check the validity of the relevant certificates as well as examine the condition of the bunker equipment.

Subsequently, the shipping company purchased the bunkers in order to carry out the transaction.

Following the inspection of the ship the bunker trader informed the shipping company that the ship had been rejected by the customer. The bunker trader referred to three factors concerning the specifications of the ship, two of which had already been evident from the Q88 questionnaire.

Because of the rejection the shipping company had to resell the bunkers to a lower price, and therefore it claimed damages from the bunker trader. The shipping company thought that the rejection of the delivery had been unjustified and that it was a breach of contract. The bunker trader claimed that the transaction had been conditional on the customer’s acceptance after the visual inspection; and the ship had not passed this inspection.

The Maritime and Commercial High Court: The bunker trader must bear the risk

The Maritime and Commercial High Court held that the bunker trader had approved the ship as bunker tanker only with reservations for a short visual inspection of the ship. According to the evidence in court the visual inspection had been carried out without any problems. The bunker trader ought to have made the customer’s reservations clear to the shipping company. Alternatively, the bunker trader should have let the customer perform the inspection before giving the shipping company the impression that the transaction had been approved.

The Court noted that it had no relevance whether the bunker trader had covered its risk back-to-back or not.

Thus, the bunker trader had to bear the risk of the deal not being completed as expected.

The Court held that the resale had been reasonable and fair. Because of this the bunker trader had to compensate the shipping company for lost profit and wages amounting to about approximately EUR 140.000.

IUNO’s opinion

The judgment illustrates how important it is to express everything clearly in the correspondence which forms the basis of an agreement. In this case the wording in an e-mail was “a little too service-minded” concerning the inspection and the approval from the customer - and this was a decisive factor in the outcome of the case.

IUNO recommends that conditions and reservations are expressed clearly in the agreement, and that the parties make sure that they agree on the content of the agreement.

A middle man, e.g. a bunker trader, who wants to be covered back-to-back, must ensure that any reservations from the customer are transferred explicitly to the agreement with the supplier. If the middle man wants to minimise his risk, the agreements must be phrased in a way that makes it possible for the customer and the supplier to be included in the same legal action. This way the middle man can make sure that his liability towards one party is covered by the other party.

The judgment has been appealed to the Danish Western High Court, and we will of course return once the court has handed down its judgment.

[Judgment of the Maritime and Commercial High Court, 2 May 2014, case no. S-31-11]

A bunker trader had requested quotes from a shipping company regarding a large delivery of bunkers to a customer. The bunker trader then confirmed towards the customer and accepted that delivery was subject to approval of the ship and that the so-called Q88 questionnaire (Intertanko’s Standard Tanker Chartering Questionnaire 88) was sent to the customer prior to final approval.

As agreed, the shipping company sent the questionnaire with detailed information about the ship. The bunker trader replied to the shipping company the same day with an order confirmation, which also stated: “Waiting for final confirmation on bunker tankers acceptance, but do not anticipate any issues on acceptance”.

Later the bunker trader informed the shipping company that the ship had been accepted to carry out the bunkering. But, the customer asked for a visual inspection as well, stating that this was “like a vetting”. At the same time the bunker trader explained that the customer would check the validity of the relevant certificates as well as examine the condition of the bunker equipment.

Subsequently, the shipping company purchased the bunkers in order to carry out the transaction.

Following the inspection of the ship the bunker trader informed the shipping company that the ship had been rejected by the customer. The bunker trader referred to three factors concerning the specifications of the ship, two of which had already been evident from the Q88 questionnaire.

Because of the rejection the shipping company had to resell the bunkers to a lower price, and therefore it claimed damages from the bunker trader. The shipping company thought that the rejection of the delivery had been unjustified and that it was a breach of contract. The bunker trader claimed that the transaction had been conditional on the customer’s acceptance after the visual inspection; and the ship had not passed this inspection.

The Maritime and Commercial High Court: The bunker trader must bear the risk

The Maritime and Commercial High Court held that the bunker trader had approved the ship as bunker tanker only with reservations for a short visual inspection of the ship. According to the evidence in court the visual inspection had been carried out without any problems. The bunker trader ought to have made the customer’s reservations clear to the shipping company. Alternatively, the bunker trader should have let the customer perform the inspection before giving the shipping company the impression that the transaction had been approved.

The Court noted that it had no relevance whether the bunker trader had covered its risk back-to-back or not.

Thus, the bunker trader had to bear the risk of the deal not being completed as expected.

The Court held that the resale had been reasonable and fair. Because of this the bunker trader had to compensate the shipping company for lost profit and wages amounting to about approximately EUR 140.000.

IUNO’s opinion

The judgment illustrates how important it is to express everything clearly in the correspondence which forms the basis of an agreement. In this case the wording in an e-mail was “a little too service-minded” concerning the inspection and the approval from the customer - and this was a decisive factor in the outcome of the case.

IUNO recommends that conditions and reservations are expressed clearly in the agreement, and that the parties make sure that they agree on the content of the agreement.

A middle man, e.g. a bunker trader, who wants to be covered back-to-back, must ensure that any reservations from the customer are transferred explicitly to the agreement with the supplier. If the middle man wants to minimise his risk, the agreements must be phrased in a way that makes it possible for the customer and the supplier to be included in the same legal action. This way the middle man can make sure that his liability towards one party is covered by the other party.

The judgment has been appealed to the Danish Western High Court, and we will of course return once the court has handed down its judgment.

[Judgment of the Maritime and Commercial High Court, 2 May 2014, case no. S-31-11]

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