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A Tough Nut to Crack: Certificate Final Clauses and Rights of Rejection

  • Legal Development 12 August 2021 12 August 2021
  • UK & Europe

  • Trade & Commodities

With regard to the sale of almonds, a seller’s obligations concerning the quality of the goods delivered are set out in clause 8 of the Uniform Almond Export Contract 2016 (the “UAEC”). The contractual quality specification with which the goods must comply is incorporated under clause 8.1 by reference to the contract confirmation. If the delivered goods do not conform with the stipulated specification, then the buyer may be entitled to reject the goods. However, this right to reject may be lost if, prior to delivery at destination, the seller chooses to issue the documents referred to in the later sub-clauses. It is also important to note that the almond seller makes no other warranties, express or implied, as to quality or fitness for purpose, thus excluding section 14 of the Sale of Goods Act 1979.

A Tough Nut to Crack: Certificate Final Clauses and Rights of Rejection

Delivery Documents

Under clause 8.2, the seller has the option of issuing a quality certificate stating the quality, size and condition of the goods at the time of delivery. If the quality certificate is presented with the Original Documents or otherwise furnished to the buyer before the goods arrive at the Point of Discharge, it will be considered final and conclusive evidence as to the quality, size and condition of the goods. This means that the buyer will not be permitted to reject the goods if subsequent analysis shows that the goods did not meet the requisite contractual specification (except in the very narrow circumstances discussed in more detail below).

A similar option is available to the seller in respect of the aflatoxin content of the goods.

8.3  Where an Aflatoxin Certificate has been issued, and such certificate is either attached to the payment documents or otherwise furnished to the Buyer prior to Arrival of the Goods at the Point of Discharge, such certificate shall constitute final and conclusive evidence as to aflatoxin content of the Goods at Delivery.

Where a conforming aflatoxin certificate has been issued, the effect of this clause is to deprive the buyer of the right to reject the goods, a right which is otherwise available to it under clause 8.4, in circumstances where the aflatoxin levels exceed the permitted limits of the country into which they were being delivered and entry is consequently denied.

8.4  If any shipment is denied entry by authorised government inspector into the country of the Point of Discharge due to aflatoxin levels exceeding permitted legal limits

a. Buyer shall be entitled by written notice to reject the Goods

b. Where such a rejection occurs, Buyers shall provide a copy of the inspector’s determination and findings, in accordance with Clause 12 in this event, Seller shall, at Seller’s option, either

i. Ship substitute Goods to Buyer within thirty (30) Days of Seller receiving Buyer’s notice of rejection, on the same terms as the rejected consignment other than the Shipment Period,

or

ii. Wash out the contract (or in the case of an instalment contract, washout that instalment) at the market price prevailing on the day that Seller received Buyer’s notice of rejection.

c. Buyer shall exercise best efforts to return rejected Goods to Seller at Seller’s reasonable cost. However, if by reason of a governmental decision, the rejected Goods cannot be returned to Seller, Seller shall reimburse Buyer for Buyer’s reasonable costs and expenses incurred for freight, demurrage, inspection and/or port charges as a result of the Goods containing aflatoxin levels.

Regardless of the actual quality, size, condition, and aflatoxin levels of the goods when they are delivered, under the terms of the UAEC, if the seller has elected to issue a certificate of quality and / or an aflatoxin certificate, those certificates will be considered to be the final word on the specifications they certify. The buyer will have no right to reject the goods save in very specific circumstances.

The only circumstances in which certificates which have been issued by the seller under clause 8.3 and 8.4 could be unravelled, are:

  • Fraud; or
  • Fundamental mistake.

When parties enter into a contract on terms that the certificate of some independent person is to be binding between them, it is important that the Court should not lightly relieve one of them from being bound by a certificate which was honestly obtained and not vitiated by fraud or fundamental mistake on the part of the certifier. When, for instance, as is the case, the certificate called for by the contract is one relating to the quality of goods sold, the business purpose is to avoid disputes about quality, and that purpose is defeated unless it is made difficult for a party to go behind a valid certificate.” (Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11).

The court has recognised two ways in which a fundamental mistake could be made on the part of the certifier: material error and departure from instructions.

Material Error

The certificate will not be vitiated by just any error on the part of the certifier. The parties will remain bound by the certificate unless it can be shown that the error would have had a material effect on the result which is being certified. In this regard, the court has adopted a practical approach to its assessment of materiality noting that the objector to the certificate need not incur the burden and expense of obtaining a completely new certificate (which itself might not be accepted as conclusive between the parties) to show that a materially different result would have been produced had the certifier not erred. As such, the error does not need to be shown to have actually affected the ultimate result which is being certified to be considered a material error. Instead, the materiality of the error will be assessed “according to its potential effect on the result and, perhaps even more importantly, on the process, including the ability of the parties to manage and deal with the procedure in accordance with the contract” (Shell UK Ltd v Enterprise Oil Plc [1999] 2 Lloyd's Rep. 456).

Departure from Instructions

However, it has been said that while a mistake is one thing; a departure from instructions is quite another, and the approach adopted by the court varies accordingly. In Veba Oil Supply & Trading GmbH v Petrotrade Inc (The Robin) [2001] EWCA Civ 1832,  the Court of Appeal opined that “the test of materiality devised for identifying vitiating mistakes does not carry across to the quite separate field of departures from instructions […] Once a material departure from instructions is established, the court is not concerned with its effect on the result”. In such circumstances, the court considers that the parties have not agreed to be bound by this maverick certification process and the certificate can, therefore, be extinguished regardless of whether the departure from instructions would have affected the result being certified.

A final kernel of truth on description versus quality

Finally, when considering whether it is possible to go behind a certificate issued under a certificate final clause, it is worth ascertaining exactly what is being certified. In the case of NV Bunge v Cie Noga d’Importation et d’Exportation (The Bow Cedar) [1980] 2 Lloyd’s Rep. 601, the court found that the certificates were final as to analysis but not as to the description of the goods. Therefore, as the goods did not comply with the contract description, the sellers were not protected from a claim for damages despite the certificates being final as to quality.

However, this should be contrasted with the decision in Toepfer v Continental Grain Co [1974] 1 Lloyd's Rep. 11 which concerned a contract for the sale of No. 3 hard amber durum wheat. The contract provided for the quality to be final as per an official inspection certificate. The official inspection certificate stated that the goods were No. 3 hard amber durum wheat, but in fact they were not. In this case, on the facts, the court found that the certificate was final as to both quality and description because, “the word ‘hard’ is a word of both quality and description” and therefore these two measures could not be separated. The distinction between the two may, on occasion, not be immediately evident.

End

Additional authors:

Sophie Morrison

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