QCR Summer 2017: High Court emphasises the importance of having sampling procedures and clear provisions in the charterparty governing when a sample becomes binding on the parties
In this decision, the High Court emphasises the importance of having sampling procedures and clear provisions in the charterparty governing when a sample becomes binding on the parties
Mena Energy DMCC v Hascol Petroleum Ltd  EWHC 262 (Comm)
Hascol, a Pakistan-based importer, bought fuel oil, described as "HSFO 125 cSt", from Mena, a UAE based trader of crude oil and petroleum products.
HSFO with a viscosity of maximum 125 cSt is not available as a finished product in the region, therefore the available product with viscosity of over 180 cSt has to be blended with other components such as gasoil and cutter stock.
The blending can either be done on board the vessel or in shore tanks before loading. The latter is more efficient but usually the method used does not make a difference given that the cargo would be thoroughly blended during pressurized discharge.
In the present case, the cargo was to be blended onboard.
Upon the vessel's arrival at Karachi, spot samples with the hatches closed were drawn from the vessel's tanks in the presence of personnel from the Hydrocarbon Development Institute of Pakistan (HDIP) and SGS.
The spot samples were mixed to form a composite sample as required by the contract. The composite sample showed a viscosity of 192.92 cSt as tested by HDIP and 184.9 cSt as tested by SGS. Both exceeded the contractual specification of 125 cSt and HDIP refused to give its approval for the discharge of the cargo in Pakistan.
The next day, Mena instructed SGS to take running samples from each of the vessel's tanks with the hatches open. The results showed an overall viscosity of 113.6 cSt which was in accordance with the contractual specification.
Hascol wrote to HDIP requesting further sampling of the cargo given that without HDIP approval cargo could not be discharged. HDIP, however, refused to re-sample the cargo.
In order to resolve the situation, the parties orally agreed that the vessel would go to the nearest port for further blending. The terms on which this was to be done were in dispute and the same were eventually determined on the basis of witness evidence.
The judge awarded damages to Mena and dismissed Hascol's counterclaims. The judge found that the oral agreements concluded on the telephone were intended to be binding and the subsequent emails were a record of what had been agreed. Subsequent communications were attempts to change the agreed terms, not a continuation of negotiations.
Although it was not strictly necessary to determine the point (as the judge found that the parties had eventually reached a compromise), the Judge set out a useful discussion of whether the cargo was on-spec on its initial arrival at Karachi.
The judge found that viscosity formed part of the quality specification of the cargo as well as being part of its description. The contract did not require the cargo to be homogenous. The gasoil contract provided no criteria for determining whether a stratified or non-homogenous cargo was acceptable. These are matters which parties could easily provide for but they chose not to do so. Both parties understood that the cargo would be thoroughly blended during the discharge process. Parties also agreed to accept the analysis result based on the composite sample which did not show whether the cargo was homogenous or stratified.
According to clause 12 of the gasoil contract, HDIP's analysis results would be final and binding but Mena had the right to request a re-sampling of the cargo. Once Mena had exercised its right to request a re-sampling (armed with evidence that something had gone wrong with the HDIP analysis), the HDIP certificate was no longer final and binding regardless of whether the re-sampling actually took place.
In the circumstances, whether the cargo was on-spec would be determined by expert evidence as to what was the most reliable method of sampling. As what mattered was the overall composition of the cargo (and not whether it was homogenous), the most reliable samples were the running samples drawn with open hatches by SGS.
This case illustrates the importance of sampling procedures for ensuring a smooth and successful shipment of cargo. It is open to parties to provide in the contract a detailed sampling regime which must be strictly followed before the results become final and binding on the parties in order to minimize the potential for disputes. In the absence of special circumstances, Courts/Tribunals will not imply a requirement for the cargo to be homogenous where clear cargo specifications have been agreed. Here the parties had agreed that the cargo would be acceptable if a composite sample drawn from the ship's tanks demonstrated that the overall viscosity of the cargo was 125 cSt or less.