Interpretation of inconsistency clauses in contracts

Septo Trading Inc v Tintrade Ltd [2021] EWCA Civ 718

The question

How will the court treat inconsistencies between specially agreed and standard terms within a contract?  And how is this addressed when that contract contains a provision seeking to deal with any inconsistencies?

The key takeaway

The court will determine whether it is possible to read conflicting standard terms and specially agreed terms together fairly and sensibly so as to give effect to both. If it not, the court will construe the provisions in line with the approach set out in the agreement, including any precedent or conflicting terms provisions.

The background

A contract for the sale of oil between Tintrade Ltd (Tintrade) (the seller) and Septo Trading Inc (Septo) (the buyer) contained a specially agreed term that an independent inspector would inspect the oil before it was loaded onto a tanker and that the resulting inspection certificate would be “binding on parties” (the Recap). However, the sales contract also contained a clause stating that the BP 2007 General Terms (the BP Terms) would apply to the contract “where not in conflict with” the Recap (the Inconsistency Clause). The BP terms stated that the inspection certificate would be only be binding “for invoicing purposes” (the Standard Term). 

It was later discovered that the oil did not meet the standards the inspection certificate had claimed and Septo brought a successful claim for damages in the High Court. On appeal, the Court of Appeal had to decide how the contract should be interpreted in light of the terms above.

The decision

Following earlier case law, the judge held that the starting point is to determine the meaning of the Recap if read on its own. The meaning was found to be that the inspection certificate was intended to be binding “for all purposes” with no recourse through claims for damages. As regards the Standard Term, the judge found that the phrase “for invoicing purposes” was redundant, and that the term may as well have held that the certificate was not binding at all, given that for the sake of invoicing the seller was required to present the inspection certificate to the buyer’s bank for review in any event. 

The judge concluded that the Standard Term conflicted with the Recap and the two terms could not “fairly and sensibly” be read together. As such, Septo could not bring a claim for damages. The judge reached this conclusion for the following reasons:

• the Standard Term deprived the Recap of all effect
• the two regimes were fundamentally different from one another
• it was unlikely that the parties would wish to substantially detract from the central feature of the contractual scheme, being that the Recap made the inspection certificate binding, and
• the parties’ commercial intention was likely to make the inspection certificate binding.

Why is this important?

This case provides an important reminder that the court will usually wish to read terms of the contract together where possible, but it will take a different approach where inconsistent terms cannot “fairly and sensibly” be read together.

Any practical tips?

Avoid any inconsistencies when drafting and negotiating contractual terms!  Pay careful attention to the interaction between standard and bespoke terms. Do not assume that precedent / conflict provisions will always apply and will resolve the issue. And if such provisions are included, carefully review whether those clauses will resolve any inconsistencies in the way intended.