The Evidentiary Value Of The Certificate Of Analysis In FOB Sales Of Parcels Of Vegetable Oils And Biodiesel Commingled On Board The Carrying Vessel

In veg oil and biodiesel trades, it is a common practice for the commodity traders to procure the necessary cargo quantity not from one supplier, but from different suppliers on FOB terms and charter vessels to transport the parcels shipped by the different suppliers commingled on board.
Given that in FOB sales the risk of loss or damage to the goods passes to buyers at the time and place of delivery, the risk for FOB buyers is that the parcels shipped by different suppliers might have different quality characteristics and some of the parcels might be out of the contractual specification and thereby might affect the quality characteristics of the bulk in the vessel`s tanks where such parcels are loaded.
If the procurement contracts concluded by the commodity traders with the FOB suppliers provide that the superintendents` analysis certificates based on samples taken at the time and place of loading shall be final as to quality, then such certificates will remain binding as between the FOB suppliers and commodity traders, in the absence of fraud or manifest error¹.
The commodity traders buy parcels from different suppliers to on-sale the whole cargo on board the vessel on out-turn quality terms whereby the cargo`s quality characteristics must comply with the contractual quality specifications at the destination. If the cargo does not comply with the contractual quality specifications at the destination, the commodity traders will have to settle the deficiencies with the final buyer and try to recover the loss from the suppliers who shipped off specification parcels.
A supplier who delivered a contractual compliant cargo has no liability to the FOB buyers, if his parcel has been commingled on board the carrying vessel with off specification parcels loaded by other suppliers. The Bills of Lading and Certificates of Quantity issued for the parcels will state that the parcels had been commingled on board the vessel.
For the parcels certified by the superintendents to comply with the contractual specifications, the FOB buyers are precluded to claim that their quality characteristics were inferior to what the  superintendents` analysis certificates state².
As regards the suppliers who deliver off specification parcels, their liability will depend on the extent of the deficiencies between the parcels` quality characteristics certified by the superintendents and the contractual quality specifications and proportion of the off specification parcels in the bulk.
If there is only a small deficiency in a parcel delivered by one of the suppliers, the FOB buyer can claim at the time of presentation of documents for payment by that supplier a price allowance or damages for breach of warranty as to quality specifications, but the price allowance will only be due for the quantity of the off specification parcel delivered by the FOB supplier in question and not for the quantity of the bulk on-sold by the FOB buyer. The extent of price allowance will be in function of the extent of the deficiency or deficiencies.
If there is a significant difference between the cargo quality characteristics and contractual quality specifications that amounts to a non-compliance with the contract description of goods, the FOB buyers would be entitled to reject the goods.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Biofuels Trade Review Edition No. 1.

Endnotes:

1. See AIC Ltd. v. ITS Testing Services (UK) Ltd. (The "Kriti Palm"), [2006] EWCA Civ. 1601; [2007] 1 Lloyd`s Rep. 555.
2. See Toepfer v. Continental Grain Co., [1974] 1 Lloyd`s Rep. 11