This Mace & Jones “Education Update” alerted me to the recent English case of KG Bominflot Bunkergesellschaft fur Mineralole MBH & Co KG v Petroplus Marketing AG (2009).
Here’s the gist of it: The buyers purchased from the sellers fuel oil that tested OK before shipping but was found to be unsatisfactory on arrival. The buyers claimed, among other things, that under section 14(2) of the Sale of Goods Act 1979 the sellers were in breach of an implied term that the cargo would be of satisfactory quality following a normal voyage.
The contract was governed by English law. The sellers pointed to the following contract waiver:
There are no guarantees, warranties or representations, express or implied, or (sic) merchantability, fitness or suitability of the oil for any particular purpose or otherwise, which extend beyond the description of the oil set forth in this agreement.
But the court held that because the Sales of Goods Act 1979 says that the implied term at issue was, for purposes of English law, a condition, and because the contract waiver didn’t include the word “conditions,” the waiver didn’t preclude the buyers’ claim. (Under English law, “breach” of a condition allows a buyer to repudiate a contract whereas “breach” of a warranty allows the buyer to claim damages but not to repudiate the contract.)
Here’s my problem with this. I’m used to thinking of conditions as being distinguishable, semantically, from other kinds of contract language—obligations, representations, and so on. But for purposes of English commercial law, that’s no longer the case, as what is or isn’t a condition is at least partly determined by statute. That renders even more abstract waiver provisions of the sort included in the contract at issue. Waiving implied representations gets you only so far; forget to waive implied conditions and you’re buggered, even though in semantic terms nothing in the contract looks particularly like a condition.
I don’t have a background in commercial law; I have yet to wrestle with waivers in my capacity as contract-language guy; and I’m a stranger to English law. But I’d have though that there must be a way to craft an all-encompassing waiver that, without listing different categories of provisions, says that the buyer waives all rights and remedies regarding the condition of the goods other than those rights and remedies stated in the contract. I welcome any suggestions.
By the way, I put “breach” in quotation marks above because I think it’s unhelpful to refer to “breach” of conditions or warranties. One breaches obligations, but a condition is satisfied or it isn’t; a factual assertion is accurate or it isn’t.
Interesting case, and some interesting comments on it, to which I would respond as follows:
1. The language of clause 18 is rubbish. We don’t conventionally include references to “guarantees” in English law clauses of this kind, and the second half of the sentence doesn’t make sense, as the judge noted with his use of “sic”. We replaced the implied warranty of “merchantable quality” with “satisfactory quality” in the 1979 Act, so the reference to merchantable quality is also rubbish. So I don’t think we should draw strong conclusions from a case based on this contractual language.
2. Clauses that seek to exclude or limit liability are construed very strictly by the English courts, more strictly than general contractual language. If you don’t get the wording perfect, the judge has a good excuse to reject the clause. The judge may find a way of rejecting the clause even if the wording is perfect, but you make it more difficult for him to do so.
3. If the clause had used a more neutral term such as “provision” or even “term”, it might not have been so easy for the judge in this case to reject the clause. But by using apparently “legal” language badly, you may find yourself worse off than using everyday language.
4. Arguably, “warranty” in this clause is being used in the sense of a statement that something is true, rather than in the classic English law distinction between “warranties” – lesser terms that, if breached, give rise to a claim for damages only, but not a right to reject, and more important “conditions”, breach of which give a right to reject. It is not clear whether this argument was made in this case. Based on this argument, the key word to focus on in the clause is “guarantees” which sidesteps the condition/warranty distinction.
5. I disagree that conditions cannot be breached. The leading English law tome on contract law, Chitty on Contracts, distinguishes between what it calls promissory conditions and contingent conditions. I think you are right that contingent conditions (eg some conditions precedent) cannot be breached, but I would suggest that a promissory condition certainly can be breached.
6. PS “breach” (verb) is another of those back-formations. Why not just “break”?
Mark: Thank you for shedding some light on this.
I’m reassured by your point 3, which is consistent with my own instincts.
And you might be familiar with my aversion to using the word warranty in contracts. Say what you mean rather than seeking to attribute meaning by applying labels.
Regarding your point 5, I think it’s odd to apply the same word to two very different semantic constructs. But no one’s going to sweep away centuries of contract doctrine on my behalf! Drafters can protect themselves against confusion by, again, saying what they mean rather than relying on labels.
I suspect that breach and break both go back a long way, so breach can’t be dismissed as a recent aberration. And from a practical perspective, it isn’t going anywhere!
Ken
The use of the word condition in Petroplus/Chitty encompasses the more common use (i.e. a condition precedent), rather than being a distinct concept. The question is whether Party A’s obligation is conditional on Party B complying with any particular term – if so, breach/non-satisfaction of that term by Party B allows Party A to escape their obligations. If performance has been carried out by Party A, this accordingly means allowing repudiation and rescission where possible, rather than just damages.
On the other hand, I have never heard any good explanation for the connection between the two uses of the word “warranty”.
Regarding Mark’s points 3 and 4, they would logically be correct – and the judge seems to suggest that he might have agreed – if it were not for the authority stating that liability for breach of a condition cannot be waived unless done so explicitly. If the word “term” had been used, the judge might have interpreted that to include only warranties (in the “non-condition” sense). Similarly, “guarantees, warranties or representations” in the clause (warranties meaning “statements”) are deemed to refer to only warranties (in the “non-condition” sense) because conditions are not referred to explicitly.
Ken, I am agreeing with you more and more regarding use of the word “warranty”.
How about the following two clauses (read together), which are two of my boilerplate clauses? Do readers believe that it would avoid the problem?
“x.1 This document contains the entire agreement between the parties in regard to the subject matter hereof.
“x.2 In entering into this agreement, neither party relies upon any warranties, representations, disclosures or expressions of opinion that have not been expressly recorded as such in this agreement.”
(Note: the use of the requirement that the warranties, etc be “expressly” recorded is intended to exclude attempted reliance on implied provisions.)