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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Totsa Total Oil Trading SA v Bharat Petroleum Corp Ltd [2005] EWHC 1641 (Comm) (14 January 2005) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/1641.html Cite as: [2005] EWHC 1641 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY AND COMMERCIAL COURT

		St Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		14 January 2005

MR JUSTICE CHRISTOPHER CLARKE:

1. I have before me an application for summary judgment. It arises as a result of a contract for the supply of crude oil from Nigeria on FOB terms. On 4 May 2004, Total Trading Asia PTE Limited on behalf of the claimants, Totsa Total Oil Trading SA ("the sellers") offered to supply to Bharat Petroleum Corporation Limited, the defendants ("the buyers"), quantities of crude oil.
2. The offer provided, so far as now relevant, for the sale of two cargoes of 950,000 barrels +/-5 per cent crude oil as usually available for Forcados Terminal Nigeria. One of those cargoes was to be supplied on an FOB basis to 31 July 2004. The offer provided as follows:

"10. PAYMENT

PAYMENT IS TO BE MADE IN US DOLLARS BY TELEGRAPHIC TRANSFER IN IMMEDIATELY AVAILABLE FUNDS, NOT LATER THAN 30 DAYS AFTER THE BILL OF LADING DATE (BILL OF LADING DATE EXCLUDED) WITHOUT DISCOUNT, DEDUCTION, SET-OFF OR COUNTERCLAIM AGAINST COMMERCIAL INVOICE AND USUAL SHIPPING DOCUMENTS."

Then later on in the same clause:

"BHARAT PETROLEUM CORPORATION UNDERTAKES TO ISSUE A PAYMENT UNDERTAKING TO COVER THE VALUE OF THE CARGO, SUCH PAYMENT SHALL BE IN A MUTUALLY AGREEABLE FORMAT AND SHALL BE ISSUED DIRECTLY BY BUYER TO SELLER OR SELLER'S BANK."

3. The offer also provided by clause 16 that, for Forcados cargoes, all other terms and conditions were to be as per Elf 90 FOB general terms and conditions ("the general terms"). These terms defined the "special terms and conditions" in such a way as to mean, in effect, the terms of the offer apart from the general terms themselves. They also defined oil as:

"Such crude oil(s), and/or condensate as more particularly described in the Special Terms and Conditions and sold or to be sold hereunder".

4. Section IV of the general terms provided as follows:

"IV.1 The price of the Oil and the due date shall be as specified in the Special Terms and Conditions.

Payment shall be made without discount, deduction, withholding, set-off or counterclaim in United States Dollars ... on or before the due date … against presentation to Buyer of hard copy or telex invoice together with original bills of lading or letter of indemnity..."

Section IX of the general terms provided as follows:

"IX.1 The quantity and quality of the Oil shall be determined for each Shipment by Seller or Seller's Supplier in accordance with the standard measuring and testing procedures in force at the time of delivery at the Loading Terminal, save if otherwise provided for specifically in the Special Terms and Conditions.

IX.2 Furthermore, the loaded quantities will be determined through meters or by measuring the shore or storage tanks from which delivery is made. The measured quantities shall be corrected to a temperature of 15°C and then converted into barrels at 60°F.

Should the delivered quantities be expressed in terms of weight, such quantities will be expressed in Long Tons … or Metric Tons…

Reference of measurement tables used for each Shipment will be specified in the shipping documents in order to avoid any difference in quantities arising from the use of different conversion tables.

The quantity of Oil so determined shall be used for invoicing after deduction of Bottom Sediments and Water (BS and W).

IX.3 Furthermore, representative samples will normally be drawn from the loading line, or alternatively from the shore tanks from which delivery is made by applying the most recent standard sampling rules and automatic or manual procedures in force at the Loading Terminal.

The quality and the characteristics of the Oil delivered shall be determined from these samples in accordance with usual methods of the ASTMIP in force at the time of delivery. No Oil shall be rejected for any alleged defect in quality, when such defect is determined beyond the point at which samples have been taken.

Buyer may appoint an independent inspector to be agreed by Seller to verify the quantity and the quality of the Oil of each Shipment at the Loading Terminal. The cost of services of the inspector shall be borne equally by both parties."

5. The offer of 4 May was accepted on 6 May. The contract was expressly subject to English law and jurisdiction.
6. On 12 July 2004, a quantity of oil was shipped under three bills of lading of that date. The total of the net quantities of crude specified in the bills was £949,092. The vessel was the Kamlesh, which had been nominated by the buyers.
7. Prior to loading, Stewart Intersea SA ("Stewart Intersea"), who were independent inspectors appointed in accordance with clause 9.3 of the general terms, found the vessel's cargo tanks to contain 47 barrels of oil, that is to be free of water. According to their report of 12 July 2004, the total bills of lading figures were based on terminal shore tank calculations. The details of the net quantity of barrels in the three relevant tanks are set out in their shore tank quantity report of the same date.
8. Upon completion of loading, Stewart Intersea made a comparison between the bill of lading figures and the vessels loaded figures, and found there to be 4,307 barrels of free water on board, primarily in the port and starboard slop tanks. They issued a letter of protest to the terminal representative and the master made a similar protest.
9. On 16 July 2004, the defendants issued a payment undertaking which provided inter alia as follows:

"WE BHARAT PETROLEUM CORPORATION LIMITED … HEREBY CONFIRM HAVING ENTERED INTO A CONTRACT WITH TOTSA TOTAL OIL TRADING SA FOR THE PURCHASE OF 950,000 BARRELS (+/- 5%) OF FORCADOS CRUDE OIL …

WE IRREVOCABLY AND UNCONDITIONALLY UNDERTAKE TO PAY ON DUE DATE WITHOUT ANY SET-OFF, DEDUCTION OR COUNTERCLAIM WHATSOEVER, AND FREE OF ALL CHARGES, THE FULL AMOUNT OF SELLER'S INVOICE COVERING THE ABOVE MENTIONED PURCHASE BY TELEGRAPHIC TRANSFER EXCLUSIVELY AS PER SELLER'S INSTRUCTIONS.

OUR PAYMENT WILL BE EFFECTED AGAINST PRESENTATION OF SELLER'S INVOICE AND USUAL SHIPPING DOCUMENTS OR SELLER'S STANDARD LETTER OF INDEMNITY IN CASE OF TEMPORARILY MISSING SHIPPING DOCUMENTS (TELEX INVOICE AND LOI ACCEPTABLE).

THIS UNDERTAKING REPRESENTS A LEGALLY BINDING PAYMENT OBLIGATION AND IS IN FULL ACCORDANCE WITH ALL RESPECTIVE LAWS AND REGULATIONS APPLICABLE TO OURSELVES."

Then after two paragraphs which I omit:

"THIS PAYMENT UNDERTAKING SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF ENGLAND AND WE AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE ENGLISH COURTS."

10. The contract price was $38.915 per barrel, resulting in a total price on the bills of lading quantities of $36,933,915.18. On 4 August 2004, the sellers raised an invoice in that sum, specifying the total quantities stated in the bills of 949,092 barrels, and multiplying that total by the contract unit price. The price was due by 11 August 2004.
11. The buyers paid only $35,188,888.75, leaving a balance of $1,745,026.43, the sum claimed in these proceedings. The reason for non payment was and is the buyer's claim that what was in fact shipped was just over 900,000 barrels of crude oil and somewhere between 42,000 and 45,000 barrels of water. The difference is accounted for by the existence of different figures at Mumbai, the discharge port.
12. The existence of this amount of water is said to have been discovered when the vessel arrived at Mumbai, but the large quantity of free water found after loading made it foreseeable that such a discovery might be made, since, if there was a sizeable quantity of water in the cargo loaded, some of it would be apparent after loading and some, perhaps most of it, only after the water had settled out during the course of the voyage. The contention of the buyers is that in all probability there was a "slug" of water in the load lines, which was discharged into the vessel when loading took place.
13. If the quantity of water was 45,000 barrels, the amount that the buyers say that they could have deducted was $1,751,175 and they have a counterclaim for the amount they say they have overpaid. The sellers do not accept that any particular quantity of water was present in the cargo when it was loaded, but for the purposes of this application, they accept that there is an issue on this question which cannot be determined summarily. Their application is made upon the basis that what is pleaded by the buyers in their defence, even if established, does not in fact provide them with any defence to a claim for the balance of the price, which the sellers say should have been paid in full.
14. They contend that the invoice rightly used the quantities of oil, determined from measurements of the store tanks, in accordance with general terms 9.1 and 9.2, and that what the buyers are seeking to do is to make a deduction or withholding from that invoice which they have agreed not to do. To allow them to do so would, they submit, frustrate the whole purpose of clauses such as these, which is to prevent buyers from setting up claims to be entitled not to pay the full price, whether on the grounds of short delivery, defect in quality or for any other reason.
15. The buyers contend that they are not liable to pay the shortfall in price, because what they agreed to pay was the price of oil and not of water. The sellers, they say, had no right of any kind to be paid for water. The case which they have to meet is the allegation pleaded in paragraph 4 of the Points of Claim, that on 12 July 2004, 949,092 barrels of oil were loaded on the Kamlesh. That allegation they deny by saying that a lesser quantity was loaded and the balance was water.
16. If, as for present purposes must be assumed, that is so, then the sellers have, to the extent of the shortfall, no valid claim to payment. In putting forward this contention, they are not, so they submit, seeking to set up or set off a claim of their own; they are asserting a defence, pure and simple, that the claimants have not proved their claim. They further submit that to point to wording which precludes deduction or withholding begs the question of what is due in the first place, from which any deduction might or might not be permissible. If, as they submit, the price of the barrels of what was water is not due, no question of deduction or withholding arises.
17. The buyers further contend, if necessary, that they were and are entitled to withhold the balance of the purchase price, either by way of abatement, as it is sometimes called, that is to say by invocation of the principle in Mondel v Steel, that when the buyer of goods is sued by the seller for the price, "it is competent for the defendant not to set-off by a proceeding in the nature of a cross-action, the amount of damages which he has sustained by a breach of the contract, but simply to defend himself by showing how much less the subject matter of the action was worth by reason of the breach of contract", as recognised under the Sale of Goods Act 1979, section 53(1), which provides that a buyer may set up against the seller a breach of warranty in diminution or extinction of the price, or by way of equitable set-off.
18. They accept that these remedies are capable of exclusion by clear words, but contend that this has not been done.
19. In the light of these submissions, it is necessary to examine the structure and content of the contract with some care. Under it, the parties have agreed that payment is to be made 30 days after the bill of lading date against an invoice and the usual shipping documents, which would include the bills of lading. The quantities in those bills derived from shore measurements are to be used for invoicing. Payment is then to be made "against" those documents, "without discount, deduction, set-off or counterclaim" (paragraph 10 of the special terms) and without, also, any "withholding", the extra prohibition added by clause 4.1 of the general terms.
20. By the terms of the payment undertaking, payment is to be of the full amount of the seller's invoice covering the purchase, which is to be paid without any set-off, deduction or counterclaim whatsoever. I call these provisions collectively "the restrictive conditions".
21. In my judgment, the meaning and effect of the contract and the payment undertaking taken as a whole is clear. On receipt of the bills and an invoice, the buyers are to pay whatever is the amount stated in the invoice and not a dollar less. If the buyers have a claim that they should only have to pay less than what the invoice calls for, the restrictive conditions preclude them from doing so. In a contract of this kind, although there are no doubt other claims that a buyer might have, the most likely claims are in respect of short delivery, or delivery of cargo that does not answer to the contractual description or is of the wrong quality. In legal terms those claims may be put forward as counterclaims, claims to equitable set-off or claims to abate a price.
22. Each of such claims seems to me to come within the restrictive conditions. Set-off and counterclaim are dealt with expressly, and a claim by way of abatement involves claiming a deduction from the price. But as Mr Baker for the buyers points out, the nature of his client's defence in this case does not have to be expressed as a claim to abatement, set-off or counterclaim. He contends that because up to 45,000 barrels of what was due as oil was delivered as water, the buyers are under no liability in respect of that quantity. The restrictive conditions, he submits, tell you what you cannot deduct, but tell you nothing about what the contract requires to be paid in the first place.
23. On the assumed facts, the buyers are required to pay the contract price per barrel, multiplied by the number of barrels of oil shipped, and not the number of barrels of oil plus the number of barrels of water. No question arises of any deduction from the price since there is, in respect of the water, no price to be paid. In order for the position to be different, the buyers would have to point to some provision of the contract which bound them to accept that the amount specified in the bills had been shipped, or which entitled them to be paid even if part of the cargo were water.
24. Whilst I see the force of this submission, which was cogently and attractively argued, I do not accept it. It seems to me that when a buyer declines to pay the full amount of the invoice upon the ground that not all of the oil that he contracted for has been shipped, what he is doing is seeking to deduct from his payment to the seller such proportion of the invoice as he declines to pay and to withhold payment of that amount. That is exactly what the buyers have undertaken not to do.
25. I also do not accept that in such a case, an invoice for the full amount of the bills of lading quantities is something other than an "invoice covering the above purchase" within the meaning of the payment undertaking. The "above mentioned purchase" is the contract of purchase referred to in the first paragraph of the undertaking.
26. A number of authorities were cited to me. None of them address a case of partial delivery under a sale of goods, nor the provisions in issue in this case, but they provide some guidance as to the correct approach. It is clear from the decision of the House of Lords in Modern Engineering (Bristol) Limited v Gilbert Ash (Northern) Limited [1974] AC 689, that a right to set-off one claim against another is a remedy that can be excluded by a sufficiently clear agreement: see Lord Reid at 696F-G, Viscount Dillon at 712A-D, Lord Diplock at 717B-718E, and Lord Salmon at 722D-723A, although one starts with the presumption that neither party intends to abandon any remedies that the law gives him.
27. In Mottram Consultants Limited v Bernard Sunley [1975] 2 Lloyd's Rep 1975, Lord Cross expressed the view that one should approach each case without any "parti pris" in favour or against the existence of a right of set-off, though he said that one must bear in mind the principle established in Mondel v Steel. I do not take Lord Cross to be saying anything different to what was said in Gilbert Ash. One starts with a presumption that individuals do not intend to give up their legal rights and remedies, but you then look at the relevant provisions to see whether and to what extent they preclude reliance on set-off and the like, without at that stage any predisposition to hold that they do or do not do so.
28. The clause under consideration in that case, which concerned a contract to build a supermarket in Zaire, provided that the defendants shall:

"… within 7 days of receipt by him from the Architect of any Interim Certificate pay to [the plaintiffs] in local currency and/or Sterling as required by [the plaintiffs] any amount shown therein as due to [the plaintiffs] in respect of the works less only:

(i) Retention money as hereinafter described.

(ii) Any sum previously paid."

29. Lord Cross in his judgment said this:

"Suppose that Mottrams [the defendants] were alleging that the architect had negligently stated in several interim certificates that expenses had been incurred by the contractor in executing the works which had not in fact been incurred and were claiming to deduct the amounts which they said had been improperly included in the earlier certificates from the amount stated to be due in a subsequent certificate. In the absence of any suggestion of fraud on the part of the architect or the contractor - and there is, of course, no suggestion of fraud here-I cannot see how it could have been argued that such a deduction could be made. Condition 28 (d) states that the only sums which can be deducted from the amount stated to be due in an interim certificate are (i) retention money and (ii) any sum previously paid. It is, moreover, to be noted that the printed form which the parties used provided for a third permissible deduction which the parties deleted. It ran as follows:

(iii) Any amount which the employer or the co-ordinator on his behalf shall be entitled to deduct from or set off against any money due from him to the contractor (including any retention money) in virtue of any provisions of the contract or any breach thereof by the contractor.

When the parties use a printed form and delete parts of it one can, in my opinion, pay regard to what has been deleted as part of the surrounding circumstances in the light of which one must construe what they have chosen to leave in. The fact that they deleted (iii) shows that these parties directed their minds (inter alia) to the question of deductions under the principle of Mondel v. Steel and decided that no such deductions should be allowed."

30. That seems to me an indication that a contractual restriction against deducting from a certificate or an invoice, any sum other than one of a particular nature, is apt to prevent a claim to make any deduction by way of abatement, other than one of the nature specified. In the present case, the position from the point of view of the sellers is stronger, in that the contract provides for no deduction at all.
31. In the case of Skipskredittforeningen v Emperor Navigation [1998] 1 Lloyd's Rep 66, a loan agreement contained the following provision:

"12.01 All payments to be made by or on behalf of the Borrowers to the Lender pursuant to this Agreement . . . shall be made (a) without set-off, counterclaim or condition whatsoever and (b) free and clear of, and without deduction for or on account of, any present or future Taxes, unless any Borrower is required by law or regulation to make any such payment subject to any Taxes."

The borrower sought to claim that its prima facie indebtedness ought to be equitably diminished by the amount of the loss to it allegedly resulting from a failure on the lender's part to take reasonable care in the realisation of the vessel mortgaged to secure the loan. As to that, Mance J (as he then was) said this:

"Emperor's response is that cl. 12.01 is in any event inapplicable as a matter of construction to its claim to deduct loss due to breach of duty by the plaintiff as mortgagee. Emperor submits that this is not a situation of a "set-off, counterclaim or condition whatsoever". Rather, it involves a pure defence in equity. Mr. Jacobs cites words of Lord Denning M.R. in Standard Chartered Bank Ltd. v. Walker, [1982] 1 W.L.R. 1410 at p.1416B-C, quoted in American Express International Banking Corporation v. Hurley, [1985] 3 All E.R. 564 at p. 580:

"If it should appear that the mortgagee or the receiver have not used reasonable care to realise the assets to the best advantage, then the mortgagor, the company, and the guarantor are entitled in equity to an allowance. They should be given credit for the amount which the sale should have realized if reasonable care had been used. Their indebtedness should be reduced accordingly."

I understand the reference to equity's role in relation to a guarantor. The basis for equitable intervention as between principal lender and borrower is not so obvious, and is not a way of looking at the present situation which appears to have occurred to anyone in The Fedora. However, Mr. Davies accepted for present purposes that it was arguable in law that failure to use reasonable care in realizing assets could entitle a borrower to claim a reduction in his indebtedness corresponding in amount to the amount of any loss caused by the failure. He submitted that the reality was that it was still a set-off within the words "without set-off . . . whatsoever". I agree with this submission. A plea in abatement of the type recognized in Mondel v. Steel, (1841) 8 M. & W. 858 in relation to contracts for sale or work can be excluded by clear words: Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd., [1974] A.C. 689 at p. 718E, per Lord Diplock. Clause 12.01 is widely worded, and it would do no credit to the law or to the parties' presumed intentions if its wording was regarded as inadequate to cover Emperor's contention that its prima facie indebtedness is or ought to be equitably diminished in the amount of the loss allegedly resulting from alleged failure on the part of the plaintiff to use reasonable care in the realisation of assets."

32. Mance J plainly did not regard the suggested defence as a "pure" defence as opposed to a claim in the nature of equitable set-off, so the case is no authority for what the position might be in a case where there was what could properly be called a "pure" defence.
33. In Society of Lloyd's v Leighs [1997] 6 RILR 289, Lloyd's were claiming against a number of Names Order14 judgment in respect of their portion of the premium payable to Equitas, the right to which had been assigned to Lloyd's. Clause 5.5 of the Equitas contract provided:

"Each name shall be obliged to and shall pay his Name's Premium in all respects free and clear from any set-off, counterclaim or other deduction on any account whatsoever including in each case, without prejudice to the generality of the foregoing, in respect of any claim against ERL, the Substitute Agent, any Managing Agent, his Members' Agent, Lloyd's or any other person whatsoever…"

It was contended for the Names that they had a pure defence to the claim for the premium and that the clause did not therefore bite. The defence consisted of a contention that Lloyd's had been guilty of fraudulent misrepresentation which had induced the defendants to remain as Members thereof. As to that, the court said this:

"We now turn to the second way the matter was advanced by the Appellants and the Intervenors, which was that the claims for damages for fraud should properly be categorised as a "pure" defence to the claim for the premium, so that the words "set-off, counterclaim or other deduction on any account whatsoever" in Clause 5.5 did not prevent the non-accepting Names from defending the claim for the premium on this ground. The submission was that since the amount of the Name's Premium would, if paid, match and immediately be recoverable as damages for fraud, the latter did not merely amount to a set-off or cross-claim, but to something which actually reduced or extinguished the debt itself, just as breaches of warranty by the seller or provider of services reduce or extinguish the price that would otherwise be due for the goods sold or services provided. In this regard, out attention was drawn to, amongst other cases, The Brede [1973] 1 QB 233.

Again, we are quite unpersuaded by this argument. The debt in question is one which under the Equitas Contract, was owed to Equitas in consideration of the provision of reinsurance cover. The claim for damages for fraud (unlike the sale of goods and service contract cases) cannot be put on the basis that those owing the money have not got what they should have got in return for that money, quite apart from the fact that the claim for damages for fraud is against the Society, not Equitas. Thus as between the non-accepting Names and Equitas, there can be no question of the right to receive and the obligation to pay the premium being reduced in the manner suggested. We find great difficulty in following how, once the debt has been assigned, things somehow change. The premium, albeit assigned, remains payable in return for the reinsurance. The value of that reinsurance remains wholly unaffected. Thus the suggested analogy with the sale of goods and service provision cases is simply misconceived and to our minds, there can be no question but that the claims for damages for fraud fall fair and square within the words of Clause 5.5. We should add that even if we were wrong about this, we consider that the words "or other deduction on any account whatsoever" would probably be wide enough to encompass the reduction or extinction of the premium by way of "pure" defence. We should further add that we remain unconvinced of the premise upon which the whole argument was based, namely that the damages for fraud "matched" the amount of the Name's Premium. Assuming that the Names were fraudulently induced to become or remain Members of Lloyd's, the premium due under the Equitas Contract would, at best, form only one item in an account which would have both debit and credit items, and which would have to be struck before the recoverable loss sustained through the assumed fraud could be calculated."

34. Here again the court did not have to deal with what could be said to be a pure defence, so the observation that the differently worded clause was probably wide enough to embrace such a defence was obiter. Nevertheless, as it seems to me, the observations of the court provide support for the proposition that a widely drafted clause precluding set-off, deduction or withholding may well be apt to preclude reliance on any claim to pay less than the full amount, whether that claim is based on a "pure" defence, abatement, set-off or counterclaim.
35. Mr Baker submitted that, in the light of the case to which I am about to refer, which does not appear to have been cited in Lloyd's v Leighs & Lyon, the obiter observation was per incuriam, but as will appear, I am not persuaded that that is so.
36. I was referred to the case of Acsim (Southern) Limited v Danish Contracting and Development Co Ltd 47 BLR 55. That was a building contract case in which the relevant clause provided as follows:

"2. The contractor shall be entitled to set-off against any money, including any retention money, otherwise due under this subcontract, the amount of any claim for loss and/or expense which has actually been incurred by the contractor, by reason of any breach of or failure to observe the provisions of this subcontract by the subcontractor, provided -

(a) the amount of such set-off has been quantified in detail and with reasonable accuracy by the contractor; and

(b) the contractor has given to the subcontractor notice in writing, specifying his intention to set-off the amount quantified in accordance with proviso (a) of this sub clause and the grounds on which such set-off is claimed to be made. Such notice shall be given not less than 17 days before the money from which the amount is to be set-off becomes due and payable to the subcontract.

(iv) The rights of the parties to this subcontract in respect of set-off, are fully set out in these conditions and no other rights whatsoever shall be implied as terms of this subcontract relating to set-off."

37. In that case, Gibson LJ, with whom Neill and Slade LJJ agreed, said this:

"The "rights of the parties in respect of set-off" were in this case agreed to be those set out in clause 15 and "no other rights whatsoever shall be implied as terms of this subcontract relating to set-off" (see clause 15.4). I am not sure what the businessmen who used this form understand by the phrase "rights in respect of set-off". It seems to me, however, that "set-off" in the context of this contract means "set-off" in our law as defined by the decisions of the court. Mr Reece felt unable to argue otherwise.

If parties wish to subject to the requirement of a clause like this clause 15, including conditions precedent as to prior notice, all the grounds for contesting or reducing the sum claimed by a subcontractor in respect of an interim payment, they can, without difficulty, find words apt for that purpose. The words of clause 15 as they stand do not, in my judgment, affect the right of the contractor to defend a claim for an interim payment, by showing that the sum claimed includes sums to which the subcontractor is not entitled under the terms of the contract, or to defend by showing that by reason of the subcontractor's breaches of contract, the value of the work is less than the sum claimed under the ordinary right of defence established in Mondel v Steel.

It is to be emphasised, so far as this case is concerned, that the defence which Dancon wish to put forward and have substantiated, at least to the extent of showing it to be arguable by Mr Hamilton's evidence, is concerned not only in showing that by breach of contract the work is worth less, but also as showing that as to part of the claim the work had not been done at all and/or that the sum claimed in respect of it was not included within the sum promised to be paid. Such a defence does not necessarily raise a breach of contract, and may consist merely of asserting that the sum claimed has not been earned.

There is nothing whatever in clause 15, in my view, to support the contention that the contractor has agreed to comply with the provisions there set out as to notice, in order to be entitled to dispute an invoice on such grounds. Clause 15 is dealing with a right of set-off "against any money otherwise due under this subcontract". If, for example, the claim is in respect of work not done, or if the claim is calculated on the basis that the price has been increased by variations which have not been agreed, or on the basis that the price includes 25 per cent of the original cost of an item which has been wholly omitted, then to the relevant extent the sum claimed is not "money otherwise due"."

38. It is plain from that passage that, on the particular wording of the clause in question, all claims in respect of set-off were subject to the restrictions of the clause, that set-off was interpreted as set-off as defined in decisions of the court, but that other claims not to pay, for example, upon the basis that the work claimed for had not been done, were not within the clause. But I do not take the court to have been saying that a suitably drafted clause cannot preclude an alleged debtor from claiming not to have to pay the totality of an invoice, even though he claims that not all the work has been done or all the goods supplied. Indeed, it seems to me that Gibson LJ was saying the opposite.
39. In the end the question is one of construction of the particular clause in the particular contract. For the reasons that I have given, I am of the view that the defendants are precluded by the terms of the contract and the payment undertaking from seeking, at this stage, to pay less than the amount of the invoice and must pursue their contention that some of what was delivered was water by separate proceedings. Such a conclusion seems to me to be consistent with the overall purpose of a clause such as this which, albeit in slightly different forms, is in wide use in the oil industry, whereas a contrary conclusion would mean that clauses with this sort of wording are wholly inefficacious to deal with shortage claims.
40. I have not ignored Mr Baker's submission that it would be unfair for me to decide upon the basis that I have done, because it would represent a departure from the way in which the case was put against him, namely that there had been a delivery of 949,092, which his clients have met by a defence that that quantity had not been loaded. The case was not, he submitted, put on the basis that clause 9 of the general conditions had any application; its provisions were only referred to in Mr McParland's reply. It was because he sought to make this submission that I allowed him to address me in response to Mr McParland's reply.
41. Having heard both counsel on the point, I am not satisfied that there is any injustice to Mr Baker's clients in deciding the case upon the basis upon which I do. The provisions of clause 9 of the general terms are part of the contract. There can be no dispute as to what they provide, which is for the quantity of oil determined by measurement of the shore tanks to be used for the invoice. Those provisions do no more, to my mind, than further elucidate the scheme of the contract, which is that the figures in the invoice, to be calculated in the way specified in clause 9, are what is to be paid initially in full. Despite Mr Baker telling me that he had a recollection of seeing a document (not in evidence) referring to a different figure on the shore, it seems to me plain that the shore figure was the one contained in the bill of lading and vouched in the Stewart Intersea report. Nor am I persuaded that where an inspection had been carried out after loading, which shows the presence of water in the tanks, it is no longer contractually permissible for the sellers to invoice use the bill of lading quantities. There is nothing in the wording of the clause that indicates as much, or from which such a restriction is necessarily to be implied.
42. Accordingly, I shall give judgment to the claimant.