BP Oil International Ltd v. Glencore Energy UK Ltd – QBD (Comm Ct), 9 March 2022
In an April 2019 contract of sale for Russian Export Blend Crude Oil (REBCO), Glencore agreed to sell 100,000 mt +/- ten percent to BPOI. Email correspondence between the two companies from April 1-2 indicated the contract was confirmed; however, from April 3-4, the parties disagreed on whether the governing terms included the Glencore Sales Contract, which specifically required the loading terminal certificate of quality to be conclusive. No resolution was agreed upon, but the parties proceeded with the contract transactions.
The cargo was loaded on April 16 in Ust-Luga, Russia, and proceeded to discharge at Wilhelmshaven on April 22. From April 5- June 20, the cargo was sold and resold multiple times between BPOI and its affiliated companies, with the final delivery to Castellon, Spain, where the oil was to be diluted, blended, and then processed by BPOESA at its refinery. Upon arrival in Spain, BPOI sample tests indicated organic chlorides contaminated the cargo at a concentration of around 11.9 to 15.7 parts per million.
BPOI claimed damages for:
- The cargo’s decrease in value as a result of the contamination;
- Storage and transportation costs of the contaminated oil between the date it was discharged at Wilhelmshaven and the date it was discharged at Castellon;
- Cargo volume losses;
- Demurrage paid on other vessels.
BPOI asserted the contract of sale was binding on April 2 via email when representatives of Glencore sent a Recap for approval and acceptance along with BPOI’s General Terms and Conditions, and the BPOI representative responded, “Confirm the deal and thanks!”
Glencore countered that later on April 2, its contracts representative proposed amendments, including the Glencore Sales Contracts provisions for quality certificates at loading. This constituted a counter-offer to BPOI on April 3, which was accepted on April 4.
The Court ruled in favor of BPOI, concluding that the contract was binding based on the April 1-2 exchanges. In addition, the Court stated there was no agreement on the terms of the Glencore Sales Contract and that BPOI had rejected the disputed clauses on April 4; Thus, the Glencore Sale Contract did not form part of the agreement. Further, the Court maintained the time to vary the Recap was before the negotiations were concluded and agreed to on April 2, not afterward.
A contract, therefore, existed based on the terms of the Recap and included BPOI’s General Terms and Conditions. The quality standard set by the General Terms and Conditions was “the quality of such Crude Oil as usually made available at the time and delivery point …”
BPOI contended that the key term was “usual,” as in what was usual at the time and delivery point. Glencore argued the condition was satisfied if what was loaded was all that was available at the time and delivery point.
The Court ruled if two interpretations could be applied, the one which followed business common sense would take precedence.
Glencore’s interpretation removed most if not all buyer protection and was, therefore, rejected. The BPOI General Terms and Conditions did not make certificates issued at the loading terminal conclusive, so other samples would be allowed. Because organic chlorides contaminated the cargo quality, it could not be considered the “usual” quality delivered at Ust-Luga.
The Court determined there was a breach of contract, and damages could be awarded. It cited Section 53(3) of the Sale of Goods Act 1979, which provided that:
“In the case of breach of a warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered the warranty of quality.”
The Court ruled damages would be calculated on the difference between the market value of sound crude oil and the value of the contaminated crude oil at the date of delivery. If this value could not be determined for that date, it would be determined later based on the repurchase and sale, as per the decision of Choil Trading SA v Sahara Energy Resources Ltd [2010] EWHC 374 (Comm).
The Court concluded that BPOI was entitled to:
- US$ 5,960,095 for the difference between the market value of sound crude oil and the value of contaminated crude oil,
- US$ 3,682,713 for storage and transportation costs of the contaminated oil between the date it was discharged at Wilhelmshaven and the date it was discharged at Castellon,
- US$ 234,861.06 for Cargo volume losses, and
- US$ 303,180 for demurrage paid on three other vessels delayed at Wilhelmshaven by the reloading of the oil.