ABFA Commodities Trading Ltd v Petraco Oil Company SA

Hearing dates: 20–23, 27–30 November 2023, 4, 6 and 7 December 2023

Draft Judgment Circulated: 18 January 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 30 January 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

The Honourable

INTRODUCTION

These proceedings first came before the court on 15 May 2019 when the Claimant (who I shall refer to in this judgment as “VTB Commodities”, its name at the time of the underlying events) applied for injunctions under s.44 of the Arbitration Act 1996 against its contractual counterparty, JSC Antipinsky Refinery ( “Antipinsky”): a worldwide freezing order, and a mandatory injunction requiring Antipinsky to deliver a cargo of 60,608.95 mt of High Sulphur Vacuum Gasoil (“ VGO”) then on board a floating storage facility called the “POLAR ROCK” ( “the Disputed Parcel”) to VTB Commodities ( “the Cargo Injunction”). The injunctions were granted by Mr Justice Waksman on 29 April 2019.

The nature of the proceedings has evolved significantly in the intervening four years, an evolution which can be traced through reported judgments of this court ( [2019] EWHC 3292 (Comm), [2020] EWHC 72 (Comm) and [2021] EWHC 1758 (Comm)), but in brief:

i) On 8 May 2019, Petraco Oil Company SA ( “Petraco”) applied to intervene in the action, contending that it was entitled to delivery of the Disputed Parcel, which application to intervene was granted, and it also sought an inquiry as to damages pursuant to the undertaking in damages offered by VTB Commodities as a condition for obtaining the injunctions ( “the Undertaking”), alleging that the Cargo Injunction should not have been granted and that the injunction had caused Petraco loss.

ii) On 15 May 2019, on the return date for the injunctions, Sir William Blair ordered VTB Commodities to pay US$30m into court by way of fortification of the Undertaking; ordered the sale of the Disputed Parcel, with the proceeds to be paid into court; and directed an expedited trial of the rights and obligations of VTB Commodities, Antipinsky and Petraco in respect of the Disputed Parcel.

iii) On 12 December 2019, Phillips LJ discharged the Cargo Injunction granted in respect of the Disputed Parcel, on the basis that it amounted to an impermissible interim mandatory order for specific performance of an obligation to deliver unascertained goods.

iv) On 30 December 2019, Antipinsky was declared insolvent, and it has not played any active part in the proceedings since then.

v) VTB Commodities served a Part 20 claim in response to Petraco's claim under the Undertaking, seeking damages by reference to Russian law from Petraco in relation to the Disputed Parcel and two other cargoes of VGO which were delivered to Petraco ( “the Other Cargoes”). VTB Commodities' attempt to bring similar claims against other entities failed on jurisdictional grounds.

vi) Sanctions imposed following the Russian invasion of Ukraine left VTB Commodities without legal representation for lengthy periods and necessitated a second adjournment of the trial from May to November 2023. VTB Commodities' legal team are to be commended on the manner in which they have overcome the considerable difficulties they have faced, and put themselves in a position to advance a formidable case at trial.

In strictly chronological terms, the issues which arise are as follows.

First, is Petraco liable to VTB Commodities in damages for the tort of abuse of rights under Articles 10 and 1064 of the Russian Civil Code ( “the RCC”) for contracting to acquire the Other Cargoes and/or the Disputed Parcel and if so, in what amount? That depends:

i) on Petraco's state of mind when acquiring the right to the Other Cargoes and the Disputed Parcel;

ii) the content of Russian law; and

iii) the causation and quantification of any loss; but raises no issue as to whether and when property in the Other Cargoes or the Disputed Parcel passed to Petraco.

Second, should the court award Petraco damages pursuant to the Undertaking in respect of the Disputed Parcel and, if so, in what amount? That raises the following issues:

i) Both parties have been content to proceed on the basis that Petraco can only claim under the Undertaking in damages if Petraco would have acquired title to the Disputed Parcel but for the Cargo Injunction requiring Antipinsky to deliver the Disputed Parcel to VTB Commodities. While there was a late attempt by Petraco to depart from that shared assumption at the end of closing submissions, I was satisfied that it would not be fair to permit it to do so at that stage.

ii) The resolution of this issue requires the court to determine the following questions:

a) Did JSC VO MachinoImport (“ MachinoImport”) – the Russian company from whom Petraco claims to have acquired the Disputed Parcel – acquire title to the Disputed Parcel from Antipinsky? VTB Commodities contends that it did not because Antipinsky and MachinoImport acted contrary to Articles 10 and 168(2) of the RCC by contracting for the sale and purchase of cargo knowing or being reckless as to the fact that delivery under that contract would necessarily have the effect that Antipinsky would breach its contractual obligations to VTB Commodities. Petraco denies that the Article 10 claim arises in law or is made out on the facts, but contends that even if it does, MachinoImport nonetheless acquired title to the Disputed Parcel.

b) By way of a fall-back argument, VTB Commodities initially contended that the contracts between Antipinsky and MachinoImport were a sham, MachinoImport's true role being to act as Antipinsky's agent, such that Petraco has to show it acquired property in the Disputed Parcel from Antipinsky. That argument (sensibly in my view) was not pursed by the end of closing.

c) If MachinoImport did acquire title to the Disputed Parcel from Antipinsky, would Petraco have acquired title to the Disputed Parcel from MachinoImport? This raises the same issue as to Article 10 of the RCC, albeit on this occasion as between MachinoImport and Petraco.

d) If MachinoImport did not acquire title to the Disputed Parcel from Antipinsky, would Petraco nonetheless have acquired title to the Disputed Parcel if MachinoImport had delivered the Disputed Parcel to it, as a good faith purchaser?

iii) If Petraco would, by one means or another, have acquired title to the Disputed Parcel, should the court nonetheless refuse to make an award in Petraco's favour pursuant to the Undertaking?

iv) If an award is to be made in Petraco's favour pursuant to the Undertaking, in what amount should it be made?

THE EVIDENCE

Factual witness evidence

Petraco called four witnesses who work for Petraco and had contemporaneous involvement in the events:

i) Ms Ingeborg Srenger, a director and the CEO of Petraco, whose father founded the company and who has worked for Petraco for over 40 years;

ii) Mr Enrico Morello, a VGO trader who has worked for Petraco since 2014,

iii) Mr Josip Vukman, who is the head of Petraco's representative office in Moscow; and

iv) Mr David South, a senior crude oil trader with Petraco (whose role in events was limited).

The broad thrust of Ms Srenger, Mr Morello and Mr Vukman's evidence was that they were confident that Petraco's contractual counterparty, MachinoImport, would able to supply the VGO which Petraco had contracted to purchase; they did not have cause to consider the issue of whether Antipinsky had the capacity to supply the product; they had no knowledge that VTB Commodities had contractual rights to cargo of such a nature that it would have taken all or substantially all of the capacity of the Antipinsky refinery's production to meet them; and that they did not and had no reason to believe that delivery of VGO under its contracts would obstruct performance of VTB Commodities' contracts. The statements also offered explanations for a number of communications which might, on one reading, have suggested the contrary.

For reasons I explain below, the evidence given by Ms Srenger and Mr Morello as to their dealings in relation to Antipinsky VGO was materially incomplete, with evidence as to important events only being offered (and then on an incomplete and inaccurate basis) once disclosure alerted VTB Commodities to them. Their evidence involved a conscious and concerted attempt to downplay their contemporaneous knowledge and understanding of VTB Commodities' entitlements and the impact which deliveries to Petraco would have on satisfaction of those entitlements. Mr Vukman's statement contained a number of assertions which he was not in a position to support, and in cross-examination he professed to have little, if any, recollection of many of the contemporaneous events. Save where undisputed or corroborated by contemporaneous documents or the inherent probabilities, I am unable to place weight on the evidence of any of these witnesses. I make further detailed findings on the evidence of Ms Srenger and Mr Morello below.

I do not make the same criticism of Mr South, who had a more marginal role in events. He found himself in a difficult position: he was a close personal friend of the key VTB Commodities trader, Mr Mohsin (“Moh”) Kabir, but...