Delta Petroleum (Caribbean) Ltd v British Virgin Islands Electricity Corporation
| Jurisdiction | UK Non-devolved |
| Judge | Lord Leggatt |
| Judgment Date | 12 October 2020 |
| Neutral Citation | [2020] UKPC 23 |
| Date | 12 October 2020 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0029 of 2019 |
JUDGMENT
Lord Kerr
Lord Briggs
Lord Sales
Lord Hamblen
Lord Leggatt
Privy Council Appeal No 0029 of 2019
Appellant
James Guthrie QC Naina Patel (Instructed by Sperrin Law)
Respondent
Paul B Dennis QC Nadine Whyte Laing (Instructed by Myers Fletcher and Gordon (Hammersmith))
The central issue in this appeal is whether a party with a right to claim relief from further performance of its obligations under a contract had in law to make an election between exercising the right and continuing to perform the contract such that, if the latter choice was made, the right to claim “performance relief” was lost.
The contract in question was a Refined Petroleum Products Supply Agreement made on 30 August 2014 between the appellant (“the Seller”) and the respondent (“the Buyer”). The Seller is a company incorporated in the Territory of the Virgin Islands (“BVI”) which supplies petroleum products in the BVI and other Caribbean islands. The Buyer is a statutory corporation and the sole provider of electricity in the BVI. Under the supply agreement the Buyer agreed to buy exclusively from the Seller the Buyer's total requirements for diesel fuel and premium gasoline during a period of four years from 1 September 2014 to 31 August 2018. The diesel fuel was required by the Buyer for generating electricity.
The supply agreement was negotiated against the background of the potential closure of an oil refinery and storage facilities operated by Hovensa LLC on the island of St Croix in the United States Virgin Islands. Hovensa supplied petroleum products to the Seller, which also leased storage facilities from Hovensa on St Croix. In clause 10(1)(d) and (2) of the supply agreement, specific provision was made for the potential consequences of closure of the Hovensa terminal to allow the Seller in that event to claim relief from its obligations to supply fuel to the Buyer. Clause 10, headed “Performance Relief”, was in these terms (with emphasis added):
“(1) Subject to the remaining sub-clauses of this clause 10 neither the Seller nor the Buyer shall be responsible for any failure to fulfil their respective obligations under this Agreement (other than payment of money due) if fulfilment has been delayed, interfered with, curtailed or prevented by:
(a) Act of God, fire, any consequences of war, invasion, act of foreign enemy, hostilities, (whether war has been declared or not), civil war, rebellion, revolution or insurrection;
(b) Any strike, lock-out or labour dispute whether or not the Seller, its suppliers or the Buyer as the case may be, are party thereto or would be able to influence or procure the settlement thereof;
(c) Tropical storm, hurricane, earthquake, flooding resulting from heavy rainfall or any other natural disaster;
(d) Any curtailment, failure or cessation of supplies of crude oil or refined petroleum products from any of the Seller or its suppliers' sources of supply or Seller's leased storage facilities on St Croix, USVI, which are in fact sources of supply or storage for the purposes of this present Agreement;
(e) Any compliance with any order, demand or request of any international, national, port of transportation, local or other authority or agency relating to health or safety regulations; and
(f) Any other circumstances which are not within the reasonable control of the Buyer or the Seller or its suppliers.
(2) If by reason of any causes referred to in paragraph (1) (a) to (c), (d), (e) and (f) of this clause, either the availability from any of the Seller's or its suppliers' sources of supply of crude oil or refined petroleum products or the Seller's leased storage facilities on St Croix, whether deliverable under this Agreement or not, or the normal means of transport of such crude oil or products, is delayed, hindered, interfered with, curtailed or prevented, then the Seller shall be at liberty to withhold, reduce or suspend the deliveries hereunder to such extent as the Seller may in its absolute discretion think fit and the Seller shall not be bound to purchase or otherwise make good shortages resulting from such causes.
(3) A request for Performance Relief shall be made in writing and shall specify the reason for the request with supporting documents. In addition to the foregoing, in all requests for Performance Relief the nonperforming party must prove that the party took all reasonable steps to minimise delay or damages caused by foreseeable events, that the party substantially fulfilled all non-excused obligations, and that the other party was timely notified of the likelihood or actual occurrence of an event described in this clause 10.
(4) For the purpose of this clause, the Seller's suppliers shall mean any body or person by whom, directly or indirectly the refined petroleum products to be purchased and sold hereunder are supplied, stored and/or transported to the Seller.
(5) The Buyer shall be free to purchase from other suppliers on its account, any deficiencies caused by the operation of this clause.”
Also relevant in the events which happened is clause 3 of the supply agreement, which required the Seller to ensure that the Buyer's storage tanks were maintained at all times at stipulated minimum levels and provided for the Seller to pay damages to the Buyer at an agreed daily rate for each day that the storage level fell below the stipulated minimum level.
On 1 December 2014 Hovensa gave notice to the Seller that it was terminating the service agreement under which the Seller leased storage facilities on St Croix with effect from 1 March 2015. After representations made to the Senate of the US Virgin Islands to halt the closure of the Hovensa terminal proved unsuccessful, the Seller sent a copy of the notice received from Hovensa to the Buyer on 28 January 2015 and requested a meeting to discuss its implications for the supply agreement.
By letters dated 27 January and 2 February 2015, the Seller claimed performance relief under clause 10(1)(d) and (f) of the supply agreement from its obligation to maintain storage levels in the Buyer's tanks at or above the stipulated minimum levels. The Seller's letter of 2 February 2015 stated that it was “now in the transition phase to Antigua for the lifting of product” and that the performance relief sought was “in relation to the closing of Hovensa … and the transition to a new loading port in Antigua”.
On 6 February 2015 discussions began between the parties in which the Seller sought a price increase to offset the increased costs incurred in making supplies under the agreement as a result of the closure of the Hovensa terminal. Negotiations continued over the following months but ultimately broke down. Throughout this time the Seller continued to supply fuel to the Buyer purchased and shipped from Antigua.
On 1 June 2015 the Seller wrote to the Buyer stating that, although it had used its best efforts to identify alternative sources of supply on similar terms, it had not been able to do so and as a result the Seller would no longer be able to continue to supply fuel to the Buyer under the terms of the agreement. The letter requested performance relief from the Seller's supply obligations on the grounds of the closure of the Hovensa oil refinery and the Seller's leased storage facility.
The Buyer replied on 4 June 2015 rejecting the request on the ground that any right to performance relief in respect of the Hovensa closure was “exhausted” after the Seller notified the Buyer that it had found a new supplier in Antigua and opted to continue performing the contract by making deliveries from Antigua.
The Seller maintained its claim for performance relief but agreed to continue to supply fuel at the contract price on an interim basis until 15 July 2015 to allow the Buyer time to identify an alternative source of supply.
On 11 June 2015 the Buyer commenced proceedings against the Seller in the Eastern Caribbean Supreme Court (the “High Court”) and also issued an application for an interim injunction. The application was heard on 14 July 2015 when an injunction was granted to compel the Seller to continue to deliver fuel to the Buyer in accordance with the terms of the supply agreement pending the determination of the Buyer's claim or further order of the court.
An expedited trial of the action took place on 2 November 2015 before Justice Nicola Byer. In her judgment given on 13 January 2016 the judge identified the issues as being:
i) Whether on 1 June 2015 the Seller “was entitled to avoid its supply obligations from that point onward and thereby effectively terminate the contract on the basis of the Hovensa closure”.
ii) If not, whether an order for specific performance of the contract should be made in favour of the Buyer.
iii) Whether the Buyer was entitled to liquidated damages for the Seller's failure to maintain the minimum storage levels stipulated by the contract on certain occasions.
The judge decided all three issues in favour of the Buyer. On the first issue she held, in summary, that the Seller's right to claim performance relief by reason of the closure of the Hovensa facility arose, at the very latest, at the end of January 2015; that the principle of waiver by election applied to the exercise of that right; that by the end of February 2015 the Seller had on three occasions categorically referred to Antigua as its “new loading port” and made it clear that it had chosen to continue to supply fuel to the Buyer from Antigua; and that, having made this election, the Buyer could not on 1 June 2015 rely on the closure of the Hovensa facility to claim performance relief which “effectively would have terminated the...
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