ERG Raffinerie Mediterranee SpA v Chevron USA Inc. (Trading as Chevron Teaco Global Trading)

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeTHE HONOURABLE MR JUSTICE LANGLEY,The Hon. Mr Justice Langley
Judgment Date09 Jun 2006
Neutral Citation[2006] EWHC 1322 (Comm)
Docket NumberCase No: 2005 FOLIO 342

[2006] EWHC 1322 (Comm)

IN THE HIGH COURT OF JUSTICE

COMMERCIAL COURT

QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Langley

Case No: 2005 FOLIO 342

Between
Erg Raffinerie Mediterranee Spa
Claimant
and
Chevron U.s.a. Inc (t/a Chevron Texaco Global Trading)
Defendant

Mr S. Males QC (instructed by MFB) for the Claimant

Mr R. Bright (instructed by Fishers) for the Defendant

Hearing dates: 22 nd-24th May 2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE MR JUSTICE LANGLEY The Hon. Mr Justice Langley

INTRODUCTION

1

The Claimant (ERG) operates two oil refineries in Priolo, near Syracuse, in Sicily, known as ISAB Sud and ISAB Nord. The Defendant is part of the Chevron Texaco Group ("Chevron").

2

By a contract agreed orally between two traders, Marco Montefiori of ERG and Julian Patterson of Chevron, in the course of telephone conversations between 6 and 12 May 2004, ERG agreed to sell to Chevron FOB ISAB refinery North side Priolo terminal 30,000 mt +/—10% at Chevron's option of gasoline, with a specification suitable for the Kenyan market.

3

On 3 June 2004, four days after the expiry of the laycan period, Chevron terminated the contract on the basis that ERG was in breach of its obligation to deliver the cargo. The principal issue is whether or not Chevron was entitled to terminate the contract.

4

The market price of gasoline fell dramatically between 31 May and 3 June. ERG claims the differences between the contract price and the proceeds of selling the gasoline elsewhere after it was upgraded. It also claims for lost production. The claim is for almost US$3.4m. Some $2.5m represents the difference between the contract and the resale prices. Chevron seeks to justify its termination, but if it is liable to ERG, it seeks to counterclaim (in addition to demurrage) general damages for late delivery said to be or to include the difference between the value of the cargo had it been loaded in accordance with the contract and the value it would have had when it would have been delivered had the contract not been terminated.

The Trial

5

This trial is limited to liability issues and the issue of principle whether or not Chevron is entitled, if liable, to set off general damages for late delivery.

The Evidence

6

The relevant events are fully documented. Chevron's telephone conversations were recorded and agreed transcripts are available. ERG served witness statements from Mr Montefiori and five other witnesses. None of the witnesses were called to give evidence. Their evidence was admitted under the Civil Evidence Act.

7

Chevron served witness statements from Mr Patterson, his superior at the time, Mr Hillyer, and two members of the Operations Department, Ms Monti and Ms Cooper. They all gave evidence and were cross-examined by Mr Males QC, for ERG.

THE CONTRACT

8

The contract was the third contract agreed by Mr Montefiori with Chevron and the second he had agreed directly with Mr Patterson. The intervening, second contract, had been agreed with another Chevron trader in April. The first contract was agreed in March. Both the previous contracts had involved delays in shipment by ERG. Neither had been terminated.

9

The key issue is whether and if so what delivery date was agreed by Mr Montefiori. But the evidence of what they did agree is really incontestable. Terms were agreed in the final telephone conversation in the evening of 11 May, subject only to Mr Patterson and Chevron being satisfied that they could conclude a contract with the Claimant under its new name. On 12 May, that was agreed.

10

There is no issue that the discussions took place on the basis that ERG would draw up and provide to Chevron a written wording and that this would follow the terms of the previous contract agreed between the two traders save in any respects expressly agreed otherwise.

11

Mr Montefiori recorded the points agreed in his notebook and in an internal note to the operations department of ERG dated 12 May. Mr Patterson completed an internal deal sheet also dated 12 May. The written wording was sent by Mr Montefiori in a document dated 17 May. It is ERG's case that this document accurately set out what had been agreed on the relevant issues. It is also Chevron's case that the document was substantially an accurate reflection of what had been agreed, but if it is not to be read as providing for a contractual delivery date, then Chevron relies on the oral agreement which, it contends, did so.

Mr Montefiori's Notebook

12

Mr Montefiori's notes are just that; they include:

"delivery FOB Priolo Treminal

28–30

27–30

To 2 day laycan by 21/5

vessel's nomination by 21/5

laytime 36 + 6 shinc wp

other clauses as per previous deal

loading 27–30 then 2 laycan.

pricing 25/5 to 1/6 OK"

13

The cryptic nature of these notes is not, however, hard to explain in the light of the transcripts of the recorded conversations and the written wording. The discussions had begun on 6 May when Mr Montefiori said he had a "parcel" "loading" at the end of May "28–30 let's say" and Mr Patterson had expressed interest in it. On 11 May, Mr Patterson had suggested they work on the basis of the previous contract. Also on 11 May they agreed that the price of the cargo should be the average of certain Platt's FOB quotations for the period 25 May to 1 June plus 2.25 USD per MT. "Loading" was discussed for 28 or 27 to 30 May and agreed, in the final conversation on 11 May, as a "loading period 27–30" "to be narrowed to 2 days laycan". It was also then expressly agreed that "other clauses" would be "as per last deal" by which it is probable they were referring to the first contract agreed between them, and not the second, which had not involved Mr Patterson, albeit on the material issues there is no difference between the two contracts.

Mr Montefiori's Note

14

Mr Montefiori's Note to the Operations Department included "Period of loading 27–30/05".

Mr Patterson's Deal Sheet

15

Mr Patterson's Deal Sheet included:

"Delivery Period: 27–30 May 2004, to be narrowed to a 2-day Laycan at Buyer's Option 3 Clear working days prior to the first day of the Laycan.

Pricing Period 25 th May to 1 st June 2004.

Laytime 36 + 6 SHINC Weather Permitting"

In its language this Deal Sheet was in identical terms to Mr Patterson's Deal Sheet for the first, March, contract. It was also a reflection of what was clause 7 of the written wording of that contract and what became clause 7 of the written wording for this agreement.

The Written Wording

16

Mr Montefiori sent, as it was agreed he would, a written wording to Chevron for the attention of Mr Patterson by a telex dated 17 May, albeit it may in fact not have been sent until the following day. The written wording recorded the price as had been discussed with some added explanatory provisions taken from the previous March contract. Clause 7 consisted of three paragraphs and read:

"7. DELIVERY

FOB ISAB REFINERY NORTH SITE (PRIOLO TERMINAL – AUGUSTA BAY) IN A SINGLE LOT BY M/T "TBN"/SUBS TO BE NOMINATED BY BUYER AND TO BE ACCEPTABLE TO SELLER IN THE PERIOD 27–30/05/2004.

BUYER WILL NARROW SUCH PERIOD TO A TWO DAY LAYCAN LATEST BY 21/05/2004 C.O.B. ITALIAN TIME.

THE LAYCAN IS AN ESSENTIAL ELEMENT OF THE CONTRACT, IN FAVOUR OF SELLER."

17

The wording of Clause 7 was, save for the fact that the vessel had already been nominated for that contract, in identical terms to the wording which had been agreed for the first, March, contract and also for the second, April, contract. In particular the third paragraph had formed part of Clause 7 of each of those contracts without being questioned by Chevron.

18

Clauses 9 and 10 read:

"9. LAYTIME

36 RUNNING HOURS SHINC WEATHER PERMITTING PLUS 6 HOURS NOTICE ALWAYS DUE, (NOTICE OF READINESS MUST BE TENDERED ONLY AFTER THE VESSEL HAS ARRIVED WITHIN THE CUSTOMARY ANCHORAGE) PROVIDED VESSEL CAN RECEIVE THE TOTAL CARGO IN A PERIOD OF TIME EQUIVALENT TO THE TWO THIRDS OF THE AGREED LAYTIME HOURS.

IF THE VESSEL TENDERS N.O.R. AFTER THE FIRM AGREED LAYCAN, LAYTIME SHALL BEGIN UPON BERTHING.

LAYTIME SHALL COMMENCE EITHER 6 HOURS AFTER N.O.R. TENDERED AT LOADPORT OR UPON BERTHING, WHICHEVER IS EARLIER AND EXPIRE AT HOSES DISCONNECTION, OR RECEIPT OF DOCUMENTS, WHICEVER IS EARLIER. TIME USED FROM HOSES DISCONNECTIONS TILL RECEIPT OF DOCUMENTS ON BOARD SHALL BE EQUALLY SHARED BETWEEN BUYER AND SELLER AFTER THE THREE HRS USUALLY GRANTED BY SHIP.

10. DEMURRAGE

DEMURRAGE, IF ANY, WILL BE REQUESTED BY BUYER ONLY IF SHIP-OWNERS ACTUALLY CLAIM IT. DAILY RATE AS PER CHARTER PARTY…."

19

These Clauses also were in substantially the same terms as the previous contracts. The written wording, like its predecessors, also provided for the application of FOB Incoterms where not in conflict with the written wording.

Chevron's Response

20

On 19 May, Chevron responded to the written wording confirming agreement "with the following modifications". One of the "modifications" was:

"DELIVERY. PLEASE DELETE THIRD PARAGRAPH."

21

On 28 May, Mr Montefiori prepared a response rejecting Chevron's "amendment request as it is not in line with the agreement reached during negotiations". It seems this response was sent on 31 May and received by Chevron on 1 June.

Conclusion

22

The first issue for the Court is to decide whether the parties' contract was (in the relevant aspects) correctly recorded in the written wording and, if not, in what respects it was inaccurate.

23

Both parties contend that at least the first two paragraphs of Clause 7 of the written wording accurately record the agreement, albeit they construe the words used differently. I agree. The first, March,...

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