Euro-Asian Oil SA (formerly Euro-Asian Oil AG) v Credit Suisse AG
| Jurisdiction | England & Wales |
| Judge | Lord Justice Simon,Lady Justice King,Dame Elizabeth Gloster DBE |
| Judgment Date | 25 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1720 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2017/0327 |
| Date | 25 July 2018 |
[2018] EWCA Civ 1720
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Dame Elizabeth Gloster DBE
Lady Justice King
and
Lord Justice Simon
Case No: A4/2017/0327
and
and
Mr Jeffrey Gruder QC and Ms Caroline Pounds (instructed by Holman Fenwick Willan LLP) for the Appellant
Mr Duncan Matthews QC and Mr Sudhanshu SwaroopQC (instructed by Stephenson Harwood LLP) for the Respondent
The Second Respondent and Fourth Party did not appear
Hearing dates 15 and 16 May 2018
Judgment Approved
Introduction
This is an appeal from the judgment of Sir Ross Cranston (‘the Judge’), sitting as a judge of the Commercial Court. The judgment is dated 21 December 2016, and the appeal raises three broad issues.
The first issue is whether a contract entered on 1 October 2010, in respect of which the claimant (‘Euro-Asian’) sued the 1st defendant in the first action (‘Abilo’) and the only defendant in the second action (‘Credit Suisse’), was a contract for the sale and delivery of goods on CIF terms. The Judge held that it was, that Abilo was liable for breach of contract and that both Abilo and Credit Suisse were liable under the terms of a letter of indemnity which they signed as co-signatories. Credit Suisse submits that the Judge erred in making this finding. It argues that, in the light of the prior trading history between Abilo and Euro-Asian and on a proper legal analysis, the transaction was not a contract for the delivery of the relevant cargo on CIF terms and that Credit Suisse is not liable to Euro-Asian under the letter of indemnity.
The second issue relates to the measure of damages suffered by Euro-Asian for breach of the warranties contained in the letter of indemnity. The Judge found that damages were to be assessed by reference to Euro-Asian's sub-sale. Euro-Asian argues on the cross-appeal that it should be assessed by reference to the sound arrived market value of the cargo. Credit Suisse submits that the Judge was correct in his assessment of Euro-Asian's loss and its entitlement to damages.
The third issue is whether, on the assumption that the Judge was correct on the first issue and whether he was right or wrong on the second issue, Credit Suisse is entitled to a complete indemnity from its client Abilo or, as the Judge found, a contribution limited to 80% of the damages that it was liable to pay. Credit Suisse submits that the Judge was wrong in his assessment of its entitlement to contribution, and that it is entitled to a full indemnity from Abilo.
The fourth contract documents dated 1 October 2010
The sale contract which is in issue on this appeal was the fourth such contract entered into between Abilo (as seller) and Euro-Asian (as purchaser). It was entered into on 1 October 2010, and provided for the sale by Abilo to Euro-Asian of a cargo of 20,000 metric tons +/- 10% ultra-low sulphur diesel (‘ULSD’):
CIF one safe port/berth Constantza in one full cargo lot per M/T ‘T.B.N’ … during the period 10 September–31 December 2010.
Payment was to be made by letter of credit against original documents. The contract contained terms for the determination of quality and quantity of the cargo, inspection, laytime and demurrage, and insurance. There was an entire agreement clause and a provision that, where not otherwise inconsistent with the express terms, Incoterms CIF 2000 and subsequent amendments would apply.
The fourth letter of credit was dated 1 October and was opened by Credit Agricole (Suisse) SA (‘Credit Agricole’) in favour of Credit Suisse, with Euro-Asian named as the applicant and Abilo as the named beneficiary. The credit was stated to be valid until 31 January 2011 and provided for payment of US$13,500,000 +/- 10%, against six enumerated documents. The first of these documents was a commercial invoice, the other documents (No. 2–6) included ‘a full set of 3/3 original clean onboard charter-party bills of lading issued or endorsed to the order of the Credit Agricole (Suisse) SA,’ as well as certificates of quality, quantity and origin, each in a prescribed form.
The fourth letter of credit also stipulated:
In the event that above listed documents No.2 through 6 are not available when payment becomes due, then payment shall be made against the presentation of the following documents:
1. Beneficiary's invoice …
2. Beneficiary's letter of indemnity as per following wording … countersigned by Credit Suisse AG Geneva.
There followed the text of a letter of indemnity to which it will be necessary to return later in this judgment.
Among the further material terms of the letter of credit was a clause which provided:
6. Documents presented more than 21 days from bill of lading date but within documentary credit validity acceptable;
and a proviso:
This documentary credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007 revision, I.C.C. Publication Nr. 600 (UCP).
The prior history
In order to put the issues in their proper context, it is necessary to set out some of the background to the relationship between Euro-Asian and Abilo, and the commercial dealings which led to the fourth sale contract.
The Judge carefully analysed the commercial relationship between Euro-Asian (and those involved in its trading, Mr Michailov and Mr Duman) on one side, and Abilo (and Mr Igniska) on the other. The analysis, which included reference to payments of commission to Messrs Michailov and Duman on business that Euro-Asian put the way of Abilo, is set out in the Judgment at [46] to [102].
In summary, between 2007 and 2009, Euro-Asian engaged in a number of transactions with Mr Igniska's companies importing and distributing gasoil within Romania. Because Mr Igniska's companies had limited credit lines, he was only able to finance the purchase of relatively small cargoes; and, since he wanted to purchase larger quantities with a view to increasing his profits, Euro-Asian agreed to a scheme whereby it would buy cargoes of gasoil from companies such as Glencore, Select Energy, Motor Oil Hellas, Addax or Total for delivery CIF Constanza. Mr Igniska would negotiate such deals and Euro-Asian would decide whether it would agree to enter the contracts as purchaser. If it did, it would sell those cargoes to a company owned by Mr Igniska, either Abilo, Real Oil or Neptune, on extended payment terms: 90/120 days after the bill of lading date. On this basis Mr Igniska would organise the discharge of the cargo in Constanza and arrange for the oil terminal to issue an in-tank ‘holding and title certificate’ (‘tank holding certificate’), confirming that it held the cargo in Euro-Asian's name and under pledge to Euro-Asian's financing bank. The product would then be released in parcels to Mr Igniska's companies on payment by instalments.
The commercial benefit to Euro-Asian was the difference between the price at which Euro-Asian bought the cargoes and the price it sold them to one of Mr Igniska's companies, usually a difference of about US$2-US$3.5 per mt, described as a ‘financing fee’. The advantage for Mr Igniska under these arrangements was that he was able to obtain larger quantities of gasoil than he could otherwise afford, and save on costs such as freight. In addition, the transactions were structured so that Euro-Asian released the oil to Mr Igniska's companies in parcels, providing credit during that period. It was prepared to do that because it had the security of a tank holding certificate issued by Constanza oil terminal to its order, in practice pledged to its bank.
It is unnecessary to set out in further detail the Judge's findings at [72] to [79] of the judgment at this point. They are, however, highly material to the second issue on this appeal.
At [80] to [102] of the judgment, the Judge dealt with commission payments of approximately US$1.5 mt shared between Mr Michailov and Mr Duman out of the ‘financing fee.’
The way in which the four transactions at issue in this case were performed was described by Euro-Asian as a ‘carousel’. In short, the contracted cargo was not delivered according to the terms of the sale contracts on conventional CIF terms, but was performed by means of tank holding certificates issued by the discharge terminal in relation to oil delivered from another vessel. To illustrate the way in which the ‘carousel’ operated it is convenient to refer to the first sale transaction.
The first sale transaction
This contract was dated 9 November 2009. Abilo agreed to sell and Euro-Asian agreed to buy a cargo of 19,100 mt of ULSD on CIF terms Constanza. The contract did not name the vessel, which was described as ‘TBN’, with a delivery period of 6 November to 31 December 2009. By a separate contract Euro-Asian agreed to sell the same quantity and quality of cargo to Mr Igniska's company, Neptune.
The oil supplied under this contract was cargo carried on the Dominia, which discharged at Constanza on 13 November 2009. As the Judge found, Abilo (and its local agent, DG Petrol) treated this consignment as its own property and concealed the delivery from Euro-Asian [135]. The cargo that had been carried on the Dominia was not available for delivery under the first contract. What was delivered instead was product which was already in the holding tank at Constanza which had been delivered, on the Judge's findings at [171], by the Nicos Tomasos between 24–26 February 2010. The documents tendered under the first sale...
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