Fal Oil Company Ltd and Credit Agricole Indosuez (Suisse) SA v Petronas Trading Corpn Sdn Bhd; the Devon

JurisdictionEngland & Wales
JudgeLord Justice Mance,Lord Justice Buxton,Lord Justice Judge,LORD JUSTICE MANCE
Judgment Date07 July 2004
Neutral Citation[2004] EWCA Civ 822,[2003] EWCA Civ 1615
CourtCourt of Appeal (Civil Division)
Docket NumberA3/2003/2289,Case Nos: A3/2003/2289 & 2299
Date07 July 2004

[2003] EWCA Civ 1615







Mr Justice Thomas


(1) Fal Oil CO Limited
(2) Credit Agricole Indosuez (SUISSE) SA
Petronas Trading Coporation SDN BHD

MR S MALES QC AND MR L AKKA (instructed by Messrs Ince & Co, Knolly House, 11 Byward Street, London EC3R 5EN) appeared on behalf of the Appellant

MR R MILLETT QC AND MR EDWARD KING (instructed by Messrs Holmen, Fenwick and Willan, Marlow House, Lloyds Ave, London EC3N 3AL) Appeared on behalf of the Respondent


LORD JUSTICE THOMAS: I have allowed permission to appeal to the appellants in the case on a very narrow ground.


First of all, I do not give permission to appeal on any question of primary fact. The sole basis on which I have allowed permission to appeal is on the approach that the learned judge has made to the assessment of the three possibilities that have been canvassed in the argument in front of me as to how the oil came to be contaminated, namely (1) theft on board the Devon; (2) a failure to transfer to the Devon or theft by the Centaur; or (3) contamination at Yanbu. Those are the three possibilities. The appeal is limited, as far as the appellants are concerned, to a consideration of those possibilities.


As regards the respondents, Mr Millett QC advanced one further possibility, namely the way in which the figures had been calculated; that can also, insofar as the respondents are concerned, be added into the equation. But on that basis, I would hope that the bundle before the Court of Appeal will be extremely short and not the huge volumes that are in front of me; I hope also that the argument before the full court that hears this matter can proceed on that very limited basis.


(Order: Permission to appeal allowed. Cross Appeal allowed. Time Estimate of one-and-a-half days, to include cross appeal estimated at one day. Stay to continue to Tuesday, 11th November. Respondents to provide a first class bank guarantee. Appellants to provide a guarantee for the reasonable costs of that guarantee. Cost of the guarantee to be in the appeal. Costs in the appeal.)

[2004] EWCA Civ 822

[2003] EWHC 2225 (Comm)





Royal Courts of Justice


London, WC2A 2LL


The Right Honourable Lord Justice Judge

The Right Honourable Lord Justice Buxton and

The Right Honourable Lord Justice Mance

Case Nos: A3/2003/2289 & 2299

(1) Fal Oil Co. Ltd.
Claimants/Respondents in 1st appeal Appellants in 2nd appeal
(2) Credit Agricole Indosuez (Suisse) SA
Petronas Trading Corporation SDN BHD
Defendant/Appellant in 1st appeal Respondent in 2nd appeal

Mr. Richard Millett QC & Mr. Edmund King (instructed by Ince & Co.) for the Claimant/(1)Respondent & (2)Appellant

Mr. Stephen Males QC & Mr. Lawrence Akka (instructed by Holman Fenwick Willan) for the Defendant/(1)Appellant & (2)Respondent

Lord Justice Mance



This is an appeal and cross-appeal by permission of the single judge from a judgment of Morison J given on 10 th October 2003. Morison J held after a five-day trial in July 2003 that the defendants, Petronas Trading Corporation Sdn Bhd ("Petronas"), had not established any defence to a claim for the price of fuel oil allegedly sold and delivered to them by the claimants, Fal Oil Co Limited ("Fal Oil"). Petronas appeal against that decision, while Fal Oil appeal against the judge's decision in Petronas's favour on a lesser claim relating to demurrage. Fal Oil's claims were made under a contract of sale dated 29 th November 2000. This provided for delivery of four cargoes of 80,000 metric tons (10% plus or minus in sellers' option) of cracked fuel oil 700 CST of " ex-Yanbu Standard Quality" C and F one/two safe port(s) Singapore/Pasir Gudang range. To be of Yanbu standard quality, cracked fuel 700 CST must have no more than 1% water and sediment.


For Fal Oil's operational convenience, a variation was agreed in respect of the first cargo and recorded in faxes of 13 th and 14 th February 2001, whereby the intended cargo would be lifted from Yanbu in the Centaur, but would be the subject of a ship-to-ship ("STS") transfer onto the Devon off Port Sudan, and:

'1. B/L should be cut as per the quantity received by daughter vessel [i.e. the Devon] taking into account the vessel experience factor.

2. Quality of each sample taken from individual tanks of daughter to meet the contractual quality.


5. Buyer accepts Saybolt as independent inspector for the STS operations (for the inspection of quantity and quality in relation to items 1 and 2 above), and agrees to share the inspection fee with the Seller.



The Centaur loaded cargo at Yanbu on 25 th February 2001, a STS transfer onto the Devon took place off Port Sudan on 26 th February 2001 and the Devon arrived on 17 th March 2001 at her first nominated discharge port of Singapore, her second nominated discharge port being Pasir Gudang. The percentage of water and sediment in samples taken from the Yanbu shore tanks on 20 th and 22 nd February 2001 was 0.2%. This was consistent with the range of water and sediment which was subsequently ascertained to be present in samples taken from the Centaur's tanks after loading at Yanbu. 0.2% of 85,000 tonnes is 170 tonnes. However, on discharge of the Devon in the Far East, her cargo was found to contain about 1,700 tonnes of water (mainly sea-water) —an excess over the reported Yanbu quantities of some 1500 tonnes. This discovery led to great delay in discharging and to a claim by Petronas to reject the whole cargo – hence Petronas's refusal to pay its price. The issues before Morison J were (1) whether Petronas had established on the balance of probabilities that the cargo loaded onto the Devon at the STS contained more than the permitted contractual maximum of 1% water and sediment and (2) the nature of any contractual liability for demurrage by Petronas towards Fal Oil. (The order in terms also required the judge to determine Petronas's liability for demurrage, but this would raise further issues which were not addressed before him or us.) The judge held that (a) Petronas had failed to establish any excess of water and sediment in the cargo loaded at the STS point, and (b) the demurrage provision in the sale contract between Fal Oil and Petronas operated as a contract of indemnity (that is in respect of liability, if any, on Fal Oil's part under its charterparty), rather than as a free-standing provision. Petronas appeal in respect of (a), while Fal Oil appeal in respect of (b).


The water discovered on discharge of the Devon included some fresh water arising from leaking coils on the Devon. But the bulk of the additional 1500 tons consisted of sea-water. Its discovery, in the absence of any known casualty or identifiable incident, represented a most unusual event. It becomes even more unusual, once it appears that the total quantities of liquid loaded on the Centaur at Yanbu and on the Devon at the STS point closely correspond, after making appropriate adjustments for cargo and atmospheric conditions, with the total quantity of liquid (including the 1500 tonnes) ascertained to have been in and discharged from the Devon's cargo-carrying tanks at Singapore and Pasir Gudang. On this point, the judge accepted the evidence of Petronas's expert, Mr Severn, who had calculated the following figures. The quantity metered by the terminal at Yanbu and used in the bill of lading by the shippers (Exxonmobil Sales and Supply Corporation) became after adjustment 75,484 tonnes. Saybolt as surveyors acting for Fal Oil at Yanbu had in fact calculated the Centaur's ship's loaded quantity, using the vessel's ullage tables, and had arrived at a total which led them to give notice to the terminal of an apparent discrepancy of some 230.49 tonnes (a relatively small quantity). But Mr Severn evidently attached no significance to this, taking as accurate the quantity given by the meters (which were recorded as having been proved by the surveyor during the loading). Mr Severn's adjusted quantity for cargo loaded on the Devon based on Saybolt's measurements at the STS point gave a figure of 75,953.988 tonnes, that is some 469.988 tonnes more than loaded at Yanbu. But Mr Severn's calculations for discharge at Singapore and Pasir Gudang gave a total adjusted tonnage only 41.973 tonnes in excess of the adjusted Yanbu load figure. Mr Severn considered that the reliable measurements were those at Yanbu and on discharge in the Far East. The judge was on that basis faced with a situation where any ingress of water must have been matched by an equivalent loss or discharge of fuel oil. Fal Oil ran a positive case, to the effect that this was likely to have occurred as a result of some accident on board the Devon, in particular as a result of defects in her piping or valves drawing or allowing the entry of water during discharge and/or an interchange of oil and ballast connected with recent modification to her ballast piping and cargo systems. But the judge did not accept any such theory, which also failed to explain where 1500 tonnes of oil had gone, and Fal Oil do not on this appeal pursue it. The judge ruled out...

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