Glencore Energy UK Ltd v Transworld Oil Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeTHE HON MR JUSTICE BLAIR,Mr Justice Blair
Judgment Date03 February 2010
Neutral Citation[2010] EWHC 141 (Comm)
Docket NumberCase No: 2008 FOLIO 748

[2010] EWHC 141 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before: The Hon Mr Justice Blair

Case No: 2008 FOLIO 748

Between
Glencore Energy UK Limited
Claimant
and
Transworld Oil Limited
Defendant

Mr Richard Southern QC and Mr Alexander MacDonald (instructed by Clyde & Co) for the Claimant

Mr Andrew W. Baker QC (instructed by Jones Day) for the Defendant

Hearing dates: 14 th, 15 th, 16 th, 17 th December 2009, 12 th, 13 th January 2010

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 HON MR JUSTICE BLAIR Mr Justice Blair

Mr Justice Blair:

1

This is a claim by Glencore Energy UK Ltd (“Glencore”) against Transworld Oil Ltd (“Transworld”) arising out of a contract on f.o.b. terms for the sale of a cargo of Nigerian oil known as Ukpokiti, in respect of which Glencore was buyer, and Transworld was seller. The background to the dispute is that on the morning of 30 March 2008 whilst the tanker was waiting to berth, the crew of a tug that was to assist in that operation was subject to a kidnapping. Although in the event the kidnap was resolved quite quickly, and Transworld says that the tanker could have lifted the cargo, by then it had sailed away. Thereafter the parties sought to put in place alternative arrangements, but these ended in failure. The issues that arise for decision in the action in broad terms are whether the contract came to an end or was affirmed, and if so, whether the claim was nevertheless time barred under the NNPC (Nigerian National Petroleum Corporation) terms, and if not, what is the measure of damages for breach.

The facts

2

Glencore Energy UK Limited is part of the Glencore group of companies carrying on oil trading operations out of London. Transworld Oil Limited is also part of a substantial group of companies. It is based in Bermuda, and at the present time, does not trade any oil other than Ukpokiti, the evidence being that such sales are relatively infrequent. In addition to the considerable volume of documentation generated over the course of the parties' dealings, I heard from six witnesses of fact, the first three being from Glencore's West African desk. At the time of the contract, Mr Rick Dumpleton dealt with operations, and Mr Anthony Stimler and Mr Martin Wakefield were traders. Mr Wakefield had been on the West African desk since 1995. On the Transworld side, I also heard from three factual witnesses, the first of whom was Mr Allan Bechter, who is based in the company's Bermuda office, which is a small one, with only eight people working in it. He concluded the deal with Glencore, and his name appears on various emails. In fact however, his role within Transworld is concerned with IT. The evidence was that the President of Transworld, Mr John Deuss, used him to conduct the transaction in question, since he did not think it appropriate for someone as senior as the President to do so. Prior to the transaction with Glencore, Mr Bechter had only been involved with two other sales of crude oil, both Ukpokiti. Mr Deuss did not give evidence himself, Transworld's second witness being Mr John Shea, an employee of a subsidiary of Transworld, who was at the time seconded to a Nigerian company called Tetra Petroleum Oilfield Services (Nigeria) Ltd (“Tetra”) which provided technical services to the oilfield. Its third witness was Mr Emmanuel Nnonah, Tetra's Operations Manager at the time, who like Mr Shea, was based in Nigeria. A witness statement by Mr John Lovell whose company operated the Ukpokiti Terminal was also before the Court.

3

The facts as I find them to be are as follows. Ukpokiti crude is a good quality, low sulphur crude oil extracted from the offshore field bearing the same name. It is located in the eastern offshore oil province of Nigeria, and at the material time, the oil was produced only in small quantities. The Ukpokiti Oil Terminal consists of a floating production storage and off loading facility (FPSO), being a converted tanker named the “Trinity Spirit”. The sea water depth around the area is approximately 85 feet. The evidence is that only about one cargo per quarter is shipped. In practice, the relatively small size of the cargos means that it needs to be shipped as part of a cargo loaded at some other West African terminal. Loading at the terminal is a tricky operation. As explained to me by Mr Shea, a tanker would ordinarily require the assistance of two vessels to berth, including a large tug. This is because the operation is carried out bow to bow, and whatever the sea conditions, the tanker has to be lined up and kept in position.

The making of the contract

4

The contract between the parties came about as follows. On 22 February 2008, Glencore entered into a contract with BP for the sale of 650,000 barrels (plus/minus 5%) of Espoir crude oil, scheduled to load during the period 30 March to 4 April 2008. Espoir crude is loaded in the Ivory Coast, which is to the west of Ukpokiti. The evidence of Mr Wakefield is that he discussed with BP whether it would be interested in a top-up cargo of Ukpokiti crude which was being offered at the time by Transworld. Once confirmation was received by the Ukpokiti Terminal that the “Narmada Spirit”, the tanker chartered by BP for the Espoir lifting, would be acceptable to be received at the Ukpotiki terminal, the contracts necessary to conclude the deal were entered into. There were three such contracts.

5

The first in time was the contract between the parties to the present claim. Mr Bechter said that the deal was concluded in a conversation between him and Mr Wakefield when he was at Mr Deuss's house. Mr Deuss dialled the number, and passed Mr Bechter the phone. The contract was dated 6 March 2008, and was for the sale by Transworld to Glencore of “285,000 bbl ±5% of Ukpokiti blend crude oil”. Clause 5 provided for a delivery period at the end of March as follows: “TO BE LIFTED IN ONE CARGO LOT AND MUST BE FIRST LOAD PORT, FOB UKPOKITI MARINE TERMINAL, THE FPSO “TRINITY SPIRIT”, NIGERIA … DURING 25–29 MARCH 2008”. The evidence is that a provision that the Ukpokiti Terminal has to be the first load port is incorporated in such contracts reflecting the limitations of the terminal. It is however possible by arrangement to load a part-laden tanker at the terminal provided (according to Mr Wakefield) that there are not more than 400,000 barrels on board. Such an instance involved Glencore in early 2007 when a Suezmax was loaded from Ukpokiti as a second cargo. As will be seen, after the first failed loading in the present case, the parties did contemplate such a loading.

6

As regards precise time for delivery during the 25–29 March 2008 period, clause 5 continued: “BUYER TO NARROW TO A 3-DAY LAYCAN LATEST COB LONDON TIME 7 MARCH 2008, PER BUYERS NOMINATED VESSEL MT NARMADA SPIRIT (ALREADY ACCEPTED BY THE TERMINAL) OR SUBSTITUTE, SUBJECT TO ACCEPTANCE BY THE TERMINAL …”.

7

The price was provided for in clause 6 to be determined by the “AVERAGE OF FIVE (5) CONSECUTIVE QUOTATIONS AS PUBLISHED IN PLATTS CRUDE OIL MARKETWIRE FOR THE MEAN OF DATED BRENT” within a period around the narrowed laycan. The exact five day quotation period was in Glencore's option as buyer. It was to be declared on or before the working day prior to the first of the chosen days. In this regard, the contract provided that, “BUYER TO DECLARE AT ITS OPTION ITS PREFERRED FIVE (5) DAY QUOTATION PERIOD WITHIN THIS WINDOW LATEST ONE (1) WORKING DAY PRIOR TO THE FIRST (1 ST) DAY OF THE ADVISED PRICING PERIOD”. The parties refer to this as the “pricing declaration”, and it forms an important part of this case. As is usual in this business, that element of the price was then increased by a premium, in this instance US$2.05 per barrel above the dated Brent price. Brent (as the expert evidence explains) is the “marker” crude for such transactions. Nothing turns on the construction of the contractual provisions, the effect of which is not in dispute.

8

By a contract dated 7 March 2008, Glencore sold the same quantity of Ukpokiti blend crude oil to BP. In this contract however, there was a difference in that the price was determined by the average of five consecutive quotations as published in Platts Crude Oil Marketwire for the mean of dated Brent for the five days after the bill of lading date (in other words not at the option of the buyer). In the case of this contract, the premium was US$3.00 per barrel, the differential being Glencore's profit on the deal.

9

By a contract dated 20 March 2008, Transworld bought the oil which it was selling to Glencore from two Nigerian companies with an equity interest in the oilfield, Atlas Petroleum International Ltd and Summit Oil and Gas Worldwide Ltd. The contract is on back to back terms with Transworld's sale to Glencore, save perhaps for the premium, which Transworld has redacted from the document.

10

The sequence of the respective contracts (Transworld's supply contract coming well after its sale to Glencore) has been cited in support of the suggestion that Transworld was indeed an equity participant in the oilfield, but there is no supporting evidence as regards such an equity interest, and Transworld has unequivocally stated that it is wrong. Mr Bechter told me that he was not aware of any such interest, though he accepted that Tetra was part of Mr Deuss's business interest. On the other hand, Mr Bechter was not in a position to know the full facts, and there does seem to me to be at least some substance in Glencore's submission that arrangements between Transworld, Tetra and Atlas and Summit were not entirely arms' length, but it does not make any difference to the matters I have to...

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