Nichimen Corporation v Gatoil Overseas Inc.
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE KERR,LORD JUSTICE WOOLF,SIR JOHN MEGAW |
| Judgment Date | 25 March 1987 |
| Neutral Citation | [1987] EWCA Civ J0325-9 |
| Docket Number | 87/0410 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 March 1987 |
[1987] EWCA Civ J0325-9
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR. JUSTICE HIRST)
Royal Courts of Justice
Lord Justice Kerr
Lord Justice Woolf
and
Sir John Megaw
87/0410
1986 N No. 1052
MR. BERNARD RIX QC and MR. GILES CALDIN (instructed by Messrs. Holman FenwicK & Wilian, Solicitors, London EC3N 3AL) appeared on behalf of the Plaintiffs (Appellants).
MR. GORDON POLLOCK QC and MR. JULIAN COOKE (instructed by Messrs. ince & Co., Solicitors, London EC3R 5EN) appeared on behalf of the Defendants (Respondents).
On 10th December 1985 the plaintiffs, Nichimen Corporation ("the sellers") concluded a contract with Gatoil Overseas Incorporated ("the buyers") for a quantity of Brent System crude oil to be delivered fob Sullom Voe terminal, in April 1986. Payment was to be made by letter of credit. The buyers failed to establish this by the latest date which the sellers contend was permissible. The sellers accordingly treated the buyers as having wrongfully repudiated the contract. The market had collapsed in the interim and the sellers sued the buyers for damages in a sum in excess of US $6m.
The sellers claimed summary judgment under O.14 on the ground that the buyers had no arguable defence. Their summons came before Mr. Justice Hirst on 17th October 1986. He concluded that the buyers had an arguable case and gave unconditional leave to defend. He refused the sellers' application for leave to appeal.
The sellers applied ex parte for leave to appeal. This happened to come before me, and I adjourned the application to the full court, since it seemed to me to involve a relatively short point of law which I felt the sellers should have the opportunity of arguing on appeal. We heard Mr. Rix QC on the application for leave to appeal. We then gave leave to appeal. We then heard Mr. Pollock QC, on behalf of the buyers, and now give judgment on the sellers' appeal.
The facts are as follows. I deal first with the contractual exchanges between the parties, which were all by telex.
As I have said, the contract was concluded on 10th December 1985 and I refer to certain of its provisions.
"(E) Quantity. 600,000 net US barrels plus or minus an operational tolerance of 5 per cent at buyer's option.
(F) Price. At a unit price of US dollars 23.25 per net bill of lading US barrel, fixed and flat, fob Sullom Voe Terminal U.K.
(G) Payment……payment shall be secured by an irrevocable letter of credit to be opened on a form and content acceptable to seller by a first class international bank at least 10 days before the declared layday range.
…………
Payment shall be made against presentation of
(A) Original commercial invoice
(B) 3/3 full set original bills of lading
(C) Original certificate of quantity and quality
(D) Original certificate of origin and authenticity
In case documents B-D are not available at due date, payment will be effected against presentation of Document A"—(the invoice)—"and seller's standard letter of indemnity.
…………
(H) Delivery. To be lifted F.O.B. Sullom Voe Terminal in the North Sea during the month of April 1986 with tanker provided by buyer, subject to terminal acceptance. Seller to advise 3 day load range no later than 5 pm London business time 15 days prior to the first day of the said Laycan, meaning that on 1st day of the month seller may declare 16–18th as a three-day lifting range.
…………
(N) Law and Arbitration. This agreement shall be governed by and construed in accordance with the Laws of England. Any disputes hereunder shall be settled in the London High Court without recourse to arbitration".
On 16th December there was an amendment of the reference to the letter of indemnity at the end of paragraph (G) in the following terms:
"Seller's letter of indemnity to be countersigned by a first class bank and in a format acceptable to the buyer".
Events then turn to the performance period. On 25th March the sellers telexed the buyers as follows:
"Please confirm that you will perform under the above contract for our sale to you of 600,000 barrels for April lifting".
On 11th April the sellers nominated the loading range as follows:
"…..we declare three day load range April 27—29, 1986 for 600,000 barrels plus/minus 5 per cent Brent system crude against the above referenced transaction".
On the same day the sellers put forward the terms of the required letter of credit, as they were entitled, which also included a suggested letter of indemnity. I must refer to certain provisions of this telex.
"Please find following our irrevocable documentary letter of credit format which shall be opened in our favour through the Sanwa Bank Limited, London branch by 17.00 hours London time 17th April, 1986".
Being 10 days before the declared loading range, the date was in accordance with the contract.
The letter of credit went on to refer to the four documents, (A) to (D), which I have mentioned, here numbered 1 to 4. Then, under the heading "Special conditions", it included the following final paragraph (F):
"In the event that the original documents 2, 3 and 4 are not available on due date for payment, payment will be made against seller's commercial invoice and letter of indemnity countersigned by seller's bank in the following format".
There followed a proposed letter of indemnity. This was evidently in the sellers' own standard form, since it was wrongly addressed to the sellers, whereas of course it should have been addressed to the buyers. But I need not set out its terms.
In consequence of the amendment made to paragraph (G) of the original contract it was therefore open to the buyers either to accept this suggested form of letter of indemnity or to put forward their own wording. Moreover, if they wished to incorporate the text of the letter of indemnity into the letter of credit, as would certainly appear to be sensible, they could of course do so. But they then had to do so by 17th April, the latest date for opening the letter of credit. However, the buyers did nothing at all, despite several reminders from the sellers. I must refer to some of these.
On 15th April the sellers telexed as follows, referring to the earlier telex in which they had nominated the three day loading range:
"Under the terms of our contract the letter of credit in payment of this cargo is to be opened by your bankers no later than Thursday 17th April.
"It is vital that the letter of credit is opened together with firm vessel nomination by that date. Failure will be treated by us as a fundamental breach of the contract. Please ensure that the letter of credit will be opened as provided by our contract and confirm to us that this will be done".
On the following day there was a chaser asking for confirmation of the bank at which the letter of credit would be opened.
On the day after that, Thursday 17th April, the date when the letter of credit fell to be opened, the sellers telexed as follows:
"We ask you again at which bank you will open respective letter of credit today. Please revert urgently".
At 3.10 p.m. on the same day the sellers sent a further chaser concerning the letter of credit and again reminding the buyers of their obligations under the contract.
Finally, on the 17th, by now at 7.26 p.m. (all the times are London times; Geneva was one hour ahead) the sellers again telexed as follows:
"Please be aware that your firm vessel nomination/destination/documentation is due still today according to contract terms".
The contractual period for opening the letter of credit accordingly expired, despite all these communications from the side of the sellers, without any reaction whatever from the side of the buyers.
However, after the expiry of the stipulated time, on Friday 18th April the buyers came to life, but only in connection with the terms of the letter of indemnity which the sellers had put forward as part of the terms of the letter of credit. They telexed the wording of an alternative suggested letter of indemnity. Among other variations from the text suggested by the sellers, this included a provision for security to be given to the shipowners, if necessary, to procure delivery of the cargo against an indemnity if the bills of lading should still be unavailable. The telex ended as follows:
"On receipt of your acceptance of the above we will proceed with the opening of a letter of credit".
On the same day, at 7.37 p.m., the sellers responded. They said that they had considered this telex without prejudice to all their rights, which they expressly reserved, and went on as follows:
"We are prepared to agree…..to extend period for your opening letter of credit in our favour to London noon……time next Monday 21st April 1986 together with firm vessel nomination and documentary instructions".
They then went on to refer to the letter of indemnity which the buyers had put forward and suggested amendments to it in particular the deletion of the reference to security. The telex ended as follows:
"All Nichimen's rights under the contract and generally are expressly reserved, including the right to claim from you damages and all other losses suffered by Nichimen as a result of your failure to perform".
On Monday 21st April there were two telexes in the morning showing that the sellers were unsuccessfully trying to telephone the persons concerned on the buyers' side. On the same day the sellers telexed as follows...
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