OMV Petrom SA v Glencore International AG
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux,MR JUSTICE FLAUX |
| Judgment Date | 13 March 2015 |
| Neutral Citation | [2015] EWHC 666 (Comm) |
| Docket Number | Case No: 2008 Folio 417 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 March 2015 |
[2015] EWHC 666 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane, London, EC4A 1NL
The Honourable Mr Justice Flaux
Case No: 2008 Folio 417
Mr Duncan Matthews QC, Mr Andrew Fulton & Mr Luke Pearce (instructed by Withers LLP) for the Claimant
Mr Richard Southern QC & Mr Fionn Pilbrow (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 20–22, 26–29 January, 2–4 and 10–12 February 2015
Introduction and background
This case concerns a fraud committed many years ago by the defendant, formerly known as Marc Rich & Co AG (which became Glencore International AG in 1994 and to which I will refer as "Glencore" save where the context requires otherwise) upon the claimant (to which I will refer as "Petrom"). Petrom is a Romanian oil company which, following corporate reorganisations, is the successor in title of two other Romanian oil companies SC Rafirom SA ("Rafirom") and SC Compania Romana de Petrol SA ("CRP"). Rafirom and then CRP after merger in about 1996, was the state owned company with overall responsibility for the import and refining of crude oil and export of petrochemical products in Romania. In 2004, the merged company was privatised and became Petrom.
Prior to 1999, the actual importation of crude oil was organised by another state owned company Petrolexportimport SA ("Petex"). Petex entered all contracts with third parties for the supply of crude oil as principal, but at all material times it was acting as a commission agent for Rafirom/CRP pursuant to a series of Foreign Trade Agreements. Payment for crude oil under contracts with third parties was made by Rafirom/CRP pursuant to letters of credit opened with Banco Romana de Comert Exterior SA ("Bancorex") or another Romanian bank. Although it was sometimes Petex (as opposed to Rafirom/CRP) which instructed the bank to open the letter of credit, Petex did so as agent for Rafirom/CRP and Petex was not entitled to open a letter of credit in respect of any contract without the permission of Rafirom/CRP. Contracts with third parties for the supply of crude oil were usually made on CIF Constantza terms and when, under the terms of those contracts, title and risk passed to Petex, pursuant to the Foreign Trade Agreements (for example Article V(2) of the 1992 Agreement), title and risk passed simultaneously to Rafirom/CRP. Also pursuant to the Foreign Trade Agreements, Petex's remuneration for acting as commission agent was 0.2% of the CIF value of the relevant cargo.
In the period with which this case is concerned, 1993 to 1996, crude oil was being imported in accordance with the requirements of the refineries in Romania pursuant to programmes laid down by the Government, although it is fair to say that difficulties experienced by Romania in obtaining foreign currency from time to time in that period meant that the actual importation of crude oil was more haphazard than the programme might suggest. Again, on occasion, the needs of the refineries were such that Petex had to obtain cargoes of crude oil at short notice. Cargoes of crude oil were discharged at Constantza into the storage facilities of Oil Terminal Constantza, which had eight storage tanks of 50,000 cubic metres each. Imported crude oil was used by four of the ten Romanian refineries, Petromidia, Petrotel, Arpechim and Rafo. The Petrobrazi refinery also seems to have used some imported crude oil, but not any with which this case is concerned. It also had a processing plant for processing domestic crude oil. The other refineries were smaller and processed only domestic crude oil. The imported crude oil was sent to the four refineries through pipelines running from the oil terminal at Constantza to the refineries inland.
During the relevant period, 1993 to 1996, the crude oil imported by Petex for use in the four refineries was principally (but not exclusively) of three grades or types, Iranian (mainly Iranian Heavy although sometimes Iranian Light), Gulf of Suez Mix ("GOSM") a recognised blend of various Egyptian crudes and Urals (Russian crude oil from the Urals also known as Soviet Export Blend) because these were medium heavy/medium sweet crudes which suited the technological profile of the refineries. During this period, Petex entered into supply contracts with a number of oil trading companies (and occasionally direct with the Iranian and Egyptian state oil companies, NIOC and EGPC respectively). About 25% of the crude oil it contracted for was supplied by Glencore. Petex had a long standing trading relationship with Glencore dating back to the foundation of the company by Marc Rich himself in the 1970s.
In the years 1993 to 1996, Glencore made about 80 shipments to Petex of crude oil principally pursuant to contracts calling for the supply of Iranian Heavy, GOSM or Urals (sometimes the relevant contract was for supply of a specific grade, sometimes it gave Glencore the option as to which grade to supply). In addition, in 1995 and 1996, Glencore made over 60 shipments of some 3,500 tons each of Keimir crude oil from the Caspian Sea region which was brought in barges downriver to the Black Sea and then along the coast to Constantza. The court is not concerned with those cargoes, save to the extent that Petrom relies upon the price paid as demonstrating a discount payable for new grades of crude oil, a matter to which I return in more detail later. It will also be necessary to examine in more detail below, a contract for the supply of a cargo described as "Egyptian Blend" ex SEAWIND II, supplied to Petex in February 1993.
Of the 80 or so other shipments made by Glencore to Petex, there were 32 where, although the supply contracts provided for the supply of Iranian Heavy (in the case of cargoes 1 to 14) or GOSM (in the case of cargoes 15 to 31 1), the crude oil supplied by Glencore was not in fact Iranian Heavy in the case of the first fourteen such cargoes (delivered at Constantza between August 1993 and September 1994) or GOSM in the case of cargoes 15 to 31 (delivered at Constantza between November 1994 and November 1996). Instead the crude oil supplied was in each case a blend of various crude oils blended on behalf of Glencore by the Eilat Ashkelon Pipeline Company ("EAPC") at its storage facility in Ashkelon, Israel. The crudes used in the blends were predominantly Egyptian but not always so and, in the case of the purported GOSM cargoes, contained substantial quantities of Marib, a Yemeni crude oil or Oso, a Nigerian crude oil. The blends were all bespoke and were never identical in terms of the constituent crude oils in the recipe or their quantities or proportions, but the object of the exercise was evidently to create crude oil which resembled Iranian Heavy or GOSM respectively. Although Glencore has not vouchsafed any evidence as to the actual costs of either the purchase of the various crude oil constituents or of the blending exercise, it is a fair inference that the cost overall was less in each case than the CIF Constantza price for Iranian Heavy and GOSM which Glencore charged Petex, so enabling Glencore to make a greater profit than it would otherwise have done.
It is common ground in these proceedings that the actual composition of each of the cargoes was as set out in so-called Table B, at Annex 1 to the Amended Particulars of Claim, reproduced as an Appendix to this judgment. Presumably the information in the Table, which I was told was available in the arbitration between Petex and Glencore ten years ago (to which I refer in more detail below) came at some stage from EAPC, but there is no evidence about how readily available the information about what the recipe had been for any particular cargo would have been at the time the cargo was loaded or delivered at Constantza save in relation to some of the later cargoes (for example cargo 29) where EAPC wrote to Glencore providing the composition of the blends. That information was never passed to Petex at the time.
All the cargoes were loaded at Ashkelon on board vessels chartered or operated by Glencore. In each case Glencore created or caused to be created a suite of false documents which were designed to give the impression (and did give the impression) to those in Romania who received and acted upon them that the cargo in question was in each case Iranian Heavy or GOSM. In particular, in the case of claim cargoes 1 to 14, bills of lading were issued at the behest of Glencore which falsely described the cargo as Iranian Heavy save in one case (claim cargo 4) where the bill of lading described the cargo as Iranian Heavy Blend. On some occasions the bill of lading originally issued described the cargo as "Iranian Heavy Blend", but Glencore stopped the vessel in the Bosphorus to substitute replacement bills which described the cargo falsely as Iranian Heavy and it was these replacement bills which arrived in copy with the vessel in Romania and the originals of which were in due course presented to the bank which had provided the letter of credit.
In the case of the purported GOSM cargoes, the shipping documents (including the bills of lading) described the cargo as "Gulf of Suez Crude Oils Blend" but in the certificates of conformity and commercial invoices Glencore issued, it described the cargo as GOSM, as it did in the letters of indemnity provided to banks which had issued letters of credit where original shipping documents were not yet available. Accordingly, Glencore clearly intended that Petex, Rafirom and the banks should regard the descriptions "Gulf of Suez Crude Oils Blend" and "Gulf of Suez Mix" as interchangeable.
However, as between Glencore and EAPC, "Gulf of Suez Crude Oils Blend" was clearly a term of art to distinguish...
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