Palmali Shipping SA v Litasco SA
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 01 October 2020 |
| Neutral Citation | [2020] EWHC 2581 (Comm) |
| Date | 01 October 2020 |
| Docket Number | Case No: CL-2017-000458 |
| Court | Queen's Bench Division (Commercial Court) |
[2020] EWHC 2581 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Foxton
Case No: CL-2017-000458
John Russell QC, Jessica Wells and Fiona Whiteside (instructed by Lax & Co LLP) for the Claimant
Charles Béar QC and Tom Bird (instructed by Debevoise & Plimpton LLP) for the Defendant
Hearing dates: 24 and 25 September 2020
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.
INTRODUCTION
This judgment follows the hearing of a number of applications in an action in which the claimant (“Palmali”) currently seeks damages of c.US$1.9 billion under what it contends was a long-term contract of affreightment (“the COA”) with the defendant (“Litasco”, a subsidiary of the Russian oil company Lukoil).
The applications which arose for determination were:
i) Litasco's application for reverse summary judgment in relation to Palmali's claim for lost profits.
ii) Palmali's application for permission to re-amend its Particulars of Claim.
iii) Litasco's application for specific disclosure and
iv) Litasco's application for further information.
I issued rulings on iii) and iv) above in the course of the hearing. This judgment sets out my decision on i) and ii).
BACKGROUND
The facts in this case are hotly disputed, and for present purposes it is sufficient to set out the principal contentions of the parties, and the history of the litigation.
In summary, Palmali contends that the COA gave it the exclusive right to carry oil products to be shipped by Litasco between various ports in the Caspian Sea/Black Sea/Mediterranean range up to a total monthly volume of 700,000 mt/month (“the Exclusivity Obligation”), and obliged Litasco to ship a minimum monthly quantity of 400,000 mt (“the Minimum Quantity Obligation”). Palmali contends that the COA was originally for a period of 10 years, but that the parties agreed to extend it for a further 5 years.
Litasco denies that the COA was enforceable, pointing to what it says are a series of commercially implausible features of the arrangement. If it was ever binding, Litasco denies that it was extended. There are also issues as to the correct construction of the provisions of the COA, and as to whether the COA was varied or waived, or Palmali is estopped from contending otherwise.
Palmali commenced proceedings in July 2017, and a 5–7 week trial of both liability and quantum was listed for June 2020. That trial was adjourned by consent, and refixed for February 2021. Both sides accept that this date is no longer viable – an issue to which I return later in this judgment.
Following supplemental disclosure by Palmali, issues arose as to the basis on which Palmali had pleaded its claim for damages which led to Litasco's reverse summary judgment application which is dealt with below. In addition, an issue emerged between the parties as to whether Palmali had in fact pleaded a claim for damages of the Minimum Quantity Obligation. That issue was determined against Palmali by HHJ Pelling QC at a reconvened CMC on 5 June 2020, and is presently subject to an application for permission to appeal.
Palmali's ultimate owner and principal witness, Mr Mansimov, was arrested and imprisoned in Turkey, and it now appears unlikely that he will be able to give evidence at the trial. At a hearing on 15 July 2020, HHJ Pelling QC held that the trial should proceed as scheduled.
PALMALI'S PLEADED CLAIM
In its current form, Palmali's Particulars of Claim pleads:
i) The existence of the Exclusivity and Minimum Quantity Obligations.
ii) The 10-year duration and alleged 5-year extension of the COA.
iii) That Litasco breached the Minimum Quantity Obligation, although the pleaded breach conflates the two obligations (referring to an obligation “to provide minimum monthly quantities of the Cargo of between 400,000 and 700,000 mt”).
iv) That Litasco breached the Exclusivity Obligation.
v) A claim for loss and damage in the amount of the loss of the profit which Palmali “would have achieved if Litasco had provided up to 700,000 mt of Cargo per month”.
vi) Quantification of the damages claimed on the basis of the following calculation:
a) taking the “actual quantity of Cargo shipped”;
b) using “actual revenue earned” to calculate “the gross revenue per ton of the Cargo actually shipped”;
c) taking the volume of Cargo if 700,000 mt/month had been shipped (i.e. assuming that there was in fact 700,000mt being shipped by Litasco per month which would have been shipped under the COA if the Exclusivity Obligation had been complied with);
d) calculating the difference between the quantities in a) and c);
e) using the “gross revenue” figure in b) to calculate an alleged loss of revenue on the figure in d);
f) calculating what is said to be “the average percentage profitability for each year after deduction of expenses incurred in earning the actual revenue” (a percentage of just over 70%); and
g) applying the “average percentage profitability” in f) to the alleged loss of revenue in e) to arrive at the loss of profit claim.
So far as the figure in f) is concerned, a distinction is drawn between “third party vessels” and so-called “own fleet” vessels:
i) for the former, the expenses deducted include the costs which Palmali says it would have incurred in chartering vessels from third parties to carry the additional volumes of Cargos and any demurrage payable to those third parties (in addition to bunkers and port charges); and
ii) for the latter, only port expenses and bunkers are deducted (i.e. it is assumed that Palmali would not itself have to pay any freight or hire in respect of the vessels which would have been used to carry the additional quantities of Cargo or pay demurrage for those vessels).
For the purposes of the discussion which follows, I am going to focus on the issue of freight rather than demurrage, which is the more significant source of revenue deriving from the employment of vessels under the COA.
THE SUMMARY JUDGMENT APPLICATION
The nature of the summary judgment application
Litasco does not seek summary judgment on the issue of whether any and if so what obligations were owed under the COA, nor as to whether the Minimum Quantity and Exclusivity Obligations were breached. Nor does it seek summary judgment on the basis that Palmali has suffered no recoverable loss (indeed Litasco accepts the possibility that a very much smaller loss might, if other elements of the claim are established, be recoverable). Instead it seeks summary judgment on the current quantification of Palmali's loss of profit claim.
CPR 24.2 allows summary judgment “on the whole of a claim or on a particular issue”. I see no reason why the particular means of quantifying a damages claim cannot constitute “a particular issue”. In any event, if that formulation of the case is hopeless, the Court clearly has power to strike it out rather than allow costs to be incurred in addressing it (under CPR 1.4(2)(c) and 3.4 if necessary) and Litasco seeks such relief in the alternative. The effect of striking out (or summarily determining) the pleaded quantification of a claim for damages for breach of contract is not, however, to determine the claim for damages altogether. Rather, it will put the claimant in the position where it will need to amend its Statements of Case to advance a viable claim, and to satisfy the requirements for obtaining permission to amend in order to do so. The precise form of any order necessary to give effect to any determinations I make is best addressed in the course of consequential submissions.
The matters giving rise to the summary judgment application
I can set out the matters giving rise to the summary judgment application shortly, because there was little dispute as to the overall position:
i) As noted above, Palmali's loss of profit claim in respect of voyages which would have been performed using “own fleet” vessels (in contrast to “third party” vessels) assumes that Palmali would not have incurred any expenses in chartering in the vessels which would have been used to carry the additional cargos.
ii) As a result of enquiries made and rightly pressed by Litasco after reading annual reports relating to the Palmali group, Palmali eventually disclosed a series of Ship Management Agreements (“SMAs”) on a BIMCO standard form between it and various ship-owning companies which were in the same beneficial ownership as Palmali. I will refer to the one-ship companies which were in related ownership to Palmali as “the owning companies”.
iii) Each SMA states that Palmali will “provide the commercial operation of the vessel” including “providing chartering services in accordance with Owners' instructions”. Those services include “the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the vessel”.
iv) Under the SMA, the owning company authorised Palmali “to draw up, to issue and to sign … COAs” and “to collect and remit to their accounts freights, demurrages, dispatches and all other due payments”.
v) The SMA provided that “subject to the terms and conditions herein provided, during the period of this Agreement, the Managers shall carry out Management Services in respect of the Vessels as agents for and on behalf of Owners”.
vi) The SMA...
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Palmali Shipping SA v Litasco SA
...application for permission to re-amend the Particulars of Claim, which are set out in my judgment of 1 October 2020 reported at [2020] EWHC 2581 (Comm). At that hearing (“the Summary Judgment Hearing”), I held that the basis on which Palmali had quantified its damages claim, in the sum of ......