Rhine Shipping DMCC v Vitol S.A.
| Jurisdiction | England & Wales |
| Judge | Simon Birt |
| Judgment Date | 26 May 2023 |
| Neutral Citation | [2023] EWHC 1265 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2021-000186 |
[2023] EWHC 1265 (Comm)
Simon Birt KC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2021-000186
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Timothy Young KC and Patrick Dunn-Walsh (instructed by Rosling King LLP) for the Claimant
Paul Toms (instructed by MFB Solicitors) for the Defendant
Hearing dates: 7, 8, 13 March 2023
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on Friday 26th May 2023.
Simon Birt KC:
This dispute arises out of a voyage charter (“ the charter”) of the crude tanker Dijilah (“ the Vessel”) between the Claimant (“ Rhine”), as disponent owner, and the Defendant (“ Vitol”) as voyage charterer. Rhine's claim is for unpaid demurrage, which by the time of the trial had been agreed in the sum of US$3,010,427 and therefore was not the subject of any dispute, save by way of set-off of the counterclaim. The trial was therefore only concerned with Vitol's counterclaim, which is a claim for breach of the charter by way of delay to the Vessel in proceeding to one of the load ports (for which it is said Rhine was responsible under the terms of the charter). The counterclaim is for the sum of US$3,692,106.72 (plus interest).
The delay to the Vessel was the result of the arrest in Ghana, at the suit of third parties, of various items of property on board the Vessel. The arrest of the property resulted in the Vessel being detained for some days until security was posted. There is a dispute between the parties as to whether, under the terms of the charter, Rhine is liable for the consequences of the detention and the delay that followed.
The resultant delay in the loading of the Vessel at its next port, Djeno, in Congo, is said by Vitol to have caused it to pay an increased price to the seller of the cargo there loaded. It is that increase in the price that forms the central element of Vitol's claim against Rhine. In addition to issues on liability and causation, there were issues at trial as to the effect of certain of Vitol's hedging arrangements on the recoverability of loss and as to remoteness of loss.
The evidence at trial
The only witness of fact was Mr Jordan Smith, a commercial analyst at Vitol, who was called by Vitol. He gave evidence as to Vitol's internal risk management processes and how they were applied in this case. He explained the approach Vitol took to managing risk, including hedging, and how its internal system, known as Vista, was used to manage risk.
Mr Smith had tested positive for Covid-19 a day or two before he was due to give evidence. The parties agreed that the best way to deal with that in these circumstances was that Mr Smith give his evidence remotely via video-link, which took place without any difficulty. Mr Smith was a straightforward witness who did his best to assist the court in giving his answers.
At the start of the trial, Rhine had been seeking to adduce evidence from its own witness, Mr Surendra Gehlot (the managing director of another company called IKON Petroleum DMCC (“ Ikon”), which was said to be related to Rhine) but had filed his statement only shortly before trial and therefore required permission to rely upon it and to call Mr Gehlot. Vitol objected to this late evidence and, during the course of the opening submissions (after Mr Toms, who appeared for Vitol, confirmed that Vitol was not as part of its case on remoteness of loss running any case based on knowledge of special circumstances under the second limb of Hadley v Baxendale), Rhine withdrew its application to rely upon it. Mr Gehlot therefore did not give evidence and his statement formed no part of the evidence at the trial.
Each party adduced expert evidence from experts in the field of oil trading (including hedging) to deal with two issues: (i) whether on-selling on the pricing terms used by Vitol for the cargo was unusual and (ii) the nature and effect of any hedging arrangements that Vitol had for the cargo, including whether their effect was to reduce any loss to Vitol resulting from the delay to the Vessel.
Rhine's expert was Mr Max Beckett, a partner at CJH Experts Ltd, with over 25 years of experience in the oil industry, having held senior management roles at several global oil traders. His experience includes oil trading, including managing the risks associated with trading, and he has developed and implemented complex price risk management and other hedging strategies.
Vitol's expert was Ms Liz Bossley, an oil markets trading consultant with over 45 years trading experience. She is CEO of the Consilience Energy Advisory Group Ltd (which she founded), a consultancy specialising in the physical oil and derivatives markets and associated activities, including oil transportation and refining.
The two experts were both obviously knowledgeable and experienced in their field, and both produced useful reports and, together, a helpful Joint Memorandum. They reached a considerable measure of agreement in their Joint Memorandum, for which they are to be commended.
Both were cross-examined, which process reinforced to a large extent the common ground between them. I deal below, when discussing Vitol's hedging arrangements, with their evidence in further detail.
Factual background
The charter was for the carriage of a cargo of min 260,000MT crude oil from 1/2 port(s) West Africa (Ghana-Angola range) to 1/3 port(s) Far East Singapore-Japan range. The second cargo was loaded at Djeno (“ the Djeno cargo”) and was the subject of purchase and sale contracts entered into by Vitol before it had entered into the voyage charter. The loss claimed by Vitol that is in issue in this case arises from the terms of those contracts.
The purchase and sale contracts for the Djeno cargo
On 3 March 2020, Vitol (as sellers) concluded a contract to sell 920,000 barrels of Djeno crude to Vitol Asia Pte Ltd (“ Vitol Asia”), CIF Qingdao China, with an estimated arrival period of 20 – 31 May 2020 (“ the Vitol Asia contract”). The sale price was agreed as the average of the settlement quotations for July-20 ICE Brent (ICE Index), for quotations between 27 – 28 May 2020, plus USD2.60 per BBL. This was therefore referable to the date of arrival for discharge, not the bill of lading date. In trading terms, Vitol were “short” at this point.
Subsequently, Vitol entered into (as buyers) a contract for the purchase of the Djeno cargo with TOTSA Total Oil Trading SA (“ TOTSA”) dated 26 March 2020 (“ the TOTSA contract”), which incorporated the Total General Terms and Conditions for FOB sales of Crude Oil, 2007 edition (“ the Total GTCs”). Under Section VII.2 of the Total GTCs, Vitol was obliged to ensure that the Vessel arrived at Djeno for loading within the period 9–10 May 2020 (the “ Vessel Presentation Range”), and under Section VII.6, TOTSA was entitled to an indemnity from Vitol in respect of a breach of Section VII.2.
The TOTSA contract was amended on 2 April 2020 to revise the Vessel Presentation Range to 5–6 May 2020. (The TOTSA contract was amended again on 6 April 2020 in relation to the test of quality and quantity, though that is not material to the issues in dispute).
The price payable by Vitol under the TOTSA contract was determined by the bill of lading date for the Djeno cargo. The price was the average of the mean quotations published in the Platts Crude Oil Marketwise under the heading Brent Dated, based on the average of the first five quotations published after the bill of lading date, minus a discount of US$4 per BBL.
The pricing terms of the TOTSA contract and the Vitol Asia contract were, therefore, different, in that (i) they were based on different pricing indices ( Brent Dated vs ICE Index), and (ii) those indices were referable to different times, respectively, the bill of lading date and the deemed discharge arrival period.
The charter
The charter was dated 27 March 2020 and, as mentioned above, was for the carriage of a cargo of crude oil from West Africa to the Far East. It was on an amended BYVOY4 form, amended Vitol Voyage Chartering Terms 2006 and additional clauses.
The charter had a cancelling date of 30 April 2020, referable to the first loading port in Ghana. It did not contain any stipulation as to time for the arrival or loading at Djeno for the second parcel.
It contained the following terms on which Vitol's claim is founded:
(1) “OWNERS REPRESENT AND WARRANT
THAT AT THE TIME OF AND IMMEDIATELY PRIOR TO FIXING THE CHARTER, THE VESSEL, OWNERS, MANAGERS AND DISPONENT OWNERS ARE FREE OF ANY ENCUMBRANCES AND LEGAL ISSUES THAT MAY AFFECT VESSEL'S APPROVALS OR THE PERFORMANCE OF THE CHARTER.” (The “ warranty”).
(2) “13. Third Party Arrest
In the event of arrest/detention or other sanction levied against the vessel through no fault of Charterer, Owner shall indemnify Charterer for any damages, penalties, costs and consequences and any time vessel is under arrest/detained and/or limited in her performance is fully for Owner's account and/or such time shall not count as laytime or if on demurrage, as time on demurrage.” (“ Clause 13”).
The voyage
Vitol ordered the Vessel to load first at Offshore Cape Three Points (in Ghana) and then at Djeno (in Congo). The Vessel tendered a valid Notice of Readiness (“ NOR”) at Cape Three Points on 29 April 2020.
On 30 April 2020, various third parties, by an order of the Ghanaian Court, arrested the Vessel's bunkers and stores in connection with a dispute between those third parties and Al-Iraqia...
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