Sinochem International Oil (London) Company Ltd v Mobil Sales and Supply Corporation
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MANCE,LORD JUSTICE THORPE,LORD JUSTICE KENNEDY |
| Judgment Date | 17 February 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0217-16 |
| Docket Number | Case No. QBCMI 99/1056/A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 February 2000 |
[2000] EWCA Civ J0217-16
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
The Honourable Mr Justice Longmore
QUEEN'S BENCH DIVISION (Commercial Court)
Royal Courts of Justice
Strand,
London, WC2A 2LL
lord Justice Kennedy Lord Justice Thorpe and
Lord Justice Mance
Case No. QBCMI 99/1056/A3
Mr Iain Milligan Q.C. and Mr Michael Ashcroft (instructed by Messrs. Watson, Farley, Williams) appeared on behalf of the Claimant
Mr Charles Hollander (instructed by Messrs. Norton Rose) appeared on behalf of the Defendants
This case raises a short point of construction under a one-off contract. The problem involved arises on the border between what the appellants submit is "commercial construction" (cf per Lord Steyn in Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749, 770G) and what the respondents say would be re-writing the parties' contract.
The contract under which the issue arises (which I will call "the London contract") was concluded on 29 th October 1998 following an exchange of telexes between Sinochem International Oil (London) Ltd. ("Sinochem London") and Mobil Sales and Supply Corporation ("Mobil Delaware") through its Singapore office. It was for the sale by Sinochem London of a quantity of crude oil f.o.b. Mena Al Bakr in November 1998. It was subject to "SOMO" conditions. It is common ground that (subject to any right of set off) a total of $10,529,131.99 became due by Mobil Delaware to Sinochem London on 10 th December 1998 (30 days after shipment). $2,348,369.18 was paid on 29 th December 1998, leaving $8,180,742.18.
Mobil Delaware submits that it is contractually entitled to set-off in extinction of its liability for this balance amounts allegedly due and unpaid under three other contracts ("the Hong Kong contracts"). The matter came before Longmore J. on an application by Sinochem London for summary judgment under CPR Part 24 and for determination of the proper construction of the London contract. He gave summary judgment in favour of Sinochem London for $8,180,742.18 with interest and costs.
The Hong Kong contracts were between Sinochem International Oil Co. Ltd. ("Sinochem Beijing") as buyer and Mobil Oil Hong Kong Ltd. ("Mobil Hong Kong") as seller. These contracts were made in February and March 1998, and provided for interest to be paid on sums unpaid. Under them, as is alleged though formally not admitted, the total price of $9,390,482.62 became due on 2 ndJune 1998. But only $549,827.88 was paid by Sinochem Beijing in that month. For present purposes, the assumption is that, with interest, the resulting balance outstanding under the Hong Kong contracts at all material times exceeded the balance which became due under the London contract with which we are directly concerned. Mobil Hong Kong pursued requests for payment of the balance by Sinochem Beijing on 8 th September, 12 November and 3 rd December 1998. Failing such payment, Mobil London asserted the alleged contractual set-off under the London contract. For good measure, Mobil Hong Kong has on 24 th March 1999 also assigned to Mobil Delaware all its rights and benefits under the Hong Kong contracts, but it is not suggested that this makes any difference to the issues before us.
The first of the telex exchanges which led to the London contract included in clause 8 provision that payment should be "without discount, withholding or setoff". In reply Mobil Delaware requested a number of amendments, including the incorporation as clause 18 of the following:
" Non-performance
All payments under this agreement shall be made without setoff or counterclaim and will not be subject to any conditions except as provided in the following:
Notwithstanding any other provisions of this or any other contract between the parties or their affiliates, in the event any party ("the non-performing party") shall (I) default in the payment or performance of any obligation to the other party under this or any other contract after two business days' notice of such failure, (II) become bankrupt or insolvent (however evidenced), or (III) be unable to pay its debts as they fall due, then in any such event, the other party ("the performing party"), shall have the right, in addition to, and not in limitation or exclusion of, any other rights which the performing party may have, (whether by agreement, operation of law or otherwise), to set off, counterclaim or withhold payment in respect of any default by the non-performing party or any affiliate of the non-performing party under this agreement or any other agreement between the parties or their affiliates, regardless in each case of the office or branch through which a party is acting, and the performing party's obligations hereunder to the non-performing party shall be deemed to be satisfied and discharged to the extent of such setoff, counterclaim or withholding.
'Affiliate' for the purposes of this agreement means a company which directly or indirectly controls, is controlled by, or is under common control with, a party hereto. For this purpose, 'control' means the right to exercise more than 50% of the voting rights at a shareholders' meeting."
The proposed amendments were agreed by Sinochem London on 29 th October 1998. It is accepted for the purposes of this application that Sinochem London and Sinochem Beijing were and are affiliates within the meaning of clause 18, and likewise Mobil Delaware and Mobil Hong Kong. I shall call the events identified in the early part of clause 18 events (I), (II) and (III).
One may perhaps be forgiven for speculating that clause 18 was drafted or requested by Mobil Delaware in the consciousness of sums outstanding under the Hong Kong contracts. However, neither party has asserted this, still less suggested that the Hong Kong contracts or any sums outstanding under them constituted background within the actual or assumed knowledge of both parties which could be relevant to the construction of the present contract. The speculation (which is all that it is) is irrelevant. There is also no suggestion that any unfair dealing was involved on Mobil London's part in the drafting or putting forward of clause 18. Its effect is a matter of construction in the light of its terms and general aim, so far as that is apparent in the light of the contract. The fact that Mobil London invokes clause 18 is however relied upon as justifying a narrow construction of the clause, if its meaning is ambiguous.
The judge succinctly summarised the rival contentions, as presented before him:
"Mr Milligan Q.C. in support of the Seller's claim for summary judgment submitted:-
(1) The words "any party ("the non-performing party")" in line 6 could only refer to a party to the actual contract of sale, not to "any party or the affiliate of any such party";
(2) similarly the words "the other party ("the performing party")" could only refer to the other party to the actual contract of sale;
(3) when the draftsman wanted to refer to an affiliate of either party to the contract, he did so in terms;
(4) the clause operated perfectly satisfactorily in that if the Seller owed money to the Buyer under the actual contract (e.g. by way of demurrage at the loading port), the Buyer could set that off against his liability for the price and if the Seller owed money to the Buyer under some other contract e.g. if he was a buyer under a separate contract of sale and the price was still outstanding, the Buyer under this contract could set off that liability against his own liability for the price;
(5) in either event, he could also set off any liability of an affiliate but there had first to be a default of the actual contracting party before that could happen; that would be particularly useful when one or more companies in the group were insolvent;
(6) any ambiguity should be construed against the Buyer who had proffered the clause.
Mr. Hollander Q.C., on behalf of the Buyer and opposing the application for summary judgment, submitted:-
(1) the purpose of the clause was to allow set off of an affiliate's liability;
(2) it was absurd to suppose that there had to be a double default by both the contracting party and the affiliate and, if that was what the clause appeared to say, that was not a natural meaning and could not have been the intention of the parties;
(3) the correct way to construe the provision was to treat the word "party" in line 6 as including "affiliate", as the main clause of the provision did in terms;
(4) this construction accorded with the purpose of the clause;
(5) even if this can be described as an "energetic interpretation" such energy has been sanctioned by the House of Lords in cases when the court is engaged in choosing between competing unnatural meanings, see Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1977] A.C. 749 and Investor Compensation Scheme Ltd. v West Bromwich Building Society [1988] 1 W.L.R. 896 especially at 913D-194G."
The judge went on to say that he preferred Mr Milligan's submissions. But he based this conclusion primarily on the words in clause 8 and the opening 26 words of clause 18, saying:
"But for cl.8 and the opening [26 words] of cl.18 there would be much to be said for Mr Hollander's submissions in the light of the fundamental change which has overtaken the Court's approach to construction in recent years to which Lord Hoffmann has alluded in the Investors Compensation Scheme case at p.912F."
In my view the judge's reasoning places too...
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