South Caribbean Trading Ltd v Trafigura Beheer BV

JurisdictionEngland & Wales
JudgeMr Justice Colman
Judgment Date22 November 2004
Neutral Citation[2004] EWHC 2676 (Comm)
Docket NumberCase No: 2001 FOLIO 822
CourtQueen's Bench Division (Commercial Court)
Date22 November 2004

[2004] EWHC 2676 (Comm)

IN THE HIGH COURT OF JUSTICE

COMMERCIAL COURT

QUEEN'S BENCH DIVISION

Before:

The Honourable Mr Justice Colman

Case No: 2001 FOLIO 822

Between:
South Caribbean Trading Ltd ("SCT")
Claimant
and
Trafigura Beheer BV
("Trafigura")
Defendant

Mr Adam Fenton QC and Mr Robert Bright (instructed by Messrs Fishers) for the Claimant

Mr Andrew Baker (instructed by Messrs Waterson Hicks) for the Defendants

Hearing dates: 14–20 and 29 July 2004

Judgment Approved by the court for handing down

(Subject to editorial corrections)

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.

Colman J.

Mr Justice Colman

Introduction

1

This judgment is in respect of a number of preliminary issues going to liability arising out of a claim by South Caribbean Trading ("SCT") for breach by Trafigura Beheer NV ("Trafigura") of a contract dated 3 November 2000 under which SCT agreed to sell to Trafigura 484,000 US barrels plus or minus 5 per cent of fuel oil. The underlying issue is whether, as Trafigura contend, SCT was obliged to deliver to Trafigura only fuel oil derived from a quantity of 350,000 US barrels of wet fuel oil blendstock ("WFOBS") which also on 3 November 2000 SCT had agreed to sell to Trafigura and which on the same date SCT had agreed to re-purchase from Trafigura together with 134,000 US barrels of cutter. SCT maintain that they were entitled to treat their agreement to sell 484,000 barrels to Trafigura as an engagement insulated from their other agreements of 3 November 2000 to sell and re-purchase WFOBS and to purchase cutter from Trafigura.

2

When on or about 23 March 2001 SCT informed Trafigura that they intended to deliver fuel oil which they were going to buy in as distinct from fuel oil derived from WFOBS and cutter purchased from Trafigura, the latter refused to accept delivery and SCT claims to have accepted Trafigura's refusal as a repudiation of the contract on about 24 March 2001.

3

The preliminary issues are set out in an order of Moore-Bick J. dated 25 June 2004 and are as follows, references to Contract 5536 being to SCT's agreement to sell fuel oil to Trafigura and to Contract 3508–2 being to SCT's agreement to purchase WFOBS and cutter from Trafigura, to which I have referred.

"(1) whether SCT was entitled and obliged to deliver under contract 5536 fuel oil created only from products delivered to SCT under contract 5508–2 or whether it was also entitled to deliver under contract 5536(i) fuel oil created from a mixture of products delivered under contract 5508–2 and other product (ii) fuel oil bought in and not created using the products delivered under contract 5508–2 at all (assuming in each case that the fuel oil otherwise conformed in quality and quantity to contract 5536);

(2) whether the last date for delivery under contract 5536 was varied to become 30 June or 30 April 2001, or whether Trafigura is estopped from asserting that the last date for delivery was 31 March 2001 and/or from denying that the last date for delivery was 30 June or 30 April 2001;

(3) whether the last date for delivery under contract 5536 was extended (and if so until when) under clause 7 or clause 13 of the contract;

(4) (subject and without prejudice to any question whether SCT could have performed contract 5536, if relevant) whether (a) Trafigura wrongfully repudiated contract 5536 and if so (b) whether that repudiation was accepted by SCT."

4

It is common ground that the answer to question (3) is No.

5

The sale and purchase agreement in question, numbered 5536 ("Contract 5536") provided as follows.

The buyer was described as Trafigura Beheer BV (Amsterdam) with a Branch Office address at Lucerne, Switzerland. The seller was described as South Caribbean Trading Ltd with an address in The Bahamas. All the relevant negotiations relating to this contract were conducted from Trafigura's London office by Mr Mark Loveland, who has given evidence in the course of this trial, and by Mr Fernando Marquez in The Bahamas who owns and controls SCT who has also given evidence.

6

By clause 3 the product was described as Fuel Oil.

7

By clause 4 the quality was defined in the usual manner for such contracts by reference to guaranteed maxima or minima for named contents (such as sulphur and water) or characteristics (such as viscosity and flashpoint) together with a set of typical as distinct from guaranteed figures and the agreed test method to be used.

8

Clause 4 further provided:

"PRODUCT MUST NOT CONTAIN PETROCHEMICAL RESIDUES OR SPENT CHEMICALS INCUDING BUT NOT LIMITED TO CAUSTICS AND ACIDS.

GOODS MUST BE OF MERCHANTABLE QUALITY, HOMOGENOUS AND FIT FOR INTENDED PURPOSE.

QUALITY SHALL BE DETERMINED BY INDEPENDENT INSPECTORS DRAWING A FULLY REPRESENTATIVE COMPOSITE SAMPLE OF EACH TANK (TANKS 8026, 8036, AND/OR ANY OTHER DEEMED TANKS), RESULTS TO BE FINAL AND BINDING SAVE FRAUD AND MANIFEST ERROR.

IN THE EVENT THAT BOTH PARTIES MUTUALLY AGREE TO ALTERNATIVE BLEND QUANTITIES AND QUALITIES AS DESCRIBED IN CONTRACT 5508–2 RESULTING IN DIFFERING QUALITY TO THOSE DESCRIBED ABOVE THEN CLAUSE 10 OF THIS CONTRACT TO APPLY."

9

The reference to numbered tanks is a reference to tanks located at the tank farm of the Bahamas Oil Refining Company ("BORCO") at Freeport, Bahamas. BORCO is a subsidiary of Petroleos de Venezuela SA ("PDVSA").

10

Further material terms were as follows:

"5.QUANTITY:

484,000 US BARRELS PLUS OR MINUS 5(FIVE) PER CENT OPERATIONAL TOLERANCE NET OF WATER AND SEDIMENT ABOVE 0.50% AT 50 DEG FAHRENHEIT. QUANTITY IS TO BE NET OF ANY TANK HEELS AND/OR NON-PUMPABLE PRODUCT AS PER BORCO'S ASSESSMENT AND CONFIRMED BY INDEPENDENT INSPECTOR.

6

DELIVERY:

BY IN TANK TRANSFER AT BORCO TERMINAL, FREEPORT, BAHAMAS TO BE DELIVERED NO LATER THAN MARCH 31, 2001.

EXACT NARROWED DATES TO BE MUTUALLY AGREED.

SELLER (SCT) IS TO CONFIRM TO BUYER (TRAFIGURA) BY LATEST 15 DECEMBER, 2000 THAT THE FUEL OIL IS CONFIRMED ON SCHEDULE TO BE DELIVERED BY NO LATER THAN 31 MARCH, 2001.

7

LIFTING/STORAGE

MATERIAL DELIVERED VIA IN-TANK TRANSFER TO BE FULLY SEGREGATED AND FOR THE SOLE ACCOUNT OF BUYER. SELLER TO PAY FOR STORAGE.

IF BUYER DOES NOT REMOVE OR TRANSFER THE PRODUCT PURCHASED UNDER THIS CONTRACT IN A TIMELY MANNER, OR OTHERWISE IMPEDES SELLER IN THE PERFORMANCE OF SELLER'S BLENDING PROGRAM, THEN SUCH DELAY WILL AUTOMATICALLY EXTEND THE TIME ALLOWED FOR THE SELLER TO COMPLETE ITS BLENDING, AND NO CLAIM WILL BE PERMITTED AGAINST THE PERFORMANCE BOND (CONTRACT 5508–1, CLAUSE 10) AS A RESULT OF SAID DELAYS. IF THE BORCO FACILITY EXPERIENCES EQUIPMENT PROBLEMS, INCLUDING BUT NOT LIMITED TO PUMPS, TANKS OR BOILERS, WHICH DELAY SELLER'S ABILITY TO BLEND, SUCH TIME DELAYS WILL ALSO AUTOMATICALLY EXTEND THE TIME ALLOWED FOR THE SELLER TO COMPLETE ITS BLENDING AND NO CLAIM WILL BE PERMITTED AGAINST THE PERFORMANCE BOND (CONTRACT 5508–2, CLAUSE 10) AS A RESULT OF SAID DELAYS.

IN THE EVENT OF SUCH DELAY OR EQUIPMENT PROBLEMS, SELLER (SCT) TO PROVIDE FULL DOCUMENTARY EVIDENCE OF SUCH DELAY OR EQUIPMENT PROBLEMS."

11

The price of the fuel oil was to be calculated under clause 8 in the following manner:

8. PRICE :

THE PRICE IN US DOLLARS BY IN TANK TRANSFER AT BORCO SHALL BE DETERMINED BY THE RATIO OF FUEL OIL BLENDSTOCK TO CUTTER AS FOLLOWS:

BBLS OF CUTTER X CUTTER PRICE + BBLS OF FUEL OIL BLENDSTOCK X USD 12.75/(CUTTER BBLS + FUEL OIL BLENDSTOCK BBLS)

THE INVOICING QUANTITY SHALL BE BASED ON A BORCO ENTITLEMENT EXCHANGE OF THE NOMINATED TANKS NET OF TANK HEELS AND/OR NON-PUMPABLE PRODUCT WHICH IS TO BE CONSISTENT WITH THE GAUGING OF SAME BY AN INDEPENDENT INSPECTOR SAVE MANIFEST FRAUD AND ERROR.

IN THE EVENT OF ANY VARIATION IN THE BLEND RATIOS AS STIPULATED IN CONTRACT 5508–2, ADJUSTMENTS ARE TO BE MADE WITH REFERENCE TO CLAUSE 10."

12

Payment was to be effected 30 days after the date of title transfer as evidenced in BORCO entitlement transfer certificates and was to be by letter of credit in accordance with clause 9 which provided:

"BUYER (TRAFIGURA) IS TO OPEN LETTER OF CREDIT TO SELLER (SCT) IN FORMAT ACCEPTABLE TO SELLER (SCT) BY 8 NOVEMBER 2000 (WORDING TO FOLLOW). BUYERS (TRAFIGURA) LETTER OF CREDIT TO REMAIN INOPERATIVE UNTIL SELLER (SCT) HAS OPENED LETTER OF CREDIT AS PER CONTRACT NO. 5508–2. UPON ISSUANCE OF LETTER OF CREDIT ACCEPTABLE TO SELLER (TRAFIGURA) UNDER CONTRACT NO. 5508–2, THE LETTER OF CREDIT ISSUED IN ACCORDANCE WITH THIS CONTRACT SHALL BECOME AUTOMATICALLY OPERATIVE.

13

Amongst the documents which had to be presented by the sellers in order to obtain payment was a BORCO entitlement exchange certificate in the same format as had been agreed under a previous deal dated 26 May 1999 together with other documents including

"COPY OF SELLERS WRITTEN INSTRUCTION TO BORCO EVIDENCING SELLER'S REQUEST TO TRANSFER TITLE OF THE FUEL OIL TO [ISSUING BANK] FOR ACCOUNT OF TRAFIGURA BEHEER BV AMSTERDAM"

14

The format specified in the contract consisted of an instruction by SCT to BORCO to issue to Trafigura a certificate that title to a specified quantity of fuel oil would be transferred for value on a specified date. There was an agreed format of BORCO's certificate that SCT had title to a specified quantity of fuel oil as found in a specified tank or one to be named or a substitute tank.

15

Clause 10 provided as follows:

"IN THE EVENT THAT BOTH PARTIES MUTUALLY AGREE TO AN ALTERNATIVE QUALITY AND QUANTITY OF FUEL OIL TO BE PROVIDED BY THE SELLER SUCH AGREEMENT IS TO TAKE THE FORM OF AN ADDENDUM TO THIS CONTRACT WHICH WILL DESCRIBE THE RELEVANT ADJUSTMENT IN PRICE, QUANTITY AND QUALITY."

16

The passing of title and risk was provided for in clause 11:

TITLE TO AND RISK OF LOSS OF THE PRODUCT DELIVERED HEREUNDER...

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