Vitol S.A. v Beta Renowable Group S.A.

Hearing dates: 27 and 28 June 2017

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 is a contractual dispute between Vitol SA ("Vitol"), a major oil trader, and Beta Renowable Group SA ("Beta"), a manufacturer of biofuel products. Vitol agreed to buy and Beta agreed to sell and deliver 4,500 metric tonnes ("mt") of a type of biofuel (ISCC-EU T2 UCOME (Used Cooking Oil Methyl Ester)) ("the biofuel").

Vitol claims that in breach of contract Beta indicated in early to mid-June 2016 that it would be unable to provide the biofuel in accordance with its obligations. Vitol accepted such repudiatory and/or renunciatory breach by failing to nominate a vessel (by midnight on 27 ^th June 2016). It also sent a notice of contractual termination by email of 7 ^th July 2016. Vitol trades in US dollars and claims US$651,240, based on losses calculated by reference to its hedging activities, alternatively US$351,830.25, based on market value, by way of damages.

Beta accepts that it acted in renunciatory breach of contract as alleged but denies that Vitol accepted that breach by failing to nominate. That failure was a mere oversight; in any event the failure did not amount to clear and unequivocal conduct conveying to Beta that Vitol was treating the contracts as at an end. Instead, Vitol's failure to nominate relieved Beta of its obligation to deliver. Vitol should have terminated contractual relations in good time by accepting Beta's renunciation, which it did not do. As Beta puts it, Vitol " only has itself to blame". In any event, Vitol is not entitled to damages based on hedging losses, and its claim to damages based on market value is over-stated.

These proceedings were issued on 5 ^th September 2016. On 20 ^th January 2017, upon Vitol withdrawing its application for summary judgment dated 24 ^th November 2016, Blair J directed that the claim should proceed under the pilot for the Shorter Trials Scheme (see CPR PD51N). There has been a 2 day hearing on 27 ^th and 28 ^th June 2017, with limited disclosure and witness evidence. The total costs of the action on Vitol's side are estimated to be approximately £125,000 (excluding VAT) and on Beta's side £63,000 (excluding VAT). This judgment has been handed down within 10 days of the conclusion of the hearing.

The parties' dealings

On 20 ^th November 2015 SCB & Associates ("SCB") issued a broker confirmation note referring to Vitol's agreement to sell 4,500mt of biofuel at a price of €812.50/mt fob Bilbao during the period 15 ^th to 28 ^th February 2016 in Vitol's option. The note recorded the main terms which had been agreed, and stated that the parties were to " promptly exchange their own documentation".

The terms of agreement were subsequently varied by consent. By Amendment#1 dated 19 ^th January 2016 the price was reduced (to €807.50/mt) and the shipment window changed to 24 ^th to 31 ^st March 2016 (because Beta was unable to deliver during the contractual lifting period). By Amendment#2 dated 10 ^th March 2016 the shipment window was changed to 16 ^th to 30 ^th June 2016 (for the same reason).

SCB issued Amendment#3 dated 20 ^th November 2015 but sent on 16 ^th March 2016 ("Amendment#3"), reducing the price again, now to €793.50/mt. Amendment#3 stated:

"….We encourage Seller and Buyer promptly to exchange their own documentation though it is understood by all parties that no term may be altered from the below agreement without express permission of contract parties.

…..

Lifting/loading/delivery:

……………………………….

FOB Bilbao loading during the period in buyers' option 16 ^th– 30 ^th June 2016

Price :

……………………………..

EUR 793.50/metric ton

……..

Sustainability Clause:

…………………………..

ISCC Certified

UK Double Counting

Default 83% GHG

……"

On 7 ^th June 2016 Vitol sent Beta 4 contract documents (backdated to 20 ^th January 2016) ("the Contracts") for Vitol to purchase and for Beta to sell and deliver in 4 tranches as follows:

a) Contract 5289640: 1,700 mt for delivery fob Bilbao;

b) Contract 5289640 (Part 2): 1,200 mt for delivery fob Bilbao;

c) Contract 5289640 (Part 3): 924 mt for delivery fob Bilbao;

d) Contract 5289640 (Part 4): 721 mt for delivery fob Bilbao.

The Contracts each provided materially:

"LIFTING PERIOD

16 JUNE 2016 – 30 JUNE 2016

(WAS ORIGINALLY FEBRUARY 15–28, 2016/THEN MARCH 24–31, 2016)

….THE BUYER'S OBLIGATIONS WITH REGARD TO THE TIMING OF LIFTING WILL BE FULFILLED PROVIDED THAT THE NOMINATED VESSEL ARRIVES AT THE LOADPORT AND GIVES NOTICE OF READINESS TO LOADPORT BY 24:00 ON THE LAST DAY OF THE LIFTING PERIOD.

NOMINATION/VESSEL/S

THE BUYER TO NOMINATE VESSEL ACCEPTABLE TO SELLER, LATEST 3 WORKING DAYS PRIOR TO VESSEL ARRIVAL AT LOAD PORT, SUCH ACCEPTANCE NOT TO BE UNREASONABLY WITHHELD.

PRICE

IS FIXED AT EUROS 793.50 PER METRIC TONS AIR.

PAYMENT TERMS

PAYMENT FOR THE PRODUCT SHALL BE MADE IN EUR BY TELEGRAPHIC TRANSFER IN IMMEDIATELY AVAILABLE FUNDS, WITHOUT ANY DEDUCTION, OFFSET OR COUNTER-CLAIM, AT THE COUNTERS OF SELLER'S DESIGNATED BANK, AS STATED IN SELLER'S INVOICE, 5 CALENDAR DAYS AFTER BILL OF LADING (THE "DUE DATE") AGAINST PRESENTATION OF SELLER'S COMMERCIAL INVOICE (FAX/PDF EMAIL COPY ACCEPTABLE) AND FULL SET(S) OF CLEAN, ORIGINAL BILLS OF LADING AND OTHER NORMAL ORIGINAL SHIPPING DOCUMENTS…

LIABILITY

NEITHER THE SELLER NOR THE BUYER SHALL BE LIABLE, WHETHER IN CONTRACT, TORT OR OTHERWISE, FOR ANY INDIRECT, PUNITIVE, CONSEQUENTIAL OR SPECIAL LOSSES, DAMAGES OR EXPENSES OF ANY KIND DIRECTLY OR INDIRECTLY ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE PERFORMANCE OF THIS CONTRACT INCLUDING BUT NOT LIMITED TO LOSS OF PROFIT, WASTED OVERHEADS OR LOSS RESULTING FROM THE SHUT-DOWN OR REDUCTION IN THROUGHPUT OF PROCESS PLANT……

THE CONTRACT CONTAINS THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ALL PREVIOUS NEGOTIATIONS, REPRESENTATIONS, AGREEMENTS OR COMMITMENTS WITH REGARD TO ITS SUBJECT MATTER."

Each contract was governed by English law and provided for "any controversy, dispute or claim whatsoever arising out of or in connection with this contract or the breach thereof [to] be subject to the exclusive jurisdiction of the High Court of Justice in London".

It is common ground that under the Contracts:

a) Vitol was obliged to nominate a vessel at the latest 3 working days prior to arrival at the load port;

b) The carrying vessel was to arrive and provide NOR to load by 24:00 hours on 1 ^st July 2016;

c) Accordingly, the nomination of the time of loading and the performing vessel had to be made by 24:00 hours on 27 ^th June 2016;

d) Vitol was obliged to pay the price of €793.50/mt following delivery.

As for Beta's obligation to deliver the biofuel, however, Beta contends that it was not under an absolute obligation to deliver the biofuel between 16 ^th and 30 ^th June 2016. Instead it was a condition precedent to Beta's obligation to supply the biofuel for shipment that Vitol had first to nominate the time(s) for loading and the performing vessel(s). Absent such nomination, no obligation would arise. Vitol contends, by contrast, that Beta had an absolute obligation to deliver.

Vitol's hedging

In accordance with what Vitol says was its practice, Vitol hedged the Contracts against the risk of price fluctuations in the UCOME market by selling gasoil futures contracts at a fixed price of US$434.50/mt. The differential between the contract price for the biofuels and the gasoil futures contract price as at November 2015 was US$413.85/mt.

Vitol contends that such hedging was foreseeable. It is common practice in the biofuels market for purchasers to enter into hedging contracts for the sale and purchase of gasoil futures. Parties enter into gasoil, rather than biofuels, futures contracts because there is no biofuels futures market. By entering into a futures contract, the purchaser hedges the risk of price fluctuations in the UCOME market. The hedging contracts are an adjunct to trading in physical oil.

Beta denies the existence of any common practice whereby purchasers in the biofuels market enter into hedging contracts as alleged, or that there is any common practice whereby purchasers in the biofuels market enter into hedging contracts for the sale and purchase of gasoil futures. Further, a biofuels futures market exists, even if only in fledgling state. Vitol's hedging was not reasonably foreseeable to Beta at any material time, either in terms of the specific hedging contract relied upon, or in more general terms.

Performance of the contractual arrangements

On 1 ^st June 2016 Beta (by Mr Santiago Viozquez Camara ("Mr Camara")) emailed Mr Matthew Wilson ("Mr Wilson") of Vitol (via SCB) as follows:

"There are some reason that lead us to ask you for the washout our actual contract to be delivered in June, although the main reason is that we have stopped production at our production plant and the majority of the workers have been fired. We are not able to produce biodiesel at this moment and we don't expect to start producing in a short-medium term.

This decision has been taken mainly due to the high impact that we have suffered in our biodiesel national sales due to the uncertainty with the extension...