Vitol S.A. v Norelf Ltd (Santa Clara)

JurisdictionUK Non-devolved
JudgeLord Mackay of Clashfern L.C.,Lord Griffiths,Lord Nolan,Lord Steyn,Lord Hoffmann
Judgment Date20 June 1996
Judgment citation (vLex)[1996] UKHL J0620-2
Date20 June 1996
CourtHouse of Lords
Vitol S.A. Geneva
(Respondents)
and
Norelf Limited Bermuda
(Appellants)
Vitol S.A. Geneva
(Appellants)
and
Norelf Limited Bermuda
(Respondents)
(Second Appeal)
(Conjoined Appeals)

[1996] UKHL J0620-2

Lord Chancellor

Lord Griffiths

Lord Nolan

Lord Steyn

Lord Hoffmann

House of Lords

1

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

Lord Mackay of Clashfern L.C.

My Lords,

2

I have had the advantage or reading in draft the speech to be delivered by my noble and learned friend Lord Steyn with which I agree. For the reasons he gives I would allow the appeal, restore the order of Phillips J., with the result that the appeal in respect of the arbitration award is dismissed. I would dismiss the cross-appeal. I would award the appellants their costs of the appeal and the cross-appeal, as well as their costs in the Court of Appeal against the respondents.

Lord Griffiths

My Lords,

3

For the reasons given in the speech of my noble and learned friend, Lord Steyn, which I have read in draft and with which I agree. I would allow the appeal and restore the order of Phillips J. with the result that the appeal of the buyers in respect of the arbitration award is dismissed. I would also dismiss the cross-appeal.

Lord Nolan

My Lords,

4

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Steyn. I agree with it and I too would concur in the order which he proposes.

Lord Steyn

My Lords,

5

The Court of Appeal considered a single substantive issue, namely whether an aggrieved party can ever as a matter of law accept a repudiation of a contract merely by himself failing to perform the contract. The Court of Appeal answered that question in the negative. The correctness of this ruling is the central issue in this case. For procedural reasons the Court of Appeal declined to examine alternative arguments advanced before it. On the appeal to your Lordships' House the appellants challenged the procedural ruling of the Court of Appeal and invited your Lordships to consider the merits of these alternative arguments. It will be necessary to refer briefly to these issues. Finally, there is a cross-appeal by the respondents. They contend that the Court of Appeal erred in remitting the matter to the arbitrator. It will be convenient to postpone consideration of the cross-appeal until the issues on the appeal have been determined.

6

The commercial background and the dispute

7

On 11 February 1991 Norelf Limited of Bermuda sold to Vitol S.A. of Geneva a cargo of propane c.i.f. north-west Europe to be shipped from the United States Gulf Enterprise Terminal at Houston on board the Santa Clara. A contemporary brokers' recapitulation telex set out the following material terms:

"Quantity: 4,200 MT ± 5 pet in sellers option full cargo on 'santa Clara'

Delivery: Cif one safe berth each one or two safe ports NWE Bordeaux-Hamburg range including east coast UK not north of Tees

Delivery dates: Basis loading Houston (Enterprise Terminal) 1-7 March 1991. current eta 2/3/91. etb on arrival, etd 5/3/91. Eta NWE 19-20/3/91

Price : USD 400.00 pmt cif one port in above range…"

8

The contract was made on the well-known Incoterms 1990 as subsequently amended for c.i.f. sales: the terms are reproduced by Debattista. Sale of Goods Carried by Sea, (1990), pp. 324-326. Clause A8 of those terms required the sellers (Norelf) to tender the bill of lading to the buyers (Vitol) promptly after loading. Payment was to be made by telegraphic transfer within 30 days of the bill of lading date. It was expressly agreed that English law would be the governing law. The agreement contained a provision that arbitration would take place in London.

9

This was a transaction between two traders on the volatile propane market. Throughout March 1991 there was a consistent and marked downturn of the propane market c.i.f. north-west Europe. The fall in prices confronted the buyers with a large loss if the transaction proceeded. Conversely, if the transaction collapsed, the sellers faced a large loss.

10

On Friday, 8 March 1991, the Santa Clara was loading the cargo at the Houston terminal. On that date the buyers sent a telex to the sellers in the following terms:

"…It was a condition of the contract that delivery would be effected 1-7 March 1991… . We are advised that the vessel is not likely to complete loading now until some time on 9 March — well outside the agreed contractual period. In view of the breach of this condition we must reject the cargo and repudiate the contract. We do however reserve our position to claim damages in these circumstances."

11

On Monday, 11 March, the rejection telex came to the notice of the sellers. In the meantime the vessel had completed loading and had sailed on Saturday, 9 March. The buyers never retracted nor attempted to retract their repudiation of the contract. The sellers did nothing to affirm or perform the contract. On the contrary, the sellers attempted to resell the cargo from Tuesday, 12 March, and succeeded in doing so on Friday, 15 March, at a price of U.S.$ 170 per tonne.

12

The arbitration

13

By a letter dated 9 August 1991 the sellers' solicitors claimed about U.S.$ 950,000 as damages, calculated by reference to the difference between the contract price of U.S.$ 400 per m.t. and a resale price of U.S.$ 170 per m.t. on a cargo of 3,868 m.t. The premise of the claim was that the sellers had accepted the buyers' repudiation. The buyers disputed the claim. By an ad hoc arbitration agreement this dispute was referred to arbitration. In the arbitration the buyers maintained that they were entitled to reject the cargo because it was loaded out of time. The buyers also relied on other points to justify their rejection of the cargo. After an oral hearing lasting four days in September 1992 Mr. Iain Milligan., Q.C., the sole arbitrator, rejected all these defences in a reasoned award which was published on 24 November 1992.

14

The arbitrator also had to consider a submission by the buyers that the sellers had failed to accept the repudiation contained in the telex rejecting the cargo. The arbitrator came to the following conclusion:

"31. It also follows from those conclusions that the rejection telexes constituted an anticipatory breach of the contract by Vitol. Unless that breach was accepted by Norelf, it was of no effect (see MSC Mediterranean Shipping Co. S.A. v. B.R.E. - Metro Ltd. [1985] 2 Lloyd's Rep. 239, 240): thus, subject to any question of estoppel, which does not arise in this instance, the breach could have been remedied by withdrawal of the rejection contained in the telexes at any time before it was accepted. However, the breach was never remedied and, in my opinion, the tenor of the rejection telexes was such that the failure of Norelf to take any further step to perform the contract which was apparent to Vitol constituted sufficient communication of acceptance (see Sinason-Teicher Inter-American Grain Corporation v. Oilcakes and Oilseeds Trading Co. Ltd. [1954] 1 W.L.R. 935, 942-944 affirmed [1954] 1 W.L.R. 1394 and Fercometal S.A.R.L. v. Mediterranean Shipping Co. Ltd. [1989] A.C. 783, 800B and 801c)."

15

The arbitrator found it unnecessary to make a specific finding as to when the sellers accepted the buyers' repudiation. He explained:

"33. The first obligation which Norelf failed to perform under the contract which would have been apparent to Vitol was the tender of the Santa Clara bill of lading pursuant to clause A8 of Incoterms 1990. That would not have become apparent, however, until several days after Monday, 11 March 1991, on which date Norelf informed Vitol by telex that the Santa Clara had completed loading on 9 March 1991.

34. The propane market c.i.f. North West Europe was falling throughout March 1991. Despite attempts to resell the Santa Clara cargo which had begun at latest on 12 March 1991, it was not resold until Friday, 15 March 1991. The resale price was U.S.$ 170 per m.t. and I have reached the conclusion that that was greater than, or equal to, the available market price for this particular cargo whenever the breach was accepted after 11 March 1991. Norelf do not claim damages calculated by reference to any price lower than U.S.$ 170 per m.t. Consequently, damages are to be assessed by reference to that price in accordance with section 50(3) of the Sale of Goods Act 1979."

16

In the result the arbitrator made an award of U.S.$ 888.869, together with interest and costs, in favour of the sellers against the buyers.

17

The decision of Phillips J.

18

The buyers obtained leave to appeal on a question of law arising from the award under section 1(2) of the Arbitration Act 1979. The substantive hearing came before Phillips J. (now Phillips L.J.), sitting in the Commercial Court. His judgment is reported: Vitol S.A. v. Norelf Ltd. [1994] 1 W.L.R. 1390. The judge posed the question whether as a matter of law an innocent party can ever demonstrate acceptance of repudiation simply by failing to perform his own contractual obligations. The judge concluded, at pp. 1395H – 1396c:

"It depends upon the circumstances. Failure to progress an arbitration is a good example of inertia that is likely to be equivocal. But in other types of contractual relationship where the parties are bound to perform specific acts in relation to one another a failure to perform an act which a party is obliged to perform if the contract remains alive may be very significant. It is not difficult to envisage circumstances in which, if such conduct follows a renunciation, the obvious inference will be that the innocent party is responding to the repudiation by treating the contract as at an end.

I do not have to decide whether the failure on the part of Norelf to tender to Vitol a bill of lading, or any of the subsequent unspecified failures...

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