South Caribbean Trading Ltd v Trafigura Beheer BV

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.

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.

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.”

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

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

By clause 3 the product was described as Fuel Oil.

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.

Clause 4 further provided:

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").

Further material terms were as follows:

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

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.

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

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.

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.”

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

It was further provided as follows:

“14.

CROSS DEFAULT

IT IS A CONDITION OF THIS CONTRACT THAT IF EITHER PARTY IS IN BREACH OF THEIR CONTRACTUAL OBLIGATIONS (HEREINAFTER REFERRED TO AS ‘THE DEFAULTING PARTY’) UNDER CONTRACT NOS. 5508-1 AND 5508-2. THEN THE OTHER PARTY (HEREINAFTER REFERRED TO AS THE ‘NON-DEFAULTING PARTY’) SHALL HAVE THE RIGHT BUT NOT THE OBLIGATION TO CANCEL THIS CONTRACT, UPON WRITTEN NOTICE BY THE NON-DEFAULTING PARTY TO THE DEFAULTING PARTY. FURTHERMORE THE NON-DEFAULTING PARTY SHALL HAVE NO FURTHER OBLIGATIONS HEREUNDER EXCEPT FOR THE OBLIGATION TO PAY ANY AMOUNTS DUE OR WITH WHICH THE PASSAGE OF TIME WOULD BECOME DUE TO THE DEFAULTING PARTY.

IN THE EVENT THAT FOR WHATEVER REASON SELLER FAILS IN HIS CONTRACTUAL OBLIGATIONS UNDER THIS CONTRACT AND OR CONTRACT NOS. 5508-1 AND 5508-2 SELLER IS OBLIGED TO PROVIDE BUYER WITH THE OPTION TO HAVE ASSIGNED TO THEM SELLER’S PROCESSING AGREEMENT WITH BORCO INCLUDING ALL RELEVANT AGREEMENTS AND CONTRACTS, INCLUDING BUT NOT LIMITED TO STORAGE AGREEMENTS WITH BORCO. BUYER HAS THE RIGHT BUT NOT THE OBLIGATION TO EXERCISE SAID OPTION. IN THE EVENT THAT BUYER DOES EXERCISE SAID OPTION, FOR THE AVOIDANCE OF DOUBT SUCH ASSIGNMENT OF CONTRACT(S) AND ALL TERMS THEREIN WILL BE EXACTLY THE SAME IN ALL REGARDS AS THOSE THAT SELLER HAS CURRENTLY WITH BORCO. SAID AGREEMENT TO ONLY APPLY FOR ANY BALANCE PRODUCT LEFT UNDER CONTRACT 5508-1 AND/OR OFF-SPEC PRODUCT UNDER THIS CONTRACT. FOR THE AVOIDANCE OF DOUBT THIS DOES NOT PRECLUDE BUYER FROM CLAIMING UNDER THE PERFORMANCE BOND AS DETAILED IN CLAUSE 10 OF CONTRACT 5508-1”

The second of the preliminary issues arises out of the submission by SCT that the date for delivery under Contract 5536 was agreed to be varied from 31 March 2001 to 30 June 2001 or alternatively 30 April 2001. It is said that in the course of two telephone conversations between Mr Marquez and Mr Loveland in March 2001 they agreed that the date for delivery should be put back to 30 June unconditionally. The case advanced by Trafigura is that they consistently indicated that they would be agreeable to an extension of time on condition that the method of calculating the price payable by Trafigura would not be by reference to the formula set out in clause 8 of Contract 5536 but by reference to the market price of fuel oil five days after the date of the bill of lading evidencing shipment. The effect of this condition would be that the price which would be payable to SCT would no longer be fixed by reference to the cost of WFOBS and cutter and which by early March 2001 could be calculated as US$20.91 per barrel but would thereafter depend instead on the market price of the fuel oil finished product at five days after the time of shipment.

It is submitted by SCT that, in the alternative, if the contract was not varied, Trafigura is estopped from asserting any delivery date earlier than 30 April 2001 by its response to certain of SCT's messages from 18 December 2000 and its subsequent conduct. Trafigura thereby represented that they were treating the delivery date as postponed for at least a month after 31 March 2001. SCT, having acted in reliance on those representatives, Trafigura is not entitled to go back to rely on the original delivery date of 31 March.

As regards Issue (4), this point arises independently of whether SCT was entitled to deliver fuel oil not derived exclusively from WFOBS and cutter delivered under Contract 5508-1 and independently of whether there was a variation of the date of delivery or there is a material estoppel. That issue depends crucially on the communications between the parties between 19 March and 24 March 2001. It will be necessary to consider these communications later in this judgment in some detail.

It is first necessary to investigate the background to the rather unusual series of transactions entered into on 3 November 2000. This is largely non-controversial but is relevant to resolution of the key issue as to how Contract 5535 could be performed.

Mr Fernando Marquez set up SCT in 1996. He is a qualified petroleum engineer. He has throughout been its President and only operating officer. He had previously worked for PDVSA and its subsidiaries including BORCO. Mr Marquez developed a technique for extracting most of the water from WFOBS. The latter is a substance which consists largely of fuel oil (about 70 per cent) and water (about 30 per cent). Because of the high water content WFOBS cannot economically be blended with other products by conventional means to produce marketable fuel oil. In consequence it can be acquired at a much lower price than on-spec fuel oil. The de-hydration process developed by Mr Marquez involved heating the off-spec fuel oil in one tank and then transferring it to a settling tank while injecting it in the course of transfer with a demulsifier or cutter. This would be straight-run fuel oil. The effect would be that the water separated out in the settling tank leaving the blended WFOBS marketable as fuel oil at a price appropriate for on-spec fuel oil.

SCT worked closely with an American petroleum products trading company called Eastern of New Jersey Inc ("Eastern") whose President was Joseph di Mauro, a witness called by SCT in these proceedings. Mr Marquez had a good business relationship with Mr di Mauro. In early 1997 in order to provide itself with working capital SCT entered into an agreement with Eastern and Eastern's bankers, UBS, under which SCT was permitted to utilise credit from UBS out of Eastern's credit line. That enabled SCT to procure the opening of letters of credit by UBS against Eastern's credit line but in SCT's name. SCT would assign to UBS any amount receivable from its buyer's letter of credit to offset the credit from UBS.

Mr Marquez had strong business links with Bitumenes Orinoco, SA ("Bitor") which was also a subsidiary of PDVSA. In 1997 and thereafter that company had for sale a substantial quantity of WFOBS. Eastern was interested in acquiring dehydrated WFOBS from SCT and in 1997-1998 SCT therefore took tank storage facilities at BORCO to enable it to carry out dehydration and purchased substantial quantities of WFOBS from Bitor. By mid-1998 SCT was marketing its first dehydrated WFOBS. In July of that year it sold a small quantity to Trafigura. The blending process at BORCO had taken about six months.

In the course of 1998 SCT sold a more substantial quantity (350,000 barrels) of dehydrated WFOBS blended with straight-run fuel oil to Trafigura. That company was a very substantial international trader in petroleum products, whereas SCT was in substance a one-man operation based on the technical expertise of Mr Marquez and the credit line derived from Eastern.

Following that transaction Trafigura became interested in negotiating for a significantly larger purchase. Negotiations took place in the first half of 1999. Mr Marquez made it clear to Trafigura that SCT had insufficient resources to carry the cost of the WFOBS and blending cutter and the storage and processing expenses and needed to rely on the continued financial support of Eastern. In the event, three contracts were negotiated, all dated 26 May 1999. Because they were expressly subject to New York law they are conveniently referred to as "the New York contracts". They were numbered 3055-1, 3055-2 and 3053b. Under contract 3055-1 SCT sold to Trafigura two lots totalling 650,000 barrels of WFOBS in tank at BORCO, the second lot to be delivered by 15 July 1999. Payment of the price was to be made to UBS, Geneva. Under contract 3055-2 SCT purchased from Trafigura three products - low sulphur fuel oil, cutter stock and WFOBS, the latter in the amount of approximately 650,000 barrels. It contained a cross-default clause (clause 12) in the following terms:

“IT IS A CONDITION OF THIS CONTRACT THAT IF EITHER PARTY IS IN BREACH OF THEIR CONTRACTUAL OBLIGATIONS (HEREINAFTER REFERRED TO AS ‘THE DEFAULTING PARTY’) UNDER CONTRACT NOS. 3053B AND 3055-2 THEN THE OTHER PARTY (HEREINAFTER REFERRED TO AS THE ‘NON-DEFAULTING PARTY’) SHALL HAVE THE RIGHT BUT NOT THE OBLIGATION TO CANCEL THIS CONTRACT, UPON WRITTEN NOTICE BY THE NON-DEFAULTING PARTY TO THE DEFAULTING PARTY. FURTHERMORE THE NON-DEFAULTIN G PARTY SHALL HAVE NO FURTHER OBLIGATIONS HEREUNDER EXCEPT FOR THE OBLIGATION TO PAY ANY AMOUNTS DUE OR WITH WHICH THE PASSAGE OF TIME WOULD BECOME DUE TO THE DEFAULTING PARTY.”

Under contract 3053b SCT sold to Trafigura approximately 1,200,000 barrels of fuel oil. It is to be observed that this figure is roughly equal to the total number of barrels of WFOBS, low sulphur fuel oil and cutter stock sold to SCT under contract 3055-2. Like that contract, this contract also incorporated a cross default clause. The wording of that clause was the same as for contract 5536 except that the other contracts referred to were 3055-1 and 3055-2.

The New York contracts were performed in the course of September 1999 to July 2000, except for the final batch which, due to technical difficulties encountered by SCT in the blending process, to which I refer later in this judgment, was not delivered until 14 March 2001. In view of the fact that all the batches except the first one were delivered very late, the final contractual delivery date being 31 October 1999, the parties agreed on substantial extensions to the validity of the applicable letters of credit and it was not suggested that there should be any change to the price of the finished product to be delivered under Contract 3053b. Further, it is to be observed that, although under clause 3055-1 it was expressly provided that the WFOBS to be delivered to Trafigura would be derived from the contents of BORCO Tanks 8005 and 8013, the finished product which had been delivered under contract 3053b by November 2000, as Trafigura knew, had not been derived from any of the contents of tank 8013. Instead, in December 1999 and April 2000 SCT had bought in additional WFOBS from Bitor. Accordingly, only part of the WFOBS was derived from the WFOBS specifically referred to in contracts 3055-1 and 3055-2.

The three contract structure of the overall transaction would appear at first sight to be distinctly peculiar. In particular, there is no obvious reason why SCT could not simply have purchased WFOBS from Bitor and, in another contract, purchased cutter from Trafigura. It could then simply have sold the finished product derived from its blending operation to Trafigura under a third contract.

This issue was raised by Mr Loveland at the end of November 2000 in relation to the negotiation of the structure of the 3 November 2000 contracts, the subject of this trial. Mr Marquez declined to agree to that simpler structure and insisted on replicating the structure of the New York contracts even though that involved the apparently pointless first contract in the series (3055-1 and, on 3 November 2000, 5508-1) under which SCT sold WFOBS to Trafigura and then by the second contracts (3055-2 and 5508-2) an agreement to repurchase an equivalent quantity of WFOBS from Trafigura together with a quantity of cutter. Trafigura also insisted on SCT putting up a letter of credit to secure their performance of the second contract including purchases of WFOBS and that had to be paid for by SCT.

In the course of his cross-examination Mr Marquez was asked to explain his insistence on the three contract structure. He said that was the way it had been done under the New York contracts and it was that way that the bank wanted it done and he did not ask them why. This explanation is not entirely satisfactory. Nevertheless, in view of Mr Marquez's evidence that the cost to SCT of a letter of credit was US$20,000 to $25,000, it is right to conclude that UBS and not SCT originated the idea of three contracts and that UBS was at least partly motivated by a desire to maximise its charges.

Perhaps the more important point is that in the exchange of emails in November 2000 between Mr Loveland and Mr Marquez in which the issue of the three contract structure was raised it is Trafigura who is trying to get SCT to simplify matters by leaving out the sale and resale of WFOBS. This position was clearly inconsistent with any perception on the part of Trafigura that the transaction was to have the commercial purpose of ensuring that the finished product was derived exclusively from WFOBS sold by SCT to Trafigura and purchased back from it. In view of the manner in which SCT had performed the New York contracts by buying in substitute WFOBS from Bitor, referred to in paragraph (28) above, that perception of the transaction by Trafigura is hardly surprising.

The submissions on behalf of SCT can be summarised as follows.

The submissions of Mr Baker on behalf of Trafigura can be summarised as follows:

The fundamental issue is whether the fuel oil to be delivered under Contract 5536 was not only mutually assumed to be derived exclusively from the blending by SCT of the components delivered to it under Contract 5508-2 but had as a matter of obligation to be derived from such components. In investigating this point it is important not to confuse the parties’ mutual assumption as to the mode of performance of 5536 with their contractual obligations.

This distinction can be exemplified by the following. A expresses to B his wish to purchase from B widgets manufactured by B from certain metals and B informs A that he cannot acquire such metals on the market. A indicates his ability to acquire such metals and his willingness to sell them to B. They then enter into two contracts. (1) A sells to B quantities of metal calculated to be sufficient for manufacture of a given quantity of widgets and (2) B agrees to sell to A that particular quantity of widgets. Clearly both parties assume when they enter into the contracts that what is delivered under (2) will exclusively comprise the components purchased under (1). But if the question arises whether B is entitled to deliver widgets which otherwise comply with the contract specifications but do not incorporate components delivered under (1), the determinant is whether what was mutually assumed to be the mode of performance by B is reflected in a term of (2) whereby B is under a duty to perform only in that way.

Obviously, the starting point is to ask whether contract (2) expressly limits B’s mode of performance, for example, by a term which describes the widgets as comprising the components under (1) to the effect that their incorporation is part of the description of the widgets. In the absence of any such provision the existence of an obligation to that effect could only arise by implication. The conceptual basis for any such implication could consist either of that derived from the other express terms or that derived from business efficacy under the “officious bystander” approach in The Moorcock (1889) 4 PD 64.

In the present case there is no express provision defining the product to be sold by reference to the origin of its components. Clause 3 defines the product simply as “fuel oil”. Clause 4 identifies the guaranteed quality specifications. By the penultimate paragraph it also identifies the BORCO tank numbers where the product is to be sampled at delivery.

There are, however, numerous references in Contract 5536 which are consistent with the finished product being the result of the blending of the components delivered under Contract 5508-2, albeit some more oblique than others. Thus, there is the last sentence of clause 4, the third sentence of clause 6, the second paragraph of clause 7 (Trafigura impeding the blending programme), clause 8 (as to the calculation of the price of the finished product), clause 16, second paragraph (Trafigura to have an option to have SCT’s processing agreement with BORCO assigned to them in the event of SCT’s breach of any of contracts 5508-1, 5508-2 or 5536).

The relevant question in relation to each of those terms is, however, not whether it is merely consistent with the common assumption as to mode of performance, but whether it is inconsistent with any other mode of performance, specifically with the delivery by SCT of fuel oil which is not the product of the blending by SCT of the components delivered under Contract 5508-2. If that inconsistency arose it would be necessary to imply a term, as a matter of construction of the contract and in order to make its machinery work, that the finished product to be delivered could only be the product of blending the components delivered by Trafigura to SCT under Contract 5508-2.

In my judgment, there is only one provision which could be said to be not only consistent with the delivery of the product of SCT’s blending operation but structurally inconsistent with the delivery of extraneous fuel oil and that in clause 8, the term which deals with the calculation of the price. I repeat it here as a matter of convenience.

It will be observed that the formula for price calculation set out in the second paragraph involves the use of three unknown elements; (i) the precise quantity of cutter, (ii) the precise quantity of WFOBS and (iii) the precise price of the cutter. The only fixed element is the price of WFOBS (USD 12.75 per bbl). In order to arrive at the values of those three unknowns, it is necessary to look at Contract 5508-2, for there can be no doubt, in my judgment, that the references in clause 8 to barrels of cutter and cutter price as well as to barrels of fuel oil blendstock are references to the quantities actually delivered under Contract 5508-2. In this connection clauses 5 to 7 of that contract are relevant:

“5.

QUANTITY:

GRADE (A) 134,000 BBLS PLUS OR MINUS (FIVE) PERCENT OPERATIONAL TOLERANCE

GRADE (B) 350,000 BBLS NET OF WATER UP TO 0.5% AT 60 DEG FAHRENHEIT PLUS OR MINUS 5 (FIVE) PER CENT OPERATIONAL TOLERANCE

6.

DELIVERY:

EXTANK AT BORCO TERMINAL, FREEPORT BAHAMAS AS FOLLOWS:

GRADE (A) IN TWO LOTS, THE FIRST LOT OF APPROX 110,000 BBLS BY 10 NOVEMBER 2000 AND THE BALANCE OF APPROX 24,000 BBLS WHEN THE CUTTER TANK (F-7) ULLAGE PERMITS RESUPPLY AS THE FIRST 110,000 BBLS IS DRAWN DOWN FOR PROCESSING

GRADE (B) IN THE ONE LOT BY 10 NOVEMBER 2000

EXACT NARROWED DATES OF DELIVERIES TO BE MUTUALLY AGREED BETWEEN PARTIES.

IN THE EVENT THAT BOTH PARTIES MUTUALLY AGREE TO A DIFFERENT RATIO OF PRODUCTS TO BE DELIVERED IN ANY ONE BATCH SUCH AGREEMENT WILL TAKE THE FORM OF AN ADDENDUM TO THIS CONTRACT.

7.

PRICE

THE PRICE IN US DOLLARS EX TANK BORCO SHALL BE AS FOLLOWS

GRADE (A) TO BE THE DECEMBER MERC HEATING OIL SETTLEMENT ON DEEMED DATES TO BE AGREED LESS A DISCOUNT OF US CENTS 5 PER GALLON

GRADE (B) 12.75 US DOLLARS PER US BARREL FIXED AND FLAT NET OF WATER UP TO 0.5% AT 60 DEG FAHRENHEIT.”

The total basic quantity of cutter and WFOBS to be delivered (484,000 bbls) is equivalent to the total quantity of finished product to be delivered under Contract 5536. Further, the amount of cutter (called “Grade A”) to be delivered under clause 5 was variable through plus or minus 5 per cent “operational tolerance”. The latter phrase is clearly intended to account for a greater or lesser requirement of cutter in order to achieve a blended fuel oil of the contractual specifications. So the quantity of cutter to be incorporated into the equation in clause 8 of Contract 5536 could vary from about 13,037 bbls to 13,373 bbls. The price of the totality of the cutter which was to be delivered to SCT at the times set out in clause 6, would in turn, depend on the market price on dates to be agreed under clause 7. However, the second lot of cutter was to be delivered when the ullage in the cutter tank (F7) at BORCO left enough ullage space for 24,000 bbls as the cutter delivered as the first lot was “drawn down for processing”. It is, in my judgment, quite obvious that the “processing” there referred to is the blending operation destined to produce the finished product to be priced by application of clause 8 under Contract 5536.

The quantity of WFOBS to be delivered under Contract 5508-2 was also subject to a 5 per cent "operational tolerance". This again was clearly designed to enable SCT to take delivery of the precise quantity needed to produce a finished product of the contractual specifications. In other words, the ratio referred to is the ratio deployed in a real blending operation producing an end product with the contract specifications.

Returning to the wording of clause 8, I have no doubt, having regard to the method of price calculation which I have described, and in the light of the express terms relevant to that calculation, that the words "the ratio of fuel oil blendstock to cutter" can only refer to the blendstock and cutter which are the components of that which was to be priced, namely the fuel oil actually to be delivered under that contract.

The last sentence of clause 8 supports this construction in as much as it is clearly inserted to deal with the situation that might arise if it became necessary to depart from the blend ratio assumptions underlying Contract 5508-2 in order to create a blend having the contract specifications. In that event, the quantity, quality and price might have to be adjusted under Contract 5536. This reflected the somewhat uncertain results of the blending process to be used by SCT in order to produce the product to be delivered.

The argument advanced by Mr Fenton QC on behalf of SCT that if bought-in fuel oil is delivered under Contract 5536 it can be priced by reference to the cutter and WFOBS quantities and price delivered by Trafigura under Contract 5508-2 is, in my judgment, misconceived for it involves the insulation of the delivered fuel oil from the product of the blending operation involving the quantities of cutter and blendstock forming the elements of the price of what is delivered. This is inconsistent with the meaning of clause 8 because it would price that which was delivered by reference to quantities of cutter and blendstock which had not been its components. Further, unless there had already been deliveries of cutter and blendstock in quantities finally determined by the requirements of SCT's blending operations, the price of bought-in fuel oil could not be calculated. The use of cutter prices, including that of the second lot derived from the market price of heating oil, as at dates which could not be determined unless it had been delivered in accordance with the ullage in the cutter tank as and when available in the course of blending strongly supports this construction. If there never had been a complete delivery of cutter, there would be no way in which the pricing formula could be used. It follows that the clause 8 pricing formula could only be used in limited circumstances in the manner put forward by SCT. The fact that outside those limits the formula could not be applied to arrive at a price strongly indicates that the construction of clause 8 at which I have arrived is correct.

Finally, it is necessary to refer to clause 14 - the cross default clause upon which Mr Fenton, on behalf of SCT, has so strongly relied. Reduced to its essentials, the argument is that if, in effect, SCT has the option of performing Contract 5536 even though Trafigura is in breach of Contract 5508-2, that has the effect that, if Trafigura fails to deliver the whole or part of the cutter or WFOBS to be delivered under that contract, it is open to SCT to perform 5536 by delivering bought in fuel oil which is not the product of components supplied under 5508-2.

This argument, in my judgment, gives too wide a scope to the wording of the clause. It could be correct only if the scope of that width were in all respects consistent with other express terms of the contract. For example, if it were to be open to SCT to deliver bought in fuel oil in the event of a breach of Contract 5508-2 by failure of Trafigura to deliver the whole or part of the required cutter or blendstock, then the pricing mechanism under clause 8 would have to cater for that eventuality. The breaches of contracts 5508-1 and 5508-2 referred to in clause 14 must be such that if one party exercises its option to perform Contract 5536, mutual performance of that contract in all necessary respects will still be possible in spite of the other party's breach of the other contracts.

I therefore conclude that non-delivery of the whole or part of the cutter and WFOBS deliverable under Contract 5508-2 does not fall within the scope of those breaches of Contract 5508-2 covered by clause 14. Accordingly, this clause does not support SCT's construction of Contract 5536.

The fact that the finished product delivered under Contract 3053b was derived in large part from components which SCT had bought in and not from components delivered by Trafigura under Contract 3055-2 does not support SCT's submissions. It is clear from the evidence that the substitution of bought-in components was agreed to by Trafigura. That agreement would necessarily result in an implied variation of Contract 3053b so as to permit the price of the finished product to be calculated by a method which differed from that prescribed by the price clause. Therefore, what happened does not demonstrate that 3053b could accommodate performance by the delivery of bought-in fuel oil derived neither from the blending by SCT of components supplied under contract 3055-2 nor from any blending operations by SCT at all.

I do not find that the absence of any express provision in the contracts dealing with what was to happen to the letter of credit to be opened by Trafigura under Contract 5536 if Trafigura failed to deliver the components or some of them under Contract 5508-2 provides an indication that Contract 5536 might yet be performed by delivery of bought-in fuel oil. If the construction of clause 8 which I have indicated is correct, it would not be open to SCT to present to the bank certificates covering the transfer to Trafigura of fuel bought-in and not the result of blending. The omission of the parties to agree that the documents to be presented under the letter of credit should include a certification that the product was the result of blending the components supplied by Trafigura is entirely understandable given the parties’ mutual assumption that such a situation would never arise.

I therefore conclude that on the proper construction of Contract 5536 it was not open to SCT to perform that contract by delivering bought-in fuel oil which did not exclusively consist of components supplied by Trafigura under Contract 5508-2 which had been blended at BORCO by SCT. If SCT needed to introduce any components other than those so acquired and so blended it could not do so unless it had Trafigura’s consent.

It is SCT’s case that on 14 and 15 March 2001 it was agreed between Mr Marquez of SCT and Mr Loveland of Trafigura that the time for delivery by SCT under Contract 5536 was to be extended from 31 March to 30 June with Trafigura’s letter of credit to be amended consistently with the former to permit shipment up to 30 June and its validity for presentation of documents to be up to 15 July 2001. It is Trafigura’s case that no such agreement was ever entered into because it was a condition of Trafigura’s offer of an extension of time that the pricing formula under clause 8 should be replaced by a provision to the effect that the price should be calculated on a Platt’s Guide basis to reflect the market price of fuel oil at the date of delivery and that Mr Marquez had consistently refused to agree to this. SCT maintain that on 15 March 2001 Trafigura unconditionally agreed to an extension to 30 June.

In order to resolve this issue it is necessary to examine the numerous communications between the parties in some detail.

By December 2000 SCT was experiencing real problems in the blending operations relating to the last batch deliverable under the New York contracts. Previously to this the WFOBS originally supplied did not separate as it should have done into oil on water but had been inverted in the blending tank with the water at the top and the oil at the bottom (hence the need to buy an additional WFOBS from Bitor. Moreover, the oil still contained 4 per cent water. It had to be brought down to 1 per cent to comply with the contract specification. This blending problem, confined at it was to the New York contracts, had a serious impact on the performance of Contract 5536. The WFOBS for that contract had been delivered to Trafigura in accordance with Contract 5508-1 and by Trafigura to SCT under Contract 5508-2. It had been stored in tanks 8005 and 8013 at BORCO. The cutter delivered under Contract 5508-2 went into tank F7. However, the intended blending process was to take place by transferring the WFOBS into tank 8028 for blending and then to tank 8036 for settling. This process would probably have to be repeated more than once. The problem was that 8036 had an essential part in the blending operation under the New York contracts. For as long as it was being used for that purpose, the blending operation under 5536 could not begin and it is said by SCT that there were no other suitable tanks available to it at BORCO. It was for that reason that in December 2000 SCT indicated for the first time that there was likely to be a delay in delivery of the finished product under 5536.

As well as making delivery of WFOBS and cutter under Contract 5508-2, Trafigura on 8 November 2000 opened its letter of credit to secure the price under Contract 5536. The issuing bank was Credit Agricole Indosuez, London. It provided for delivery of the finished product by 31 March 2001 and validity for negotiation up to 15 April 2001.

On 18 December 2000 SCT (Mr Marquez) informed Trafigura by email that SCT would start the blend of the Contract 5536 material in January, adding “This moves the delivery of the finished product at least a month”.

This could only be understood as meaning that the period needed for delivery would extend for a further month – to 30 April 2001.

On 21 December 2000 Mr Loveland of Trafigura responded stating:

This was a clear representation of Trafigura’s intention to alter its market hedging to cover the risk of adverse price movements relative to the contract price of the finished product at the date of delivery. That representation implicitly accepted that it would be open to SCT to deliver a month later than provided by the contract.

SCT were unable to reduce below 3.25 per cent the water content of the finished product to be delivered under the New York contract and it was Mr Marquez’s idea to buy in more cutter and further blend it with the product in its current state in order to cure the water content problem. However, in the course of February 2001 Mr Loveland indicated that Trafigura were prepared to take delivery of the product even with the excessive water content. By an email of 19 February he stated that they would start taking delivery from tank 8036 on 25 February 2001.

This would involve the need to extend the letter of credit effected by Trafigura under Contract 3053b since the original delivery dates were 1 June to 31 October 2000. Mr Loveland’s message therefore asked Mr Marquez to contact Patricia Reilly at Trafigura who was responsible for the setting up of documentary credits.

In the event, Trafigura did not extend their original letter of credit. Their bank was unwilling to do so. Mr Marquez by his message of 23 February 2001 made it clear that SCT would only be prepared to proceed with delivery under the New York contracts once a new letter of credit was in place. This was becoming a matter of urgency for SCT because, having made payment for the WFOBS and cutter delivered under contract 5508-2, they were carrying the storage cost until they received payment for the finished product upon delivery under 5536.

Trafigura encountered problems in providing available tanker capacity for lifting the contents of tank 8036 and in the course of the period 28 February to 7 March Mr Marquez had various email contacts with Mr Loveland as to what was to happen to the contents of that tank. On 28 February Mr Marquez pressed Mr Loveland to confirm to SCT’s bankers, UBS, that Trafigura would amend the letter of credit for the New York product and added:

This was a reference to the letter of credit provided by Trafigura under Contract 5536. This was the first indication by SCT that it could not complete the blending under that contract by 31 March or 30 April but would be unable to deliver until 30 May. This was roughly consistent with their not being able to start blending by the end of January, as anticipated in their message of 18 December 2000, but having to delay until early March after tank 8036 had become available.

The wording of a new letter of credit to be issued by ING Bank, London, to pay for the New York contract product was agreed and the letter of credit was issued on 2 March 2000. Further delays developed in Trafigura lifting the product in tank 8036 and there was much doubt as to precisely when this might be accomplished.

On 7 March Mr Marquez again reminded Mr Loveland that SCT would be needing to use 8036 for the new batch (under Contract 5536) soon, that this product should be available for delivery at the end of April or early May and that Trafigura's letter of credit therefore needed to be extended as it was about to expire.

In his witness statement Mr Loveland said this:

Mr Marquez in his witness statement and in his oral evidence adamantly denied that any such conversation took place. Specifically, he said that there had been no mention of Trafigura only being prepared to take delivery if the price basis were changed to one dependent on market price.

By 12 March the position as to the contents of tank 8036 remained unresolved. SCT had indicated that it was contemplating acquiring more cutter, blending that with the remaining product and selling it on the market for its own account. On that day Mr Marquez sent an ultimatum to Trafigura stating that they must take an entitlement transfer and thereby take delivery of the product in tank 8036 by 14 March 2001 and pay for it promptly or SCT would blend the material and sell it to a third party. There was added the following:

On 13 March 2001 Mr Loveland informed Mr Marquez that Trafigura would start loading from tank 8036 the following day on the ASPHALT GLORY and complete taking delivery during 18-20 March on the VICTORIA. Consistently with this message the ASPHALT GLORY arrived at the BORCO terminal on 14 March.

However, by an email sent late on 13 March, SCT stated that before Trafigura took the oil there were a number of "issues that need to be addressed". First was the issue of the letter of credit extension for the new batch, meaning that which was deliverable under Contract 5536. Mr Loveland replied the next morning "the L/C for the new batch is with finance and they are preparing an extension". It is to be observed that Mr Loveland's message made no reference back to the matter of changing the basis of price calculation under the contract.

On 14 March 2001 numerous messages passed between the parties. In summary, Mr Marquez was pressing for sight of an amended or new letter of credit for Contract 5536 "to read delivery in June (expiry) July" and Trafigura was responding that it had to discuss this with the bank, but the account manager was out of the office.

Mr Marquez was pressing for receipt of some amendment details in the ING letter of credit.

On the same day the ASPHALT GLORY arrived as promised at the BORCO terminal and her hoses had been connected that afternoon. Her tanks were later passed as ready to load.

However, Mr Marquez declined to authorise the entitlement transfer on the grounds that he had not received the final form of the ING letter of credit covering the product about to be loaded and had not received the amended letter of credit under Contract 5536.

Thus at 0830 local time Mr Marquez emailed Mr Loveland as follows:

Mr Loveland's immediate response was:

Mr Marquez then asked Patricia Reilly of Trafigura if she could guarantee that SCT would get to him the amended letters of credit before the vessel sailed.

That same afternoon there was a telephone conversation between Mr Marquez and Mr Loveland in which, as I find, Mr Loveland told him that the vessel was waiting ready to berth at BORCO and would incur demurrage if she was delayed. According to Mr Marquez's witness statement:

There is no material difference between this account and the oral evidence of Mr Loveland. Mr Marquez stated that he thereupon confirmed with Mr Steiger of UBS that he could release the fuel oil and issue an entitlement transfer. Loading duly commenced at 1648 local time (2148 London time). In the course of his cross-examination Mr Marquez accepted, in my judgment, quite rightly that he must have been mistaken about this conversation with Mr Steiger because the confirmatory conversation with Mr Loveland did not take place until about 2030 London time which was long after UBS would have closed in Geneva. Mr Marquez agreed that he must have next spoken to Mr Steiger on the morning of 15 March. I find that the more probable course was that it was not until after the conversation with Mr Loveland that evening that Mr Marquez instructed BORCO to effect the entitlement transfer. Thereupon loading of the cargo commenced, that operation having been held up by Mr Marquez for nearly two hours until 2118 London time "awaiting client's instructions".

On 15 March 2001 Mr Loveland sent an email apparently in response to a telephone call or message from SCT:

On 16 March 2001 Mr Marquez pressed again for the letter of credit amendments for Contract 5536 but apart from reassurance from Mr Loveland, apparently by telephone, that the extension was being procured, nothing further was heard. The vessel completed loading at 2024 local time that day.

On 19 March 2001 Trafigura sent an email to SCT as follows:

There followed some draft wording for the amendment of the letter of credit.

Mr Marquez in his evidence described the requirement for an amendment to the price as “a bombshell”. He said that he was so angry that he prepared a response in draft but never sent it. In the event his immediate response was simply that SCT did not agree with or accept the amendment to the price. Trafigura replied that they would not amend the letter of credit. His evidence was that this was the first suggestion by Trafigura that extension of the delivery period under Contract 5536 was to be conditional on a variation of the price clause. In a message sent to Mr Loveland at 1655 local time on the same day Mr Marquez stated:

He further relied on time for delivery having been extended under clause 7 of the contract due to equipment problems at BORCO. He called for a reply to his request for extension of the letter of credit by 20 March, noon New York time.

Trafigura’s reply the following morning merely stated that they were discussing and reverting re the letter of credit. They added that it was the first they had heard of equipment problems at BORCO.

Three hours later Mr Marquez emailed Mr Loveland stating as follows:

That message gave rise to the issue which I have already decided in Trafigura’s favour, namely that SCT was not entitled under Contract 5536 to deliver bought-in fuel oil not the product of their blending.

The underlying issues relevant to the question whether there was a concluded agreement to extend the time for delivery under Contract 5536 to 30 June 2001 can be stated as follows:

As to a. it is necessary to test the evidence of the two main witnesses, Mr Marquez and Mr Mark Loveland, by reference to the factual background known to them both in the course of their communications, of the communications which they exchanged with each other and of the communications which they had with others at the time, notably in the case of Mr Loveland, his immediate superior at Trafigura, Mr Crandall, and in the case of Mr Marquez, the director of Eastern, Mr di Mauro.

With regard to the factual background I find that the following are directly material circumstances.

As to the communications themselves and the internal responses to them, the following considerations are material:

Mr Marquez appeared to me to be genuinely trying to give accurate evidence and to answer the questions put to him as he understood them, given some limitation in his understanding and handling of English. His demeanour was essentially that of a truthful witness. His memory was fairly good, but certainly not perfect.

Mr Loveland’s recollection of events was clear in some respects and imperfect in others. There were discrepancies between his witness statement and his oral evidence in some respects. Much of his oral evidence was aimed at presenting Trafigura’s case of being much put upon by an essentially unreliable SCT bent on unfairly threatening to deprive Trafigura of product to which it was entitled. A similar comment could be made about Mr Crandall’s evidence. However, his recollection of the events was somewhat blurred and he did not attempt to be able to recall details as Mr Loveland did.

In evaluating the reliability of Trafigura’s witnesses it is also right to keep in mind the tactics adopted by Mr Loveland on 14 and 16 March in order to ensure that Mr Marquez permitted the product to be loaded on the ASPHALT GLORY. Mr Loveland quite deliberately gave Mr Marquez information about the instructions to the finance department of Trafigura which he must have known to be untrue. The overriding imperative for Trafigura was to obtain delivery of a profitable cargo and to avoid taking delivery of an unprofitable one. Their tactics were either to get out of Contract 5536 altogether or extend time only on the basis of a market-based price. The only way in which they would achieve these objectives would be by delaying as long as possible disclosure of their proposed amendments to the letter of credit so as to give the vessel enough time to complete loading.

Having regard to all the material considerations set out above and the submissions which I have summarised I have come to the conclusion that I cannot treat Mr Loveland as a reliable or credible witness. I conclude that, if, on 7 March, there was any discussion at all about extending the letter of credit under Contract 5536, nothing was said by Mr Loveland which made such extension conditional on variation of the price clause. I infer that the evidence as to this condition being put forward on that occasion was introduced in order to avoid the risk that it would be held on the evidence of the email and telephone exchanges that Mr Marquez had agreed to release the contents of tank 8036 against an unconditional promise or representation that the letter of credit would be extended, as pleaded in the particulars of claim.

I find as a fact that no such condition was brought to the attention of Mr Marquez until he received the email of 19 March.

On this factual basis it is submitted by Mr Fenton QC on behalf of SCT that in the course of the telephone conversation of 14 March Contract 5536 was varied so as to provide for delivery up to 30 June 2001 and the letter of credit was agreed to be similarly amended to provide for its validity up to the end of July 2001. On 14 March 2001 there was, in effect, a bargain between the parties that SCT would release the contents of tank 8036 for loading on the ASPHALT GLORY if Trafigura undertook to procure an extension of time under the letter of credit. The promise to amend the letter of credit was in substance an agreement that the Contract was to be varied to that effect.

Alternatively, it is submitted by SCT that Trafigura is estopped on the basis of Mr Loveland's promise to extend time. Mr Marquez would not have released the fuel oil without his assurance that time could be extended. There was therefore reliance by SCT in as much as it did release the cargo. The fact that refusal to deliver would have amounted to a breach of Contract 3053b was nothing to the point. Just as a promise to perform a subsisting contractual obligation could amount to sufficient consideration for a further contractual promise, so reliance upon a promise by performing a subsisting contractual obligation instead of breaking it ought in equity to be sufficient to give rise to unconscionability.

It is argued by Mr Baker, on behalf of Trafigura, that there was no reliance on the telephone conversation of 14 March. He argues that title was transferred to Trafigura at some stage on that day but that it is not established whether before or after the conversation and further that once title had been transferred, delivery to the vessel could not be prevented by Mr Marquez. Accordingly, SCT had failed to establish that title had not already been transferred at the time of the telephone call, relying particularly on Mr Marquez's evidence that the entitlement transfer was issued after he had spoken to Mr Steiger of UBS in Geneva. This had to have been before he spoke to Mr Loveland that evening at about 8.30pm London time.

Further, there was no unconscionability, because SCT's reliance consisted of performance as distinct from breach of a subsisting contractual obligation to Trafigura under contract 3053b.

There can, in my judgment, be no doubt that the assent of Mr Loveland to the extension of the letter of credit until 30 June expiring July 2001 was an effective variation of Contract 5536 to that effect. That is because it was a new agreement supported by mutual promises - on the part of Trafigura to accept delivery of product at a date different from 31 March at a fixed price and on the part of SCT that, the blending operation having been much delayed, would successfully be completed by the new delivery date. Given that SCT had encountered apparently insuperable problems in the de-hydration of the fifth batch under the New York contracts, even after more than three months, and that it was impossible to come anywhere near completion of blending under contract 5536 by 31 March, their promise to achieve effective blending by an extended date thus provided Trafigura with an enforceable right to obtain delivery of finished and effectively dehydrated product on a future agreed date. The fixed price, although below market price on 14 March, might exceed market price by 30 June. In these unusual circumstances, particularly the uncertainties inherent in the blending operation and the uncertainty of the movement of the market price, it could be said that sufficient consideration to support the variation moved from the promisee (SCT).

I therefore do not consider that it is necessary to deploy as sufficient consideration in itself the promise by Mr Marquez to release the cargo to be loaded on to the ASPHALT GLORY. Were that necessary I find as a matter of inference that BORCO's certificate of entitlement to the contents of tank 8036 was not issued until after the 14 March telephone conversation between Mr Marquez and Mr Loveland. It is simply inconceivable that Mr Marquez would have given his authority for that to happen unless and until he had Mr Loveland's promisee to instruct UBS to extend the delivery date in the letters of credit.

Had it been necessary to base the question of consideration exclusively on the promise to release the cargo, I should have held that this alone was insufficient to supply consideration. It was SCT's obligation to make delivery under Contract 3053b. In promising to do so they were promising to perform an existing obligation. The authorities on this issue starting with Stilk v. Myrick (1809) 2 Camp 317 and developing more recently in Syros Shipping Co SA v. Elaghill Trading Co Ltd (The Prodos C) [1980] 2 Lloyd's Rep 390 and Atlas Express Ltd v. Kafco (Importers and Distributors) Ltd [1989] 1 QB 833 indicate a firmly established rule of law that a promise to perform an enforceable obligation under a pre-existing contract between the same parties is incapable of amounting to sufficient consideration. The decision of the Court of Appeal in Williams v. Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB1 appears to have introduced some amelioration to the rigidity of this rule in cases where there has been refusal to perform amounting to economic duress by the party who might otherwise be in breach of any existing contract and where the other party will derive a practical benefit from such performance.

But for the fact that Williams v. Roffey Bros Ltd, supra, was a decision of the Court of Appeal, I would not have followed it. That decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Glidewell LJ. was substantially based on Pao On v. Lau Yin Long [1980] AC 614 in which the Judicial Committee of the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B. At page 15 Glidewell LJ. regarded Lord Scarman's reasoning in relation to such tripartite relationship as applicable in principle to a bipartite relationship. But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party. Glidewell LJ substituted for the established rule as to consideration moving from the promisee a completely different principle - that the promisor must by his promise have conferred a benefit on the other party. Purchas LJ. at pages 22-23 clearly saw the nonsequitur but was "comforted" by observations from Lord Hailsham LC in Woodhouse AC Israel Cocoa Ltd v. Nigerian Product Marketing Co Ltd [1972] AC 741 at pages 757-758. Investigation of the correspondence referred to in those observations shows that the latter are not authority for the proposition advanced “with some hesitation" by Purchas LJ.

However, seeing that Williams v. Roffey Bros, supra has not yet been held by the House of Lords to have been wrongly decided, and approaching the validity of consideration on the basis of mutuality of benefit, I would hold that SCT's threat of non-compliance with its delivery obligation under Contract 3053b precluded its reliance on the benefit that its performance by effecting delivery would confer on Trafigura. This threat was analogous to economic duress as contemplated in Williams v. Roffey Bros, supra because it was not based on any argument that SCT was discharged from its delivery obligation: reliance on clause 7 of Contract 5536 only came later.

Further, it is pleaded in paragraph 16(3) of the Defence that under clause 16 of Contract 5536 any modification of that contract had to be in writing and therefore the contract could not be varied orally in the course of the conversation on 14 March. However, the email sent by Mr Loveland at 1453 on 15 March in response to Mr Marquez's request for news of the letter of credit, was in terms which could only have been understood as expressing assent to SCT's previous written and oral requests for an extension. The combination of these written messages satisfied the requirements of clause 16.

The question of estoppel only arises if, contrary to my conclusion, the contract was not varied on the grounds that the agreement of 14 March, although arrived at, was unenforceable due to want of consideration or non-compliance with clause 16. The main basis for Mr Baker's challenge to estoppel was that it was not proved that it was unconscionable for Trafigura to go back on its promise to extend the letter of credit. First, it had not been shown that SCT had relied on that promise to its detriment and secondly, unconscionability could not be founded on SCT performing a subsisting obligation and contract 3353b instead of failing to perform it.

It is clear, in my judgment, that, but for Trafigura's undertaking to extend the letter of credit, SCT would not have authorised the issue by BORCO of a certification of entitlement in favour of Trafigura and the fuel oil would not have been shipped. There was thus reliance in the sense that the undertaking caused SCT to do what it would not otherwise have done. However, its refusal to make delivery without valid excuse would have been a breach of Contract 3053b. Given that promissory estoppel, which this must be, could be made out only if it were in all the circumstances unconscionable for Trafigura to resile from its promise, the question arises whether this could be made out in circumstances where SCT would be relying on its own threat to breach its contract. I have not been able to find authority on this issue. However, I have reached the conclusion that unconscionability cannot normally be made out in a case where reliance consists of the promisee shifting his position from one of unjustifiably threatening to breach his contract with the promisor to one of performing that contract. If there were no contractual basis justifying the refusal, there would normally be a case of economic duress which is itself based in substance on principles of unconscionability. Accordingly, the balance of unconscionability as between the conduct of the promisor and that of the promisee would be left even to the effect that the court would not intervene to protect the promisee. Accordingly, I would not have concluded that Trafigura were estopped.

I therefore conclude that Issue 2 should be answered to the effect that the contract was varied to permit June delivery as contended for by SCT.

It is agreed that the Court should approach this issue on the assumption, not conceded by Trafigura, that SCT could have delivered contractually compliant finished product within the delivery period under contract 5536.

It is further agreed that, if the answer to Issue (1) is that SCT was entitled to deliver bought in fuel oil not created from the components which it had purchased from Trafigura or the answer to Issue (2) is (as I have held) that the date for delivery was extended to 30 June 2001, Trafigura wrongfully repudiated contract 5536 and that, accordingly, the first part of Issue 4 is to be answered Yes. The second part of that issue (whether that repudiation was accepted by SCT) is directed to the correct analysis of the communications which passed between the parties.

It is submitted on behalf of SCT that by its message at 1756 on 23 March 2001 SCT accepted Trafigura’s conduct as terminating contract 5536. It is submitted on behalf of Trafigura that SCT’s message did not amount to acceptance of Trafigura’s conduct in refusing to extend the delivery date as a repudiation because it was exclusively directed to Trafigura’s refusal to accept bought in fuel oil which it was justified in rejecting and was not directed to any refusal to extend time. Alternatively, it was not an absolute refusal to perform but merely one contingent upon Trafigura’s future failure to confirm that it would perform and as such it amounted to an affirmation of contract 5536.

I now set out the relevant parts of the messages passing between the parties.

On 19 March 2001 Trafigura sent the messages quoted at paragraphs 85 and 86 above and SCT replied with the message part of which is set out in paragraph 87 and which stated in full:

“In response to your first sentence, you have been in the process of extending the L/C validity for over a week. A multitude of excuses has been the only thing that South Caribbean has actually received. I released the entitlement to the 15.50 $/Bbl oil to you on the basis of you personal promise to extend (without other amendments) the validity of the second L/C to July 30, 2001. We now insist that the L/C be extended as per your personal pledge.

We call your attention to paragraph 7 of the above referenced contract which states that in the event of equipment problems, the time allowed for delivery will automatically be extended. As we have told you in different occasions, BORCO was unable because of boiler, heat exchanger, etc problems to complete the contemplated blend. South Caribbean will provide documentary evidence of such problems. In view that we purchased 43 $/Bbl cutter from you, you cannot unilaterally abrogate this agreement.

In view of the above, Trafigura should immediately extend the L/C validity. We require a reply to the above by noon New York 03/20/001”

On 20 March 2001 SCT sent the message set out at paragraph 90 above.

On 22 March 2001 Trafigura stated:

“During the past two years there has been a constant routine whereby SCT guarantees to provide oil during a specific time frame meeting a defined specification which never ever happens … We are now at another stage where, once again, SCT is unable to perform and wants Trafigura to make an exception to the contract. Frankly, we are just not prepared to agree to your request.”

Later that day SCT replied:

“Thank you very much for your note … I have made arrangements at great personal cost to get the product you require under our contract. We have on test product for you and expect that you perform under this contract with you. Please confirm to me that you will take the 472,000 barrels … meeting all contractual specifications … prior to March 31, 2001.”

On 23 March at 0812 London time Trafigura responded:

“Now with respect to contract 5536, it is clear under the contract that you are to deliver blended fuel oil, but that alternative delivery arrangements may be agreed between the parties … it is clear under the contract that alternative delivery arrangements need to be mutually agreed, and in this case, given your recent failures in performance and the losses we have incurred, we will not agree to this alternative delivery.”

At 1350 London time that day SCT replied:

At 1817 London time that day Trafigura replied:

Finally at 1756 London time on 23 March, SCT sent the following message to Trafigura:

Trafigura did not subsequently give notice of intent to perform.

In the context of that message SCT was proceeding on the basis that because there had been no amendment to the letter of credit there had been no variation of the time for delivery under the contract. By 15 March 2001 the delivery period under the contract was, as I have held, up to 30 June. However, in the context of that message the words "notice of your intent to perform under our agreement" would clearly be understood by Trafigura (and intended by SCT) as asking for confirmation of acceptance of delivery by 31 March of the bought-in fuel oil as distinct from fuel oil the product of SCT's blending operations. It follows that, by this message, SCT gave notice that, if within a period of time wholly unrelated to the delivery period in the contract as then amended, Trafigura did not confirm that it intended to perform, that is to say to accept delivery of fuel oil which, as I have held, was outside the scope of the contract because it was bought in, SCT would treat Trafigura's conduct as a repudiation of the contract.

The message sent out at 1756 on 23 March could only be an acceptance of any repudiation by Trafigura if it unequivocally treated contract 5536 as terminated.

In Vitol SA v. Norelf Ltd [1996] AC 800, it was confirmed by the House of Lords, in agreement with the judgment of Phillips J. at first instance that, although it is settled law that where a party has a right to elect to accept the repudiation or to affirm the contract, "an act of acceptance of a repudiation requires no particular form and a communication does not have to be couched in the language of acceptance": per Lord Steyn at pages 810-811; "it is sufficient that the communication or conduct unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end".

It is argued on behalf of Trafigura that the message of 1756 on 23 March 2001 would not be capable of amounting to an acceptance because it urged Trafigura to perform and did not terminate the contract there and then. Indeed, it affirmed the contract. However, in my judgment, the matter should be tested by asking whether, if Trafigura had failed to confirm performance by the deadline of 1000 New York time on 24 March (the next day) and had then been asked whether they understood the contract to have been terminated by SCT, they would have answered, Yes. Were this their answer, there would have been sufficient communication of acceptance by SCT. Otherwise, if Trafigura would then have been left justifiably in doubt as to whether the contract had been terminated, the message would not be an acceptance. I conclude that Trafigura would have been in no doubt whatever that if they did not confirm by the deadline the contract would be at an end in the sense that SCT would not thereafter perform by any means and would no longer look for performance by Trafigura. Consequently, the message at 1756 would have been capable of amounting to a valid acceptance of Trafigura's repudiation.

However, it is argued by Mr Baker on behalf of Trafigura that, whereas that message might have amounted to a valid acceptance of a repudiation by Trafigura’s refusal to accept bought in fuel oil (had that amounted to a breach) it did not amount to an acceptance as repudiation of Trafigura’s breach in refusing unconditionally to extend the letter of credit to provide for delivery up to 30 June 2001. In substance, it is said that SCT was telling Trafigura that the contract would be treated as terminated because of Trafigura’s refusal to confirm by the deadline acceptance of delivery of the bought in fuel oil and not because of is refusal unconditionally to extend the letter of credit until 30 June.

Before considering the authorities on this point it is to be observed that Trafigura’s message to SCT sent at 1817 London time quoted at paragraph 124 above referred to a failure “to reach agreement on an alternative delivery mechanism for contract 5536”. This was a reference to the failure of SCT to accept the pricing condition attached by Trafigura to its willingness to extend the delivery date to 30 June. The imposition of that condition and the reference to the contractual requirement for agreement as to an alternative delivery mechanism was inconsistent with the previous oral agreement between Mr Marquez and Mr Loveland unconditionally to extend the time for delivery. It was thus in substance a refusal to perform by accepting any fuel oil whatever after 31 March. Accordingly, the message from SCT of 1756 on the same day was a response both to Trafigura’s unjustifiable refusal to extend the letter of credit and to its justifiable refusal to accept bought in fuel oil.

It is clear from the decision of the Court of Appeal in Glencore Grain Rotterdam NV. v. Lebanese Organisation for International Commerce [1997] 4 All ER 514 that where one party is in repudiatory breach of a contract because of what may be conveniently described as conduct A and the other party purports to accept that the contract was terminated by reason of Conduct B (which is not a repudiatory breach) it is subsequently open to the innocent party to justify his termination of the contract on the wrong grounds as valid acceptance of Conduct A as repudiatory. In that case, sellers under an FOB contract had unjustifiably demanded an increase in the contract price and that demand amounted to a refusal to perform. However, the buyers had previously to that demand refused to provide a letter of credit except one which unjustifiably required presentation of freight pre-paid bills of lading, a refusal which was in itself repudiatory. It was held that the sellers’ demand for a price increase as a condition of delivery had the effect of accepting the buyer’s conduct as a repudiation even though it was founded only on the late arrival of the vessel (an invalid ground). The exceptions to the general rule in Taylor v. Oakes Roncoroni & Co (1922) 127 LT 267 that termination of a contract for repudiatory breach on an invalid ground is effective as a termination provided that a valid ground existed at the time did not apply. They are that the rule will not apply if the repudiatory breach could have been cured had the valid ground been given: see Heisler v. Anglo-Dal Ltd [1954] 1 WLR 1273 and in cases where the conduct of the innocent party gives rise to a waiver or estoppel.

In my judgment, the reasoning in Glencore, supra, applies to the present case. SCT was entitled to terminate on the grounds of Trafigura’s refusal to extend time, but it called for confirmation of performance by Trafigura by accepting an uncontractual delivery, failing which the contract was to be treated as terminated. Although it was not entitled to call for such performance or impose that deadline for confirmation, its conduct was, I have held, sufficient to constitute notice of termination. It was therefore a valid acceptance of Trafigura’s repudiatory breach. I do not accept that this case calls for a materially different approach to that in Glencore on the grounds that there was notice of a deadline. With or without a deadline, there was an effective notice of termination.

Accordingly, on the assumption identified in paragraph 114 above, Issue 4(b) should be answered in the affirmative.