Petroplus Marketing AG v Shell Trading International Ltd

The claimants, to whom I refer as “Petroplus”, are refiners and wholesalers of petroleum products. On 10 June 2008 they entered into an agreement with the defendants, to whom I refer as “Shell”, by which they agreed to sell FOB Coryton (where Petroplus have a refinery) 29-32,000 mt. of high sulphur fuel oil (“HSFO”) and 1-2,000 mt of light cycle oil (“LCO”). Shell have paid US$19,175,043.07 for the oil. Petroplus claim that they are entitled to a further US$2,024,490.34, together with interest. They apply for summary judgment for this amount, and alternatively for an interim payment. Shell have brought a counterclaim for late delivery and demurrage.

The sale was made through two brokers employed by Trident Oil (Gibraltar) Ltd. Mr. Martin Lederman acted for Petroplus, receiving instructions from a Mr. Marcel Lämmler, and Mr. John Warner acted for Shell, receiving instructions from a Mr. David Thwaite. Mr. Lämmler and Mr. Thwaite, the traders, did not communicate directly with each other or with the broker acting for the other party, and the contract was made between the two brokers. On 11 June 2008 Mr. Lederman sent to Petroplus and Mr. Warner sent to Shell an email confirming the agreement. They were in identical terms (apart from the sender and the recipient), and included these provisions:

On 12 June 2008 Petroplus sent to Shell an email with this preamble:

“This contract confirmation cancels and supersedes any communications whether written or oral by and between the buyer and seller, any communications by any broker or agent acting on behalf of buyer or seller and any contract confirmation generated by the buyer in relation to the subject matter set out below. … This memorializes the deal concluded by us on June 10, 2008 and we hereby record details of the agreement reached between our companies.”

The formula for determining the price in this confirmation did not, however, confirm what had been orally agreed: Petroplus say that this was because of an error made by an employee. It was as follows (emphasis added):

“(A)

Price for High Sulphur Fuel Oil 3.5%. Price shall be in US dollars per mt, FOB Coryton on bill of lading quantity, as measured in vacuum, to be equal to mean Platt’s market scan quotations under heading Barges FOB Rotterdam for High Sulphur Fuel Oil 3.5% less a discount of 0.50 dollars per mt aspublished on period 19 June 2008 to 25 June 2008”.

“(B)

Price shall be in US dollars per mt, FOB Coryton, based on bill of lading quantity, as measured in vacuum, to be equal to mean Platt’s market scan quotations under heading CIF cargoes NWE/basis ARA for Gasoil 0.1% multiplied by the factor 0.87 as published during a five business day period, starting two business days prior to the bill of lading date. … ”.

(Although this is not expressly stated, paragraph (B) was clearly concerned with the price for the LCO.)

By an e-mail sent on 16 June 2008 Petroplus narrowed the loading dates to between 23 and 25 June 2008. On 24 June 2008 Shell nominated the “Ninae” to load the cargo and gave loading instructions. By then it had become apparent that there would be a delay in delivery of the HSFO.

On 24 June 2008 Shell’s contract department responded by fax to the communication of 12 June 2008. They acknowledged receipt and continued:

“… We are pleased to confirm agreement to this contract subject to the following amendments:

Preamble

Please delete as this contract was concluded in a phone conversation on the 10^th June 2008. Subsequent telexes/faxes between the parties merely seek to record the details of the agreement already reached. Any terms contained in such telexes which are different to those in the oral agreement constitute proposals to vary the oral agreement, and must be agreed by both parties”.

Shell proposed amendments to many of the clauses set out in the communication of 12 June 2008, and said this about the price:

“(A)

After “Bill of Lading quantity” please add “save for fraud or manifest error”. Please delete “vacuum” and replace with “air”. After “25 June 2008” please add “inclusive”.

“(B)

Please head “Price for light cycle oil:”. Please delete “vacuum” and replace with “air”. Please insert “quotation” after both instances of “business”.”

Shell made other requests or stipulations, including that the contract should incorporate the BP Oil International General Terms and Conditions Sales and Purchase of Crude Oil (2000 Edition) with various amendments, instead of Petroplus’ General Terms and Conditions.

When Petroplus received this fax, they say, they realised the error made on 12 June 2008. On 30 June 2008 they responded to Shell, agreeing with some of the suggested changes and rejecting others. They set out a “revised price clause”, apologising for “any inconvenience caused”. For the HSFO it read:

“Price shall be in US dollars per mt, FOB Coryton, based on bill of lading quantity, as measured in air, to be equal to mean Platt’s market scan quotations under heading Barges FOB Rotterdam for high sulphur fuel oil 3.5% less a discount of 0.50 US dollars per mt as published during a five day business day period, starting two business days prior to the bill of lading date.”

They rejected other proposals about the pricing clause suggested by Shell.

The delivery of the HSFO was delayed in circumstances and for reasons that are not immediately relevant for present purposes. In summary, Petroplus say that they were let down by a supplier and so did not have the necessary feedstock. The vessel started to load on 3 July 2008. On that day Shell accepted some of the proposals made by Petroplus on 30 June 2008, but they maintained that BP Oil’s standard terms, as amended by them, should “govern this deal”, and said about the price:

“Not agreed. We maintain the wording of your contract dated 12^th June amended as per our response of 24^th June”.

On 4 July 2008 Petroplus wrote that they had corrected the price clause on 30 June 2008 because of a mistake in the communication of 12 June 2008, that they considered Shell’s communication of 3 July 2008 to be a rejection of the contract and that they had therefore suspended loading. In the event an agreement was reached, and loading was completed. A bill of lading in respect of 27,881.689 mt of HSFO, measured in air, was issued on 5 July 2008. A bill in respect of the LCO had been issued on 3 July 2008.

Petroplus sought payment for the amount of cargo measured in air (abandoning an initial claim for the amount measured in vacuum) on the basis of the price set out in the communications of 11 June 2008. Shell contend that they are liable only for a price for the HSFO calculated on the basis of the communication of 12 June 2008. The dispute reflects an increase in the market price between 25 June 2008 and the time that the cargo was delivered and the bill of lading issued.

As I have indicated, it is common ground that, in providing that for pricing by reference to quotations “published on period 19 June 2008 to 25 June 2008”, the communication of 12 June 2008 did not reflect the agreement on 10 June 2008, and that the agreement had been properly recorded in the emails of 11 June 2008, that is to say that the pricing should be by reference to the quotation for the bill of lading date and the two immediately preceding and two immediately following quotations. Shell advance two arguments:

I reject both of those contentions. As Mr. Michael Nolan, who represented them, made clear, Petroplus say that they did not intend to vary the contract of 10 June 2008, and that a reasonable observer would have appreciated the error on 12 June 2008: they do not accept that Shell misunderstood the position. However, they acknowledge that this contention cannot be determined summarily. Accordingly, on these applications, Mr. Nolan argued that, even assuming that the communication of 12 June 2008 did make an offer to vary the pricing provision, the offer was not accepted by Shell on 24 June 2008 because Shell did not accept the proposals made on 12 June 2008 but suggested changes to them and proposed additional terms. The proposed alterations and additional terms included proposals about the pricing provision for the HFSO: specifically Shell suggested that the price be calculated by reference to the weight in air rather than in vacuum, and an exception to the provision that the price was payable by reference to the bill of lading quantity in the case of “fraud or manifest error”. (They also proposed that the word “inclusive” be added to the specification of the period between 19 June 2008 and 25 June 2008, but to my mind that would simply express what was implicit, and would in itself not prevent an acceptance being effective: Chitty on Contracts (2008) 30^th Ed. Vol. 1, para 2-032.)

Mr. Michael Collett, who represented Shell, submitted that nevertheless Shell accepted Petroplus’ offer to have the price calculated by reference to quotations during a specified period and not quotations determined by the date of the bill of lading. He submits that it is common with contracts of this kind for the parties, having agreed the essential terms and made a contract, to agree upon further terms individually. He cited Pagnan SpA v Feed Products Ltd, [1987] 2 Lloyd’s Reports 601, 614 and The “Harriette N”, [2008] 2 Lloyd’s Reports 685 at para 70 in support of the proposition that, once there is a concluded contract, “then the strict requirements of positive offer and positive acceptance are not necessarily appropriate” (per Bingham J). I accept this as far as it goes, but it does not answer the question whether the parties evinced in their exchanges of 12 and 24 June 2008 an intention to agree to vary the pricing provision. Of course, in circumstances such as these the parties might have varied or supplemented their agreement about pricing the HSFO without resolving all other outstanding matters, but I am unable to accept that, when Shell, having received a new proposal for pricing the HFSO, accepted some parts of it but also required changes, the parties evinced an intention to be bound by those parts of the new proposal to which Shell did not object. The parties would not, to my mind, have intended to conclude a contract in such a piecemeal manner. I reject the argument that there was an agreement to vary the agreement of 10 June in relation to the pricing provision.

Mr. Collett made it clear that Shell do not assert a promissory estoppel or an estoppel by convention, but an estoppel by representation of fact about what Petroplus were willing to agree on 12 June 2008. It is pleaded that in reliance upon that representation, as well as sending the fax of 24 June 2008, Shell entered contract records on about 23 June 2008 to reflect the new pricing formula and entered into hedging arrangements, completed on 25 June 2008, based upon it. It seems prima facie improbable that between 23 and 25 June 2008 Shell acted in reliance upon a statement of Petroplus’ wishes as at 12 June 2008, rather than their belief or at least their expectation as to what the contractual terms were to be. In fact, Shell put forward no evidence that they relied upon such a representation or any relevant representation of fact. It follows that the estoppel argument cannot be sustained.

Shell have another argument, based on the fact that the oil was not delivered when the contract specified, between 21 and 25 June 2008, a window later narrowed to between 23 and 25 June 2008. Shell say that thereby Petroplus were in breach of the contract, but it is common ground that it cannot be determined upon these applications whether they were in breach or whether they can rely upon force majeure. I assume for present purpose that Petroplus were in breach of contract.

Here Shell advance two contentions: first, they say that on the proper construction of the contract or as a result of an implied term Petroplus are not entitled to a price calculated by reference to the bill of lading date because they would be taking advantage of their own wrong: they would be claiming a higher price because of the late shipment. Alternatively, Shell say that the late shipment gives rise to a cross-claim against Petroplus which provides a defence of circuity of action or at least the cross-claim is so intimately bound up with Petroplus’ claim for the price that Petroplus should not have summary judgment or be allowed to execute it.

Four introductory and, I think, uncontroversial points about these contentions:

It is a general principle of construction that prima facie it will be presumed that the parties intended that neither should be entitled to rely on his own breach of duty to obtain a benefit under a contract, at least where the breach of duty is a breach of an obligation under that contract: see Chitty on Contracts, cit sup, Vol 1 at para 12-082. This is sometimes presented not as a matter of contractual construction but an implied contractual term that a right or benefit conferred upon a party shall not be available to him if he relies upon his own breach of the contract to establish his claim: Chitty on Contracts cit sup Vol 1 at para 13-012. However analysed, the principle is not inflexible or absolute: it may be displaced by express contractual provision or by the parties’ intention to be understood from the express terms: Richco International Ltd. v Alfred C. Toepfer International GMBH, [1991] 1 Lloyd’s LR 136,144.

Petroplus submitted that the principle does not apply here. There are three strands to their argument. First, they referred to the payment provision, and say that provisions of this kind are intended to preclude the buyer from withholding the price (in part or whole), whether on the basis of a cross-claim or on the basis of a defence, such as abatement of price. Mr. Nolan cited Totsa Total Oil Trading SA v Bharat Petroleum Corp. Ltd., [2005] EWHC 1641 (Comm). There the buyers agreed to pay “without discount, deduction, set-off or counterclaim against commercial invoice and usual shipping documents”, and also gave a payment undertaking to pay “without any set-off, deduction or counterclaim whatsoever, … the full amount of the seller’s invoice…”. They sought to pay less than the invoice price on the grounds that part of the quantity loaded was water, not oil, arguing that they were entitled to abatement of the price: they were not, they said, seeking to make a deduction from the price but simply asserting a defence to the claim. Christopher Clarke J rejected that argument: “when a buyer declines to pay the full amount of the invoice upon the ground that not all the oil that he contracted for had been shipped, what he is doing is seeking to deduct from his payment such proportion of the invoice as he declines to pay and to withhold payment of that amount. That is exactly what the buyers have agreed not to do” (at para 24). So too here, as Petroplus submit, Shell seek to make a deduction from the price in the invoice, against which they agreed to make payment without deduction.

Next, Mr. Nolan submitted that a term that a party is not entitled to benefit from his own breach of contract should only be implied upon the basis of the presumed intention of the parties, ascertained in the conventional way by reference to business efficacy or the officious bystander: see the Richco International case (loc cit) at p.144. Here, it is said, there is no such justification for the implication of a term and for qualifying the express terms of the contract.

The third strand of Petroplus’ argument is that the express provisions of the contract sit uncomfortably with a construction or implied term such as Shell assert: in particular the pricing provision refers to the bill of lading date without qualification. The contract provides a specific formula for determining the price and it is to be taken as complete in itself and not to be glossed. Here Mr. Nolan cited Port of Tilbury (London) Ltd v Stora Enso Transport & Distribution Ltd, [2009] 1 Lloyd’s LR 391, in which the Court of Appeal considered a “take or pay” provision in a contract. It was argued, despite major investment by the Port in a facility for the products of a customer, that the provision should not be so construed as to entitle the Port to the minimum tonnage payment in circumstances where it was unable or unwilling to perform its services so as to allow the minimum tonnage throughput, and that it was equally absurd to think that it made sense to say that the customer should “pay first and dispute later”: see para 21 in the judgment of Rix LJ. This argument was rejected in these terms: “The minimum payment obligation does not override the Port’s service obligations: it merely provides, together with a no set-off provision, for a situation where the investor is assured of its income stream despite disputes, on the basis of ‘pay now, dispute later’.” (at para 28).

I have not found this issue easy to resolve. During the hearing, I thought that the position here might properly be distinguished from that in the Totsa Total Oil case on the grounds that there the breach of contract alleged by the buyers would not have been apparent from the invoice and “usual shipping documents” against which payment was to be made. Here the date on the bill of lading, one of the “normal shipping documents”, would make apparent the late loading and prima facie breach. If an invoice presented by Petroplus were inconsistent on its face with the shipping documents (say, because the invoice calculation was based on a quantity of cargo other than the bill of lading quantity), Shell would not, I think, be obliged to pay the invoiced amount. The position might be thought to be similar if it was apparent from the “normal shipping documents” that the bill of lading date evidenced that there had been late delivery, and so that prima facie Petroplus were in breach of contract. Accordingly, there seemed to me a case for interpreting the expression “bill of lading date” in the pricing provision as referring only to contractually compliant dates.

On reflection and upon re-reading the authorities cited by Mr. Nolan, I am persuaded that this reasoning is not justified and that the pricing provision should not be so construed (or, if it be preferred, be qualified by such an implied term). The reasoning supposes that payment was necessarily to be against shipping documents, but, in the usual way, the contract provided for the alternative of an indemnity provided by Petroplus. More importantly, the pricing provision, together with the payment provision, established a machinery for Petroplus to be paid the invoiced amount notwithstanding that Shell contend that they are in breach of their contractual obligations. The machinery would be ineffective, and the contractual intention behind it frustrated, if Shell were permitted to withhold payment by challenging the calculation of the price by reference to the bill of lading quantity on the grounds of short delivery, or, as here, by challenging the calculation by reference to the bill of lading date on the grounds that it resulted from breach of contract on Petroplus’ part. Just as in the payment provision the expression “bill of lading date” (the date five days after which payment was to be made) is not confined to contractually compliant dates, so too, in my judgment, the expression is not to be so qualified in the pricing provision.

I therefore conclude that, on the proper interpretation of the contract, the parties intended that the price should be calculated and paid by reference to the bill of lading date notwithstanding late delivery by Petroplus, and I reject the submission that effect should not be given to this intention on the grounds that Petroplus would be taking advantage of their own wrong.

For similar reasons I reject Shell’s argument based upon circuity of action or the close relationship between Petroplus’ claim and Shell’s counterclaim. Petroplus also responded to the argument of circuity of action by submitting that the principle does not apply here because this is not a case in which “if [Petroplus] recovered against [Shell], [Shell] could recover exactly the same sum, or, if damages, exactly the same measure of damages, against [Petroplus]”: see Aktieselskabet Ocean v B Harding and Sons Ltd, [1928] 2 KB 371, 385 per Scrutton LJ.; but in view of my other conclusions I need not consider this alternative submission.

Petroplus are therefore entitled to summary judgment. I invite submissions about what directions should be made for the trial of Shell’s counterclaim. I am grateful for the focused presentation of the evidence on these applications, and also for the helpful and well-argued submissions of both counsel.