Kolmar Group AG v Traxpo Enterprises PVT Ltd

In this action the buyer, Kolmar Group AG (“Kolmar”), a Swiss corporation, claims against the seller, Traxpo Enterprises Pvt Limited (“Traxpo”), an Indian corporation:

The trial began on 17^th December 2009. By then Traxpo had failed to serve any witness statements by 30^th September 2009, the date provided for in a consent order of 8^th September 2009, and had dispensed with the services of its former solicitors. It had not engaged in the mediation provided for by that order. On 9^th December 2009 Gross J declined to adjourn the trial, not being persuaded by anything he had read that such an adjournment was appropriate. He indicated that it would be open to Traxpo to renew its application to the trial judge. Traxpo renewed its application on paper but I, also, saw no justifiable basis on which to adjourn a trial that had been fixed for some time.

On or about 27^th and 28^th August 2007 Kolmar agreed to buy and Traxpo agreed to sell (a) 15,000 m.t. methanol +/- 5% at Buyer’s option at $ 255 per metric ton and (b) an optional 2-3,000 metric tons of cargo +/- 5% in Buyer’s option at $ 265 per metric ton; in each case FOB Kandla for shipment within September 2007. The methanol was to be of Qatari or Russian origin. Payment was to be at sight against an irrevocable documentary letter of credit payable against presentation of specified documents. Under the heading “Maritime Conditions” the contract provided that laytime was to commence 6 hours from tendering Notice of Readiness or when the vessel was all fast at berth whichever first occurred. The laytime allowed and the demurrage rate were to be agreed upon vessel nomination. All other maritime conditions were to be in accordance with the Asbatankvoy Charter Party form.

The contract, which was expressly subject to English law and High Court jurisdiction, is contained in or evidenced by two faxes from Kolmar dated 28^th August 2007. It also provided that Incoterms 2000 should apply where not in conflict with the other conditions of the contract.

Clause A4 of Incoterms 2000 provided that:

On 27^th August 2007 Mr Sudarshan Tapuriah (“Mr Tapuriah”), a director of Traxpo, the person with whom the contract had been agreed, e-mailed Ms Tara John (“Ms John”), the managing director of Meteor 5A Neelamber, Kolmar’s local representative in India, details of Traxpo’s stock position of methanol as at that day, giving details of the quantities landed from various vessels and the tanks into which the various quantities had been discharged. The total was said to be 29,211.636 m.t.

Kolmar wanted the methanol in order to sell it, via a sale to Kolmar Inc, to Methanex, an important customer in the United States of America and one of the world’s largest methanol companies. In August 2007 Methanex was experiencing production problems and had an urgent requirement for cargoes. The USA prohibits the importation of methanol originating from Iran or China.

On 29^th August 2007 Mr Tapuriah e-mailed Ms John, requesting an amendment to provide that the quantities should be 15,000 m.t +/- 5% at Sellers’ option and 2-3,000 m.t. +/- 5% at Sellers’ option respectively; but this proposed amendment was never agreed to.

On 29^th August 2007 Meteor Private Ltd forwarded to Traxpo Kolmar’s nomination of the vessel “Fairchem Mustang”. (Nothing turns on any distinction between one Meteor company and another and I shall refer to them simply as “Meteor”). The nomination provided for a cargo with a minimum quantity of 17,500 m.t up to a full cargo in charterer’s option of about 17,526 m.t., for laytime of 250 mt/hr shinc and for demurrage at $ 20,000 pdpr. Traxpo accepted this nomination subject to laytime being at 175 m.t./hr to which Kolmar was prepared to agree.

It seems that, when the contract was made, Traxpo did not have access to sufficient cargo at the same or a lesser price with which to be able to supply Kolmar at the contract price. After the contract was made the market price of methanol increased dramatically and, as will become apparent, Traxpo found itself driven to attempt to escape from its contractual obligations.

Intertek Caleb Brett (“Intertek”) was asked by Meteor to sample 8 tanks from two different terminals at Kandla - 2 at United Storage and Tank Terminals Ltd (“USTTL”) and 6 at Friends Salt Works and Allied Industries Ltd (“FSWAL”). These tanks had about 20,800 m.t. in them in all. When Intertek tested them the acidity in the methanol was found to be higher than the contract maximum of 30 mg/kg in all of the tanks. This was, however, a problem which could be addressed by the use of caustic soda. The potassium permanganate was found to be excessive in one of them. Intertek also tested a further 9 shore tanks including two tanks from another terminal – Friends Oil and Chemicals Terminal. The 17 tanks were tanks from among which it had been indicated to Mr Joseph, Meteor’s operations manager, that the methanol would be drawn.

On Tuesday 4^th September, following the tank inspections, Ms Meyer of Kolmar gave Meteor a list of 15 of the tanks (2 of the 17 contained product which Meteor had learnt did not belong to Traxpo), specifying which tanks were unacceptable (3 in number), and which were Kolmar’s first, and which its second, choice. As a result Mr Joseph e-mailed to Mr Tapuriah a list of 12 out of 15 tanks containing 19,450.028 m.t which he asked to be earmarked for loading. One of them was USTTL 204, which at the time of inspection contained 4,718.039 m.t. He also pressed for a certificate of origin.

These arrangements, whereby the tanks at Kandla from which the methanol was likely to come were inspected on behalf of the buyer in advance to see whether their content was off specification, followed by a request to earmark those tanks that were satisfactory to the buyer, were a perfectly normal and sensible thing to do. They did not mean that there was an agreement between the parties that as a matter of contract the contract cargo had to come from those tanks. Nor was it agreed that the usual procedure of testing before and after loading would be dispensed with.

By Thursday 6^th September Kolmar had updated their analysis of the relevant tanks and informed Meteor that only 10 of the tanks were acceptable (two of the 12 on the list referred to in para 11 above being unacceptable) and that, if the 10 acceptable tanks were loaded, the total cargo would be 16,619.834 m.t.. Since Kolmar did not want to pay deadfreight Ms Meyer asked Meteor to get Traxpo to allocate about 900 m.t. from a different tank.

On Monday 10^th September J.M. Baxi & Co (“Baxi”) , the vessel’s agents, gave notice that the vessel was now due at Kandia on around 19^th or 20^th September and would be ready for loading on arrival. Ms Meyer replied to Mr Joseph’s e-mail forwarding the notice to inquire about progress in respect of the additional 900 m.t. She also said that she awaited details from Traxpo for the Letter of Credit.

On 10^th September Ms John, who was from Meteor’s Calcutta office, phoned Mr Tapuriah to ask him about the details of the letter of credit. He said he would send them shortly. Mr Tapuriah then e-mailed to say that Traxpo wanted the letter of credit to be established in favour of an Indian company called PEC Ltd, which was Traxpo’s financier, and to be advised through the State Bank of India, permitting negotiation of third party documents as the invoice and other documents would be issued by Traxpo. His message was passed on to Ms Meyer.

On 11^th September Kolmar sent Meteor a draft letter of credit to be forwarded (as it was) to Traxpo for review.

On 12^th SeptemberING in Geneva opened a letter of credit on behalf of Kolmar, advised through the State Bank of India, in favour of PEC Ltd in respect of 17,500 m.t +/- 5% at $ 255 per m.t. with a latest date for shipment of 30^th September. The letter of credit did not state that 3^rd party documents were acceptable. A copy of the letter of credit was e-mailed by Meteor to Traxpo on that day.

The Letter of Credit was subject to UCP 600 which provides:

At this stage Kolmar had heard from the inspection company that Traxpo may have been using cargo earmarked for Kolmar to deliver to other customers. Kolmar wished, by opening the letter of credit, to make it clear that they were going to comply in full with their contractual obligations.

On 13^th September Mr Joseph discussed with Traxpo the possibility of using products from two further tanks (USTTL-202 and 303) for the balance of 900 m.t. and he instructed Intertek to draw samples from those two tanks and analyse them.

On Monday 17^th September Mr Samudra Dasgupta of Meteor advised Ms Meyer that he understood that both PEC and Traxpo would be having several amendment requests.

On 18^th September the vessel’s agents advised that she would be due at Kandla at 1500 hours on 19^th September and was likely to be ready for loading from 21/22^nd. They asked for cargo readiness documents to be submitted by 21^st September a.m. in order for them to be able to declare the vessel ready for export cargo in order to obtain a berth allotment. They said they would await copies of the shipping bills and wharfage paid challan (receipt).

By now Intertek had tested the other two tanks which were potential sources of cargo. On this date Meteor reported to Kolmar that one of them with 1,866.561 m.t. was satisfactory but that the other was outwith the specification in terms of potassium permanganate and acidity. The total quantity in the tanks then approved was 18,486.395 m.t.

At 1750 Mr Tapuriah sent Ms John, following her telephone prompting, an e-mail detailing the amendments to the Letter of credit which Traxpo sought. These included an amendment to the description of the goods so as to read:

On 19^th September Traxpo asked that the L/C should in addition provide that:

By now, as the agents advised, the vessel had anchored at 1350 and was likely to berth at an oil jetty that day and to be ready for the export cargo on 23^rd . Accordingly resolution of the terms of the letter of credit and tank allocation in respect of the remaining 900 m.t. needed to be determined.

Ms John and Mr Joseph met Mr Tapuriah at Traxpo’s offices. He told them that he did not now wish to include three particular tanks (USTTL-204, FOCT-109 and FSWA1-15 (Footnote: ¹)) but that he would load from 9 specified tanks. The total cargo in those tanks was 11,145.601 m.t. Meteor agreed to sample 4 other tanks.

Ms John forwarded to Traxpo proposals she had received the previous evening from Kolmar in respect of amendments to the Letter of Credit. These included acceptance of the description of the goods as in para 25 above.

On 21^st September 2007 Mr Mehta of Meteor had a discussion with Mr Sharma of PEC Ltd when they agreed on the terms of the letter of credit proposed by Kolmar subject to Traxpo’s agreement on certain matters. Mr Sharma insisted the letter of credit state that all third party documents including invoices were acceptable.

On the same date Kolmar confirmed their agreement that a third party named Rahul Sales Ltd (“Rahul”) would load approximately 6,600 tons of the cargo and Baxi gave notice that discharge from the vessel was slightly delayed and she was now tentatively estimated to be able to start loading at 0800 LT on 24^th September.

Also on this date Meteor received the analysis report in respect of the four further tanks which showed that three of them comprising 2,400 m.t. were on specification with the exception of the acidity levels and one appeared to be in order save for the potassium permanganate figure, although the final analysis indicated that that was within acceptable limits.

On 21^st September ING issued its first amendment to the letter of credit. The amendments included provision that the description of the goods should be as in para 23 above and also that:

On 24^th September 2007 Mr Joseph, the operations manager of Meteor, spoke to Mr Tapuriah. He mentioned that he would load only on the minus 5% side, in other words he would only load with a quantity of about 16,850 m.t. He also suggested to Mr Joseph that Kolmar should only load 15,000 m.t. and pay the deadfreight on the balance on the basis (as he claimed) that that would be more economical for them than loading the full cargo. Ms Meyer spoke to him on the telephone and told him that he should not do that because it would cause serious problems.

Traxpo advised Meteor that PEC had not as yet received the amendment to the letter of credit. A copy of the SWIFT document with the amendments was sent to PEC.

At 0100 LT on 26^th September Baxi gave notice of readiness to load.

On 26^th September Mr Tapuriah complained to Ms John that the amendment to the letter of credit should read:

On the same day ING issued a second amendment which read:

Also on the same day Intertek inspected the vessel’s tanks and certified them clean and suitable for a cargo of methanol. A surveyor for the shipper issued a certificate to similar effect.

In the afternoon Mr Tapuriah met Mr Joseph and said that he had incurred a lot of expenses in transferring material from one tank to another because Meteor had rejected some of the tanks on the basis of Intertek’s quality report which were subsequently found to be okay, and that he was visiting New Delhi the next day to meet up with PEC in connection with the methanol shipment.

On 27^th September Mr Tapuriah indicated to Baxi and to many others to whom the e-mail was sent that Traxpo had no objection to their bringing the vessel for loading “subject to confirmation from the surveyors as well as the charterers that the tanks are clean and the LC has been perfected as per requirements of PEC Limited.” He stated that, pending his surveyors’ report, Traxpo had informed its clearing agents to process the documents for the export of the cargo.

In a later message Mr Bisht of Baxi indicated to Mr Tapuriah that the vessel was next in line for berthing, that cargo readiness documents (shipping bills and wharfage paid challan and a letter saying that the cargo was ready for shipment) were awaited, and that the vessel would lose her berthing turn if the required documents were not provided by the time of the berthing meeting at 1100.

Later still Baxi informed Mr Tapuriah that that day’s berthing meeting was over without the cargo documents having been submitted and that the vessel was now waiting on account of non-readiness of cargo. They asked again for the documents, failing which the vessel would have to wait at the outer anchorage on Traxpo’s account.

At some stage during the day Mr Tapuriah told Ms John that he wanted a further amendment to the letter of credit so as not to require a certificate of quality from an independent surveyor detailing all the contractual specifications but to require a certificate that the specification of the loaded goods were as per the contract dated 28^th August 2007. In order to avoid any risk of Traxpo reneging on the contract Ms John reluctantly agreed.

On 28^th September Mr Tapuriah e-mailed Ms John to tell her (a) that PEC Ltd had received the amendments to the Letter of Credit and had confirmed that the same appeared to be OK; and (b) that there would be a shortfall of 3,500 m.t. in the quantity to be exported because the material which Traxpo had intended to load from the vessel Star Drem was to be imported by PEC Ltd. He added:

Mr Bisht of Baxi e-mailed Traxpo and others to inform them that because of the non submission of cargo documents (i.e. shipping bill and port wharfage paid challan) Baxi was not in a position to meet the Traffic Manager to ask for a berth. He requested the documents by Monday 1^st October.

During the course of the day Mr Tapuriah, who had been being pressed by Ms John and Mr Joseph over the previous days to provide the necessary documents, told Ms John that he expected them to be ready in the afternoon at around 1500 to 1600 LT. Baxi were so informed. Meanwhile the 1100 berthing meeting passed without the documents being presented.

A further problem arose when Traxpo’s clearing agents indicated to Meteor that the wharfage had only been paid on 6,300 m.t. of cargo and the balance was to be paid later. In the course of the day Traxpo’s clearing agents had provided Baxi with a receipt for wharfage in respect of 6,300 m.t. and what they described as “wharfage applications” and export orders in respect of 13,406.06 m.t. Traxpo appear later to have paid wharfage for a further 3,500 m.t, making 9,800 m.t. in all; and the agents gave an undertaking to Baxi that wharfage would be paid for the balance of 3,606.06 m.t. on 3^rd October (making 13,406.06 m.t. in all) as appears to have occurred. An approach was made to the Traffic Manager on the basis of those documents to secure a berth. He, however, demanded a letter from the shippers or their agents confirming that wharfage for the balance of 17,500 m.t. would be paid upon berthing (a letter which Baxi had previously sought to obtain from the shippers or their agents).

Tuesday was a public holiday. Nevertheless Baxi managed to persuade the Traffic Manager on the basis of the documents it had secured (received at least as to some of them at 1830 the previous day) to arrange that the vessel would berth on 3^rd October.

The vessel berthed at oil jetty No 3 at 0920 LT but loading did not commence.

Ms John had returned to Mumbai from Berlin in the early hours. She went to see Mr Tapuriah in his office. He told her that over recent weeks there had been a substantial increase in the price of methanol in the domestic market. He explained that Traxpo was having to purchase cargo from the domestic market in order to fulfil its obligations to Kolmar on a piecemeal basis. It would suffer large losses if it purchased at the market price and sold to Kolmar at the contract price. At the end of the discussion he told her that he would not keep his commitment but was only prepared to deliver 13,365.48 m.t. (derived from various different vessels and of Russian or Chinese origin) at the contract price of $ 255 per metric ton together with 3,500 m.t (derived from two vessels and of Qatar or Chinese origin) at a new price of $ 467 per metric ton. Kolmar would have either to take only the 13,365.48 m.t. and pay deadfreight for the shortfall or take the full quantity offered on those terms, which would have worked out at $ 305 per m.t. overall.

In the evening Ms John e-mailed Kolmar to tell them that these were the only two options given.

During the course of the day PEC requested that the letter of credit be amended to allow for partial shipments; and that amendment, together with the amendment in respect of the surveyor’s certificate, was arranged. As is apparent Kolmar was able to arrange an amendment to the letter of credit very speedily.

PEC also released delivery orders for 6,100 m.t. on Traxpo’s account. But no orders were released in respect of the methanol which was to come from Rahul. Mr Tapuriah claimed that Rahul was seeking a higher price and that if Rahul was to produce the material he had to be compensated for a difference in price of almost $ 100 a ton. Mr Tapuriah told Ms John he was being encouraged by many in the industry to pull out of the deal.

Meanwhile Kolmar/Meteor faced the prospect of the vessel being ordered off the berth. During the day the Traffic Manager asked Mr Bisht why, if the vessel was not ready for loading, he had been disturbed on the public holiday the day before and threatened to pull the vessel off the berth if loading was not commenced by 1500 LT. At some stage after that he issued a warning that, if the vessel did not start loading within 15 minutes, she would be pulled off the berth. Later he gave orders for the vessel to leave the berth at around 2100.

In the end the vessel began the loading operation at 1840 LT with inspection and flushing of shore lines.

Loading began at 0400 LT but had to be suspended almost immediately due to a leakage in the shoreline. A separate shoreline had to be made ready and loading re-commenced at 0900. Mr Tapuriah later telephoned Ms John to complain that Mr Berkhout, a surveyor instructed on behalf of Kolmar, had stopped the loading at first foot in order to draw another sample at 0935. In fact he had merely performed a routine first foot sample but this had caused the terminal manger to be livid.

When the sampling was over Traxpo – for some reason - told the terminal not to resume loading without their prior approval. When Ms John learnt of this she hurried to Mr Tapuriah’s office. He told her that, aside from the fact that he felt that Kolmar’s surveyor was proving difficult, he had had an enormous argument with his brother from whom he had requested a bridging loan to cover the price difference of the Rahul cargo. He said that his family were pressing him to back out of the contract with Kolmar because of the money they could make by reselling in the local market. Ms John tried to persuade him that it would be wholly improper to stop loading at this stage, would lead to adverse publicity in the local market for both companies, and would have huge financial implications as the product had been sold in the US and the sub-buyers would file a law suit. At about 1500 he finally asked the terminal manager of FSWAI, who was in a nearby room, to resume loading. Thereafter he kept telling her that he was still in two minds as to whether to perform the contract at all given the financial implications. He then went out of the office to meet someone (as he said) and did not return until 1800.

Later that day he called her to say that he would be coming to her office to discuss the matter further. When he arrived he said that it was becoming even more difficult for him to perform now as part of the cargo was to be shipped by Rahul who had heard that the market had gone up substantially. He said that only if Kolmar were to pay more for the cargo would he ship the entire cargo and do so promptly. He promised to think about it overnight but also said several times that he saw no future with Kolmar, particularly given what had happened and that for that reason he did not consider it of utmost importance to deliver for the sake of the relationship. She tried to make clear that Kolmar was very much interested in the future relationship (although in truth Kolmar did not at that stage think that any future relationship was likely). He said he would try and sort matters out generally and with Rahul and call back.

The letter of credit was amended again, pursuant to PEC’s request of 4^th October to provide for expiry on 7^th November and a last date of shipment of 7^th October.

By 0900 2,776 m.t. had been loaded at an average rate of 154 m.t. per hour. Ms John telephoned Mr Tapuriah. He said that he had agreed a price with Rahul for their 6,000 m.t. of $ 380 per m.t. Later that day she met him at his office and he said that he wanted to incorporate further amendments into the letter of credit. She asked him for a list of them. He said he was busy with someone else and kept her waiting for about an hour.

When he returned at about 1500 he presented her with a “take it or leave it” proposal. Traxpo would ship the balance of 6,143 m.t. at $ 255 per m.t. Rahul would supply 7,094 m.t. which would have to be paid for at $ 380 per m.t. Traxpo would also ship another 3,500 m.t. at $ 465 and a further 453 m.t. also at $ 465. The average for the total would be $ 352.84 per m.t (Footnote: ²).

Ms John was dumbfounded. If the vessel left without further cargo there would be a huge claim for deadfreight. Kolmar had already incurred about $ 140,000 in demurrage. Most importantly of all the US receivers were very important customers of Kolmar and Kolmar needed to provide them with a full cargo as soon as possible. Mr Tapuriah’s attitude was that, if Kolmar wanted this cargo and for the ship to continue to load, Kolmar had no choice but to accept. He said that the letter of credit would have to be amended to $ 350 per metric ton for 16,850 m.t. or, if Kolmar did not want the additional quantities (3,500 and 453 m.t.), the price would amount to $ 321.99 per m.t. Ms John complained that this was an exorbitant price which was being forced upon them. Mr Tapuriah said that nothing could be done about that at the moment although he might consider returning part of the extra amount at a later date.

By now it was 1600. PEC would close at 1700. PEC would only release the cargo once they had received the letter of credit amendment for the new prices. Mr Tapuriah said that at the very least Kolmar should provide a letter immediately confirming that the letter of credit would be amended to accept the new prices.

Ms John then called Mrs Sandelowsky, the Chief Executive Officer of Kolmar, in Switzerland to tell her of the position. She asked whether it was possible that Ms John had misunderstood the proposal because she had thought that the increase in price being demanded would only reflect the increased cost to Traxpo of purchasing from Rahul and that Kolmar would in effect be providing a bridging loan to cover that difference. Ms John asked Mr Tapuriah to clarify his proposal which he did in an e-mail to Kolmar.

Mrs Sandelowsky telephoned Mr Tapuriah back (Ms John being with him in his office) and protested that the proposal was unreasonable and that the new price would be about $ 1.7 million higher. He said that was not so because he was taking a quantity of 13,850 m.t. and not the contracted quantity of 17,500 m.t. He said he would give the matter some thought and phone back in ten minutes.

Once he had put the phone to Mrs Sandelowsky down he told Ms John that he had had enough and was throwing up his hands; the contract would not go through and, even if Kolmar submitted to the demands, nothing would happen as PEC would not receive the amendment to the letter of credit in time. He made it clear that his proposal was non negotiable. Mr Sharma of PEC then telephoned Mr Tapuriah and said that he was leaving for the weekend and would only take the matter up on Monday.

Ms John phoned up Ms Jubb of Kolmar and told her that Mr Tapuriah was unlikely to call Mrs Sandelowsky back and that the contract was in deep trouble again. Ms John asked if Ms Jubb could send a letter or do something to win some time by at least saying that Kolmar was preparing the necessary amendments. Ms Jubb sent a letter but Mr Sharma of PEC said that the wording was not to their satisfaction.

Following a further conversation with Ms Jubb, Ms John arranged for a copy of Kolmar’s request to ING for a further amendment to the letter of credit, incorporating Traxpo’s proposed payment terms in respect of the 6,143, 7,094 and 3,500 m.t. parcels, to be sent to PEC and Traxpo. The fax enclosing the request to ING said that it was “as per your request, which we have no other alternative but to accept”.

By the time that this was received it was 2130 and Mr Tapuriah said that it was too late. By now Mr Sharma had stopped picking up his phone. Mr Tapuriah called Mr Ravi, a director of PEC and asked him to intervene. Mr Ravi agreed to release 1,000 m.t. provided that he was shown a copy of the amendments. By now it was 2230 LT. At close to midnight he released 1,000 m.t and a delivery order was submitted to the Terminal Manager which prevented the vessel being ordered off the berth.

The shipowners urged Kolmar to organise concurrent loading of the 3,500 m.t, which would save 1 – 1.5 days loading. At this stage the port was heavily congested with over 15 vessels awaiting orders at anchorage. On the same day Ms John e-mailed Mr Tapuriah to tell him that 8,737 m.t still needed to be released immediately for loading and that if the vessel did not maintain its loading rate the vessel would be forced off the berth, which would lead to a minimum 6-7 days further delay before reberthing, which would lead to a stockout situation at the ultimate buyer’s end. He did not respond. At this stage the loading rate was an average of only 150 m.t. per hour.

On this day the vessel was ordered to vacate the berth at 0630 LT the next morning.

At around 0630 the vessel was moved from the berth having loaded only about 9,898.918 m.t. (shore figures) or 9,865.413 m.t. (per ship’s ullage) and there being no further product available to be loaded. During the day Mr Tapuriah informed Mr John and Mr Varghese of Meteor that he had delivery orders for 1,418 m.t. leaving (out of the 16,850 m.t. figure) a balance of 5,441.783 m.t. of which 3,908.951 m.t. was supposed to be available by transfer from the USTTL terminal which he thought could be released by Tuesday evening.

The fifth amendment to the letter of credit came though. Under it the amount was to be

Mr Varghese and Mr John went to Mr Tapuriah’s office again when he told them that he had delivery orders for 2,200 m.t. and outlined to them a plan to transfer product from tanks US-TTL 301 and 303 to the FSWAI terminal.

No transfers from tank no 301 could take place because the only line was in use.

The pump-over from tank no 301 began. When Ms John went to his office Mr Tapuriah asked for the letter of credit to be further amended in relation to the latest date for shipment and expiry time.

The Letter of Credit was amended to provide for a latest shipment date of 16^th October and a validity until 6^th November and for a description of goods which read:

By this date Kolmar had decided to go ahead with a purchase of about 2,500 m.t from BK Sales Ltd, one of the largest and most reputable importers of methanol at Kandla to replace the shortfall arising as a result of Traxpo’s failure to supply the contract quantity. When the berthing meeting took place Meteor had received letters of confirmation from Traxpo and BK Sales’ forwarding agents addressed to the Traffic Manager advising that they were ready in all respect to load the balance of the cargo and requesting the Port Authorities to bring the vessel to the berth. As a result the terminal allocated a berth to the vessel – Oil Jetty No 2 - after the vessel currently there completed discharging which was estimated to be at around 2200 LT.

The vessel finally re-berthed at 0410 at Oil Jetty No 2. Loading resumed with the BK Sales parcel at 0620. Mr Tapuriah made a further request for the extension of the letter of credit.

An amendment was effected that day and notified to Traxpo extending the shipment date to 18^th October and the expiry date to 7^th November. Loading was suspended at 1600 because no cargo was ready.

Kolmar nominated two vessels to Traxpo for the loading of the balance of the cargo – 1900 m.t. Mr Tapuriah told Ms John that he could not accept either vessel as he had no cargo and he had a problem with a Special Investigation Bureau inquiry.

The vessel completed loading at 0635 and left the berth at 1500. The Mates’ Receipts covered 14,795.438 m.t.

Ms John spoke to Mr Tapuriah several times trying to persuade him to give her a reply on the vessel nomination for the balance of the cargo. He said that Traxpo could only accept a vessel with a loading period after 20^th November.

During conversations between Mr Tapuriah and Mrs Sandelowski and Ms John Mr Tapuriah accepted that morally he was obliged to pay Kolmar the price difference between $ 350 and $ 465 per m.t. for the unshipped quantity. He advised that he had no objection to providing the outstanding balance of the cargo but was not willing to make any transfers between tanks in order to avoid any quality issues; nor was it possible to do any book transfer (i.e. a stock transfer from one terminal to another without any physical transfer) because of the SIB inquiry. He also said that he had a shipment due from Iran in mid November from which he could provide the outstanding quantity.

PEC Ltd forwarded to Kolmar the documents which they had lodged for negotiation with SBI which included the Mates’ Receipts). The letter invited acceptance of the documents despite discrepancies (of which there were several).

Kolmar e-mailed to Traxpo complaining that Traxpo’s actions had been wholly unlawful and amounted to economic duress giving Kolmar no alternative but to submit to them in order to receive a cargo to satisfy their customers under their own sale. The e-mail also referred to demurrage incurred of $ 381,101 and shifting expenses and claimed damages of $ 323,000. Ms John discussed this message with Mr Tapuriah urging him to agree to ship the outstanding balance and to discuss the return of funds which Traxpo had extorted from Kolmar. Mr Tapuriah declined to be pushed into any agreement.

Mr Tapuriah replied to Kolmar claiming that the price had been re-negotiated; and that such re-negotiation could have been stopped at any stage. His e-mail rejected the allegation of economic duress as baseless. He contested demurrage on the ground that no copy of the charter had been provided and the voyage had not come to an end.

Various discussion took place between Ms John and Mr Mehta of Meteor, Mr Sharma of PEC and Mrs Sandelowsky and Mr Tapuriah the upshot of which was that PEC would not guarantee the balance of Traxpo’s shipment nor would they be prepared to hold the disputed amount in escrow. If the documents were not to be accepted by Kolmar they would be withdrawn and Traxpo would interfere with the discharge of the cargo. By now the vessel was due to arrive at the discharge port around 15^th November. Kolmar decided that it had no option but to accept the documents and pay in order to prevent any risk of Traxpo delaying the delivery of the cargo.

On this day ING authorised the State Bank of India to negotiate the documents.

On 17^th December these proceedings were started.

Mr Michael Ashcroft for the claimants submitted, and I agree, that the authorities (summarised in Goff & Jones, The Law of Restitution (17^th Ed) 10-025 to 10-51 and Chitty on Contracts (30^th Ed) 7-014 – 7-055; and in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR para 131) establish the following principles:

it is relevant to consider whether the claimant had a “real choice” or “realistic alternative” and could, if it had wished, equally well have resisted the pressure and, for example, pursued practical and effective legal redress. If there was no reasonable alternative, that may be very strong evidence in support of a conclusion that the victim of the duress was in fact influenced by the threat.

the presence, or absence, of protest, may be of some relevance when considering whether the threat had coercive effect. But, even the total absence of protest does not mean that the payment was voluntary.

I am quite satisfied from the evidence as to the history of events which I have summarised above that Kolmar agreed to amend the letters of credit to increase the price and reduce the quantity and to accept and pay for the documents tendered as a result of illegitimate pressure amounting to economic duress on the part of Traxpo which left Kolmar with no practical choice but to agree to pay an increased price for such methanol as it did receive. Kolmar had purchased the methanol at an agreed price in order to supply it to Methanex, a very important customer. Traxpo’s refusal to supply the quantity which it contracted to deliver at the agreed price placed Kolmar in a position in which it had no real alternative but to submit to Traxpo’s demands and claim redress later. For every day that the cargo was not loaded Kolmar was exposed to ever increasing claims from the shipowners in respect of demurrage on the vessel it had chartered at $ 20,000 per day. Arguing with Traxpo would be likely to delay the loading of the vessel still further with an increasing likelihood that the vessel would be taken off the berth again and only allowed back after several days had elapsed.

If a full cargo was not loaded Kolmar faced a very large claim for deadfreight. If the vessel had sailed on 5^th October the deadfreight would have been about $ 1,075,000. Kolmar desperately needed the cargo in order to supply Methanex, and, if it failed to do so, would not merely suffer a severe loss of reputation with a client of great potential importance but would in all probability be exposed to very large claims. The price under the Methanex contract was $ 394 CIF Houston. The market price was $ 520. So the claim would be for over $ 2 million. If Kolmar did not procure the cargo from Traxpo the only alternative would be to try to purchase an alternative in the open market. If this had been possible at all, which, in the then state of the market was doubtful, it would have been at a very high price. The prospect of speedy legal redress was remote and any obligation of Traxpo was unsecured.

Kolmar, through Ms John, made contemporaneous protests which fell on deaf ears. On 5^th October Kolmar provided amendments to the letter of credit on the basis that it “had no other alternative but to accept”. Ms John protested verbally to Mr Tapuriah about Traxpo’s threatened non-compliance in her discussions with him. There was, however, a practical limit to the extent that Kolmar could protest having regard to the possibility that Traxpo would walk away from the contract completely, which it had threatened to do. Mr Tapuriah cannot have thought that there was any legal or moral justification in the stance that he was taking. He must have sensed Kolmar’s increasing desperation. So soon as the cargo was finally secured, Kolmar promptly asserted its legal rights and began these proceedings.

In those circumstances, subject to the putative defences that have been raised by Traxpo, Kolmar is, in my judgment, entitled to restitution of the increased payment which it has been forced to pay by the economic duress constituted by Traxpo’s illegitimate threat of breach of contract.

Traxpo contends that it was not obliged to perform the contract at all because Kolmar failed to provide an acceptable letter of credit. Kolmar agrees that it was bound to provide a letter of credit which complied with the terms of the contract and which was fair and reasonable in its terms as a condition precedent to Traxpo’s obligations to perform any part of the loading operation: Kronos Worldwide Ltd v Sempra Oil Trading SARL[2004] 1 Lloyd’s Rep 260.

The question arises as to the time by which Kolmar was bound to provide such a letter. I understood from Mr Ashcroft’s submissions at the hearing that there was no authority on the point and none was cited to me. Authority is not, however, lacking.

In Ian Stach v Baker Bosley Ltd[1958] 2 Q.B. 130 the contract was for the sale of ship plates f.o.b. Benelux port for shipment to Canada in August-September 1956 with payment to be by confirmed irrevocable credit. The buyers failed to open the credit either by August 1^st or by August 8^th when the sellers called for it to be opened immediately. Diplock, J, as he then was, held that it was the duty of the buyers to establish the credit by August 1^st at the latest and that, although the sellers had waived their right to treat the contract as repudiated by reason of their failure to do so until such time had elapsed after August 8^th as could be regarded as “immediately”, on August 14^th the sellers had been entitled to accept, as they did, the buyers’ breach as a repudiation of the contract.

Diplock, J considered himself bound by the decision of the Court of Appeal in Pavia & Co S.P.A v Thurmann-Nielsen[1952] 2 QB 84 that in c.i.f. contracts the credit must be opened at the latest at the beginning of the shipment period. In such a case, the seller is entitled, before he ships the goods to be assured that when he does so, he will get paid. He also referred to what he regarded as obiter observations of Denning LJ in Sinason-Teicher Inter-American Grain Corporation v Oilcakes and Oilseeds Trading Co Ltd [1954] 1 WLR 1394 that the correct view, if nothing is said in a c.i.f. contract as to the time for opening a letter of credit, is that the buyer must provide the letter of credit within a reasonable time before the date of shipment.

He then referred to five cases on f.o.b. contracts where it was either held or assumed that the credit had to be opened at the latest by the shipment date. But, as he observed, none of those cases were cases of a classic f.o.b. contract where the buyer was entitled to call for shipment at any time within and up to the end of the shipping period.

In the absence of authority on the matter he determined that the credit must be opened at the latest by the earliest shipping date. He rejected the suggestion that it had to be opened only a reasonable time before the actual shipping date, a result which he regarded as giving rise to great uncertainty undesirable in a commercial contract.

This is not, however, the way in which the matter was pleaded in the defence, where Traxpo’s contention was that Kolmar was bound to open the letter of credit within a reasonable time after the contract was made, alternatively in good time to allow the cargo to be prepared for loading and loaded within the contractual period for shipment. Kolmar’s reply asserts that its obligation was to provide a letter of credit a reasonable time before shipment was to occur.

Even if it stood alone, I would be minded to follow Diplock J’s decision in Ian Stach. His conclusion produces commercial certainty and results in the credit being available to pay the price at whatever date the buyer chooses to call for shipment during the shipment period. An obligation to open the letter of credit within a reasonable time after the contract date introduces an element of uncertainty and might have the result in a case where the contract date is, as here, very close to the commencement of the shipment period that the credit was not open when the seller was called upon to ship them or when he was reasonably preparing to do so.

In a classic f.o.b. contract the duty of the buyer is to nominate a ship at such time as will enable the seller to put the goods on board before the end of the shipment period: J J Cunningham Ltd v Robert A Munro & Co Ltd (1922) 13 Ll .L. Rep 216. But that does not, as it seems to me, determine when the buyer is bound to provide the letter of credit. An obligation to provide the credit within such a time as would enable the vessel to load the contractual quantity within the shipment period or within a good time for that purpose would, if the buyer called for the goods at the beginning of the period mean that he was not guaranteed a credit until the end. An obligation to open a credit within a reasonable time before shipment leaves the seller without the security of a credit at the beginning of the shipment period which he may need in order to open a letter of credit in favour of his supplier.

It seems to me, however, that the issue is concluded by the decision of the Court of Appeal in Glencore Grain Rotterdam B.V. v Lebanese Organisation for International Commerce [1997} 2 Lloyd’s Rep 386. In that case the sale was an f.o.b. sale for shipment in March (subsequently varied to April), payment to be by confirmed letter of credit. The Court held that that the buyers were obliged to open a letter of credit in accordance with the contract requirements before the shipment period began i.e. by April 1^st at the latest. Terms of the letter of credit notified on March 24^th and March 29^th were not as required by the contract. On 1^st April the sellers refused to ship the goods in accordance with the contract, giving an inadequate reason for doing so. Instead they demanded a price increase and insisted on more onerous payment terms. But they were held to be entitled to treat the contract as repudiated by reason of the absence on 1^st April of a letter of credit conforming to the contract.

The letter of credit in the form in which it was on 21^st September after the first amendment was in my judgment acceptable. The incorporated UCP provided that the shipper or consignor did not have to be the beneficiary but that the invoice must appear to have been issued by the beneficiary. Neither PEC nor Traxpo was, as it seems to me, entitled to insist on the letter of credit specifically providing that all third party documents including invoice were acceptable. If that be wrong the letter of credit in the form in which it was on 26^th September was acceptable, as Mr Tapuriah confirmed on 28^th September.

An acceptable letter of credit was not, therefore, opened by the beginning of the shipment period. But Traxpo waived Kolmar’s obligation to open an acceptable letter of credit by that date.

It did so (i) by asking, on 10^th September for the letter of credit to be established in favour of PEC Ltd; (ii) by detailing, on 18^th September, the amendments to the existing Letter of Credit that it sought; (iii) by asking for further amendments on 19^th and 26^th September; (iv) by saying on 27^th September that it had no objection to the vessel being brought for loading subject to confirmation, inter alia, that the letter of credit had been perfected in accordance with PEC’s requirements; (v) by confirming on 28^th September to Ms John that PEC has received the latest amendment to the letter of credit and had confirmed that the same appeared OK; and (vi) by never suggesting that the contract was to be regarded as at an end or that it was not obliged to ship for want of a satisfactory letter of credit or that it would be so regarded if a satisfactory letter of credit was not produced within some specified period. Throughout the period Kolmar continued to perform its side of the contract by making the vessel available for loading and (but against its will) amending the letter of credit. After 28^th September Traxpo continued to seek and obtain further amendments to the letter of credit, which amendments included extensions of the shipment and expiry dates.

If the relevant question is whether or not a letter of credit conforming to the contract was produced within a reasonable time after the contract, then that obligation was, in my judgment satisfied, whether one takes 21^st or 26^th September as the date.

Although it had taken over three or four weeks to produce the letter of credit, it seems to me that in determining what is a reasonable time it is legitimate to take into account the facts (a) that Traxpo had made no demands for the opening of a letter of credit prior to 12^th September; (b) that Mr Tapuriah had e-mailed brief details of what he wanted in the letter of credit on 10^th September and that thereafter there had been negotiations between the parties with a view to accommodating Traxpo’s requests; (c) that there had also been extensive discussions as to the tanks from which the methanol might be supplied; and (d) that at no time before 26^th September did Kolmar seek to have the cargo shipped nor did Traxpo have a full cargo which it was prepared to make available.

If the test is whether an acceptable letter of credit was opened within such a time as would enable the vessel to load the contractual quantity within the shipment period, then, if one is to take the loading rate taken in the contract for the purpose of calculating laytime, there was plenty of time for loading if the relevant date is 21^st September. If the relevant date is 26^th September then there was just sufficient (17,500 m.v. @ 175 m.t. per hour = 100 hours = 4 days and 4 hours).

If the test is whether the letter of credit was opened a reasonable time before shipment, the answer is that it was because the parties extended the letter of credit shipment date to cover the shipment that was to take place.

In any event, even if Kolmar was in breach of its obligations in respect of the opening of a letter of credit because it failed to open a letter of credit in time, Traxpo waived that breach for the reasons set out in paragraph 109 above.

The second point upon which Traxpo has sought to rely is that Kolmar wrongly rejected cargo from tank USTTL 204. It is, however, apparent from the evidence of Ms John, Mrs Sandelowski, and Mr Berkhout, Kolmar’s surveyor, that Kolmar did no such thing. Tank 204 was originally approved for loading. Traxpo then decided not to use it, presumably because they wanted it for another customer. In the event loading did take place from that tank on 17^th October, presumably after it had been refilled. At no stage was the product in the tank rejected.

Lastly Traxpo relies on the contention that the increased prices were paid pursuant to agreed amendments to the letter of credit. But those amendments, which were the security for payment of an increased price for a lesser amount of cargo, were themselves procured by economic duress. They were the means by which Traxpo, by threatening breach of contract, extracted more than the contract price.

The claim under this head is for $ 1,405,566.61 calculated as follows:

In my judgment Kolmar is entitled to recover that sum by way of restitution since it has been deprived of it by Traxpo’s economic duress. Further that sum represents an amount that Kolmar has paid out for a consideration which has wholly failed. Traxpo gave no consideration for that payment except a promise to perform a contractual obligation to which it was already subject accompanied by a threat of non-performance of that obligation which amounted to economic duress. That is not good consideration: South Caribbean Trading Ltd v Trafigura Beheer BV[2005] 1 Lloyd’s Rep 128.

The tort of intimidation is established where (i) the defendant makes a demand backed by a coercive and unlawful threat; (ii) the claimant complies with that demand because of the coercive and unlawful threat; (iii) the defendant knows or should have known that compliance with its demand will cause loss and damage to the claimant and (iv) the defendant intends its demand to cause loss and damage to the defendant: Clerk and Lindsell (19^th Ed) 25-65 – 25-87.

Those requirements are, as it seems to me, satisfied. Mr Tapuriah made demands for price increases which were backed by coercive and unlawful threats that Traxpo would not perform its obligations. Mr Tapuriah intended that Kolmar should comply with those demands in a way which would, as he knew, cause it loss. Kolmar did comply with those demands as a result of those threats.

Accordingly, Kolmar is entitled to $ 1,405,566.61 as damages for intimidation.

Kolmar claims that it was entitled to, and did call for delivery of 17,500 m.t., whereas Traxpo only supplied 14,795.438 m.t - a shortfall of 2,704,562 m.t. Accordingly it claims damages for short delivery as follows:

Contract price

Market price

The only defence raised in respect of this claim is that Kolmar agreed to vary the contract so as to accept a lesser quantity of cargo in full discharge of Traxpo’s obligations.

In this respect there was no amendment effected by Mr Tapuriah’s request of 29^th August 2007: see para 8 above. Nor can Traxpo rely upon its insistence on Kolmar making amendments to the letter of credit so as to reduce the quantity of cargo which the letter of credit was to cover. These were variations to facilitate payment of the quantity of cargo that Traxpo was willing to provide at the prices which it demanded. Kolmar’s agreement to open letters of credit for amounts lesser and prices higher than the contract was the result of Traxpo’s economic duress and voidable (and avoided) by Kolmar. It does not represent a freely agreed renegotiation of the contract.

The contract originally provided for 15,000 m.t. +/- 5% in Buyer’s option and an optional 2,000 – 3,000 +/- 5% in Buyer’s option. Kolmar nominated the vessel to carry a minimum cargo of 17,500 and that nomination was accepted by Traxpo. But then Traxpo asked Kolmar to make amendments to the letter of credit which provided for the 5% to be at Traxpo’s option and Kolmar agreed to do so. That agreement was not the result of any form of duress. In those circumstances it seems to me that the parties have agreed a variation in respect of the contractual quantity so that Traxpo would be entitled to deliver only 95% of 17,500 i.e. 16,625.As Evans LJ said in Glencore v Lorico, the parties’ agreement as to the terms of the letter of credit “may result in a letter of credit agreement which supplements or even varies the terms originally agreed”: p 394.

In those circumstances Kolmar’s damages are as follows:

Contract price

Market price

The loading rate was agreed as 175 m.t/hr and the demurrage rate as $ 20,000 pdpr. On that footing the demurrage due is in the sum of $ 356,424.60. The vessel was on demurrage for 17.82123 days calculated in the manner set out in paragraph 35 of the Points of Claim at $ 20,000 per day.

The documents evidencing the demurrage claim were presented to Traxpo on 22^nd October. The only point raised contemporaneously was that the claim was premature because a copy of the charterparty had not been provided and the voyage had not been completed. The voyage has now been completed. The former point is irrelevant because the contract simply referred to the standard form not to any actual charterparty. The pleaded defence sets out no particular reasons for denying or disputing the claim. It denies that it was a term of the contract that Traxpo would pay demurrage. But, as appears from clause 9, the laytime and demurrage were to be agreed (as they were) on the vessel’s nomination and the other maritime conditions were to be in accordance with the Asbatankvoy form, which by clause 8 requires the payment of demurrage.

In my judgment Kolmar is entitled to recover $ 356,424.60 under this head.

Kolmar is entitled to recover $ 5,162.13 for the expenses, payable to the shipowners, of shifting the vessel off the berth on 8^th October due to the total lack of any cargo for loading, which was the result of Traxpo’s breaches of contract in failing to load the cargo within the shipment period and in falling and refusing to make cargo available unless Kolmar paid an increased price.

Accordingly Kolmar is entitled in my judgment to recover as follows:

I shall hear counsel on the questions of interest and costs.