Choil Trading SA v Sahara Energy Resources Ltd

Choil Trading SA, the claimant (“Choil”) was but no longer is an oil trader. It sold 30,000 metric tonnes of Jet A1 to Sahara Energy Resource Ltd, the defendant (“Sahara”), another oil trader. It is common ground that $ 61,833.33 is due to Choil from Sahara for demurrage under that contract.

The dispute between the parties relates to what Choil alleges was a significant quality defect in a cargo of naphtha purchased by Choil from Sahara FOB Port Harcourt in Nigeria. The cargo contained an abnormally high quantity of Methyl Tertiair Buthyl Ether (“MTBE”), a man made substance which is not a by-product of the production of naphtha. After the dispute arose the parties came to an arrangement whereby Choil would accept delivery of the naphtha and make a payment of the purchase price less $ 1,200,000 and Sahara agreed to pay demurrage of $ 272,781,25 (less than the sum claimed) in relation to both contracts on the basis that this should be without prejudice to the legal position of the parties. It is accepted that Sahara is entitled to the balance of the price of the naphtha in the sum of $ 1,200,000.

On 3^rd May 2007 Pipelines and Products Marketing Company Ltd (“PPMC”), a subsidiary of the Nigerian National Petroleum Corporation, offered Sahara 30,000 mt of Naphtha from Port Harcourt Refinery at Alesa Eleme +/- 5% at Sellers option. The quality was to be “PHRC (Footnote: ¹) Naphtha quality” and the price was to be the mean of Platts quotations for Naphtha bought FOB Rotterdam for 5 consecutively published quotations with the bill of lading date as day 3 (otherwise known as PPMC’s prompt pricing option) minus $ 79.50 per m/ton. The offer provided that the laycan was to be advised, subject to product availability and acceptance of offer. The laytime was to be 42 hours + 6 hours after NOR SHINC. Notice of Readiness was to be tendered between 0600 and 1600 hours. On July 16^th PPMC informed Sahara that the laycan to load the cargo was 25^th – 26^th July 2007 subject to product availability.

On 11^th July Port Harcourt Refining Company (“PHRC”) took what was described as a representative sample from Tank 52tk03A. This revealed that the Saybolt Colour of the naphtha was +23.9. This certificate was provided to Choil. There are a number of tanks at Port Harcourt, and product is interchanged between them. Some of them are tanks used for loading and some are intermediate tanks, 03A was an intermediate tank.

Sahara entered into negotiations with Choil to sell the naphtha to it. On 17^th July there was an exchange of messages between Cyril Secchi of Choil and Elizabeth Driay of Sahara which included the following:

“Cyril secchi: j’ai une toute petite question pour toi: sur ce naphtha, c’est as is?

Eli Driay: yep

Cyril secchi: ok cool merci”.

On 18^th July Ms Driay of Sahara e-mailed Simon, Martin and Cyril (i.e. Simon McKenzie, Martin Farr and Cyril Secchi) of Choil as follows:

“Following our conversation, please look at following and confirm your agreement.

We expect name of your ship asap to fully confirm the deal. Shall you have two in mind please mention to us, so we could clear them both.

Quantity: 30,000 mt +/- (Footnote: ²) 5% buyers option but always subject to terminal/operational final agreement.

Quality: PHRC naphtha quality. You have received the specs taken from the tank which is what is being made available to us.

Laycan: 25-26^th July 2007

Inspection: 50/50, we recommend Q + Q, which is of great help there.

Price

High cif quotation for naphtha CIF cargoes NEW (Footnote: ³) for five consecutively published quotations around bill of lading (2/1/1, 3/0/2) minus 40,00 usd/mt (forty dollars per metric ton)

Payment

Against letter of credit to be opened ASAP, please indicate which bank you are willing to use to facilitate the process.

Payment: 20 days after bill of lading date

Port dues Borne by buyers”

On Thursday 19^th July someone at Choil filled in an internal deal sheet which noted, inter alia, the following:

“Laytime 36 + 6”

At 1438 Martin Farr of Choil replied to Ms Driay’s e-mail of 18^th July as follows:

“Just to confirm the deal as below, and we will send u the full contract back to u this afternoon once our ops have written it! The l/c is being worked on by the finance dept and bank and we expect this to be sent to you this afternoon too”.

What was below was Ms Driay’s e-mail of 18^th July.

At 1610 Choil asked Banque Cantonale de Genève (“BCG”), by an e-mail copied to Sahara, to open a letter of credit in favour of Sahara. BCG notified Credit Agricole Indosuez (Suisse) S.A. (“Credit Agricole”) by telex of the issuance of that credit. A paper copy letter of credit was generated at 1755.

At 1014 Mr Lorin Jessenberger of M2S S.a.r.l. (“M2S”), Geneva, a service company which acted on Choil’s behalf, e-mailed to Mr Nwagagbo of Sahara Choil’s loading and documentary instructions.

At 1212 Mr Balmon of M2S e-mailed on behalf of Choil to Valerie Riahi of Sahara in the following terms (“the 20^th July terms”):

“We are pleased to confirm the following transaction concluded on July 18^th 2007 as per terms and conditions here below:

At 1726 Credit Agricole notified Sahara that it had received the letter of credit from BCG. At 1739 Ms Driay acknowledged receipt of the 20^th July terms and said:

“Please note that we will comment on it on Monday, particularly on clause 11, where port costs were clearly discussed to be for buyers account, since it is charterers responsibility, as well as war risk premium.

As nicely expressed bwteen [sic] myself and simon …”

Ms Driay then set out in the e-mail various text messages between her and Simon MacKenzie on 17 July in the course of which she had asked him whether he had taken into account the port charges and extra war risk insurance in Nigeria.

On 23^rd July Sahara did not, in the event, comment on the 20^th July terms.

At 0835, Geneva time, Mr Nwagagbo of Sahara Energy Service S.a.r.l, Geneva asked Choil who their agents at the load port would be. At some stage in the day he asked for any updates on Choil’s proposed vessel and most preferred agents at loadport. At 1610 Choil e-mailed Mr Nwagagbo a Q 88 questionnaire in respect of the vessel “Prem Mala” which was described as a “possible performing vessel” for the deal. That questionnaire specified, inter alia, the vessel’s draft and standard deadweight tonnage of 47,044 mt.

At 1716 Mr Nwagagbo e-mailed Choil to say that Sahara would do all it could to ensure that Prem Mala was cleared [by their suppliers] and asked for a possible eta. At what was probably 1735, Geneva time, Mr Jessenberger on behalf of Choil e-mailed that the vessel’s ETA loadport would be July 25^th and the demurrage rate $ 29,000.

At some time on 23^rd July Sahara nominated the Prem Mala to PPMC, as appears from the fact that on 24^th July PPMC wrote to Sahara (i) acknowledging Sahara’s letter of 23^rd July nominating that vessel in substitution for another vessel and (ii) accepting her.

At 1726 Mr Secchi e-mailed to Ms Driay in the following terms:

“j’aurai besoin de resultats supplememtaires sur ce naphtha

Voici la liste de ce dont j’ai besoin (evidemment, ne fait pas attention aux resultats)

The e-mail then set out a list of specifications including:

“MTBE mg/kg BY GC max 50”

Ms Driay replied (in French) saying that she was in the course of seeing how to get a sample sent as fast as possible to “fina at lavera” (i.e. the testing facility of Fina, the petroleum company) in order to get the best in terms of specs .

PPMC accepted Sahara’s nomination of the Prem Mala (see para 16 above).

At 1038 Mr Nwagagbo for Sahara e-mailed to Choil:

“Your vessel is acceptable to load”.

At 1119 Mr Nwagagbo e-mailed Choil in the following terms:

“Quantity

Should read 30,000 metric tons +/- 5% in buyers option subject to final terminal acceptance.

Laytime

Laytime allowed to seller for delivery shall be 42 hours shinc and shall commence 6 hours after nor if tendered within agreed delivery range and nor to be tendered between 0600hrs and 1600hrs.

Section of this clause not clear and requires clarification

“Provided however that vessel is not detained for seller’s or loading terminal own purposes in excess of two hours following hoses disconnection, otherwise time will cease when vessel is fully released by seller/loading terminal.” What time please specify.

Demurrage

Demurrage shall be time barred after forty five days.

West Africa Clause

We do not accept this wording.

At 1159 Choil appointed SGS as surveyors and identified the matters which were to be the subject of analysis. These included MTBE in mg/kg. At 1225 Choil appointed Daddo Maritime Services Ltd of Lagos (“Daddo”) as ship’s agents for the Prem Mala. At 1311 Choil e-mailed Mr Nwagagbo confirming that the “Prem Mala” would be the performing vessel; that her ETA Port Harcourt was 25.07.07 PM; and that the ship’s agents were Daddo.

At 1318 Choil gave the Master preliminary voyage orders. These orders called for the vessel to load up to her full capacity but not exceeding 31,500 mt. At 1321 Choil informed Sahara of Daddo’s appointment as ship’s agents and that it was Choil’s intention to load up to the vessel’s full capacity “(i.e. approx 29,400 mt) but no more than 31,500 mt.

At 1604 SGS Oil, Gas and Chemical at Port Harcourt (Mr Femi Lawalson) reported to Choil:

In response Mr Jessenberger for Choil asked SGS to perform a full analysis.

On the same day Mr Lawalson of SGS told Mr Nwagagbo that the samples (6 x 2 litres) would be drawn from each shore nominated tank and 2 litres from each would be sent to Lagos and then to the SGS laboratory in Amsterdam, which would invoice the costs of customs clearance, transport and analysis at SGS Amsterdam. Mr Nwagagbo asked Mr Lawalson whether it would be possible to sample before loading and send to Amsterdam for full analysis. Mr Lawalson indicated that, once Sahara’s approval was received, SGS would do their best to get a sample from shore tanks available for loading.

In the course of the day Mr Nwagagbo told Ms Driay that the inspectors were being told to draw 1 x 5 litres composite shore tank sample for testing at SGS Amsterdam. Ms Driay expressed the view that the earlier testing could be carried out the better.

Mr Lawalson of SGS asked Choil for clarification of whether they were to send for analysis samples from shore tanks prior to loading or a ship’s composite after loading and, if the former, whether the samples were to be drawn then or when the tanks were nominated for loading. He pointed out that PHRC usually nominated shore tanks 24 hours before loading and that despatch to Amsterdam and analysis would take about a week. He also reported that the plant was down due to a power problem and that the pumpable quantity was 34,800 cu metres or 25,600 m tons. Mr Jessenberger replied to say that the samples should be from the shore tank’s composite.

On or about 25^th July Choil sold to Petrogal Trading Ltd (“Petrogal”) 27,000 Metric tonnes Min – 30,000 Metric Tonnes Max in seller’s option of Naphtha. The contract contained, inter alia, the following terms (which are set out in Choil’s e-mail to its traders of 27^th July) :

“Naphtha as usually exported ex Port Harcourt, Nigeria with the following guarantee

There were then set out various characteristics including

Mtbe mg/kg 50 ppm max

Delivery

In seller’s nominated vessel (M/T Prem Mala already accepted by buyer) in one lot as full or part cargo CFR one safe port, one safe and always accessible berth, Basis Leixoes, Portugal consistent with scheduled loading during the period 25^th July – 28^th July, 2007 (both dates included) at Port Harcourt, Nigeria.

Date of vessel’s bill(s) of lading to count as delivery date.

Seller to allow buyer charterparty options for discharge at other port(s) with freight differential, if any, at charterparty rate, terms and conditions to be for buyer’s account.

Nomination

Seller to nominate vessel latest 24 hours before first day of delivery date.

Price

In US dollars per metric tonne CFR Basis Leixoes, Portugal, on bill of lading quantity shall be calculated as follows:

Price to be the average of the mean Platt’s European Marketscan Quotations for Naphtha under the heading ‘Cargoes CIF NWE/Basis ARA’/ As valid for the effective and consecutive Platts European Marketscan Quotations published during the period 6^th-10^th August, 2007 (both dates inclusive) plus a premium of US dollars 17.00 (US dollars seventeen and zero US cents) per metric tonne.

Final price to be rounded to three decimal places.

Mean Platts CIF NWE/Basis ARA for 6^th – 10^th + $ 17”

The contract was on terms that if the cargo did not meet the specification Petrogal had the right to renegotiate the price and that Choil had no obligation if the cargo was off specification. The sale was, I infer, made on these terms because (a) the true quality of the cargo was not then known and (b) the market premium for naphthenic (as opposed to paraffinic naphtha, which this was) was likely to reduce in August and September. Since Choil had no reliable data on the quality of the naphtha that was to be loaded they ran the risk that the contract with Petrogal would not go through (although not that they would be liable if it did not).

It is not entirely clear whether Petrogal purchased the naphtha for use in their refinery , or for petrochemical feedstock (in respect of which a high paraffin content is desirable) or for gasoline. Mrs Annesley, Sahara’s expert, thought that it would have been intended for gasoline (where a high naphthene content is desirable) and not for feedstock where a high paraffin content (she thought 60-70%) was necessary for economical working. The likelihood is that it was for use in the refinery. Petrogal has a refinery and is not a gasoline blender. It specified a 50 MTBE maximum, the usual limit.

SGS reported to Mr Nwagagbo that they had sampled the tanks identified as to be used for loading, being shore tank 52tk57A and intermediate shore tank 52k03A. The physical appearance of the cargo was coloured. The SGS laboratory had carried out a colour check which produced a Saybolt colour figure of + 20 for the former and + 6 for the latter. Both of these were below the specification of + 23.9 in the 20^th July terms. SGS told the PHRC Cargo Control Manager the result and he had said that PHRC would change the tank and that SGS should suspend any further action on the samples.

Mr Nwagagbo replied:

“If I understand what your mail is saying we have a quality issue here; from the stock report it is clear that the volume of the nominated tank would not be enough to load our cargo; the balance would have to be pumped from the intermediate shore tank in to the nominated tank. Are we looking at a quality issue on the large scale and not just in litres?

Please treat the matter with absolute urgency because the vessel is to arrive pm today”.

SGS replied that they were monitoring the situation and would ensure that the samples were drawn as soon as the tanks were ready. They also reported that the berth was presently occupied by a vessel that was discharging Petroleum Motor Spirit (“PMS”) which might not complete until Monday 30^th July.

Choil asked Mr Nwagagbo to arrange that the pumping line be cleaned before loading of the naphtha in order to avoid contamination.

On the same day the Master reported that the water was brackish and not salt as a result of which the intake would be reduced by approximately 360 tons.

At 1900 hours (Nigerian time) the vessel tendered Notice of Readiness.

SGS in Port Harcourt reported to Sahara that the PPMC loading/discharge programme for the weekend envisaged that the vessel Niki would complete her discharge of PMS at the Outer B berth at an expected time of 0800 on 29 July; and that the vessel Crete would then take the flow. The Prem Mala was not on PPMC’s weekend programme; but hopefully, if she was on the program on Monday she would berth on +/- 3^rd August.

Mr Nwagagbo asked SGS to ensure that the lines (which were to be used to discharge the PMS and load the naphtha) were cleaned before Sahara took flow of Naphtha.

Sahara wrote to PPMC expressing concern about the specification of the naphtha that was due to be loaded and asking that the lines be properly flushed.

SGS reported to Choil that at Okrira Jetty two berths were empty (Outer Berth A and Inner Berth A), that the Niki was discharging at Outer Berth B and the Crete was expected there next; and that Inner Berth B was occupied but the vessel there was unable to load because of power failure and another was expected after her. Various production plants had been shut down due to insufficient power supply.

SGS reported to Sahara that it had sampled the tanks identified to be used for loading and that the samples had been taken from the three intermediate shore tanks (52tk03A, 52tk03B and 52tkO4A – hereafter 03A, 03B and 04A), that the results of a colour check were +19, +19 and + 18 respectively, and that PHRC‘s Cargo Control Manager had confirmed that this grade was the best available for loading. SGS asked for confirmation from Sahara, which Mr Nwagagbo gave, that the samples should be sent to Rotterdam.

Petrogal e-mailed Choil asking them to ensure that the initial line clearance of 1200 cubic metres be loaded into a segregated tank on board to avoid contamination with PMS. Mr Jessenberger of M2S sent Petrogal a message that it had been arranged with the Master of the “Prem Mala” that the first 1200mt loaded on board would be segregated and that instructions had been passed to clean the line thoroughly before loading. Later Choil advised Petrogal that the shore line displacement would not be segregated on board but discharged back to the shore and that for extra safety the first 1200 cubes would still be segregated on board.

At 1156 Ms Driay sent an e-mail to various addressees in Sahara which read:

“On top of the most important information being that there is no electricity, I am a bit concerned by the quality of the naphtha as far as the colour is concerned. All data we have seen were clearly showing saybolt above 20 value, which means it is clear and bright condensate.
Having value below 20, means that it is dirty condensate, which makes the destination, price etc, totally different as it has go back through refining process,

Could you please enquire about this.

The cargo has been sold AS IS, to our buyers, whom we need to inform.”

SGS reported to Choil that according to PPMC’s loading/discharge programme the Prem Mala was the next vessel to load at Outer Berth B but that the refinery was still operating with low power supply which could not be used to load the vessel at the jetty.

Some confusion or misunderstanding appears to have arisen about sampling. On Friday 27 July (see para 42 above) Mr Nwagagbo had authorised the despatch to Rotterdam of the samples from the intermediate tanks. On Monday 30 July he pointed out to SGS that there was a contradiction between SGS’ statements in its e-mail of 30^th July that it had sampled “the tanks identified to be used for the loading” and that “the samples were drawn from intermediate shore tanks”. Attempts were made, at the instance of SGS to retrieve the samples but this proved to be impossible.

SGS reported to Sahara and Choil that the transfer of cargo from the intermediate tanks (03A. 03B and 04A) into loading tank 52tk57 A (hereafter 57A) had commenced. In an internal e-mail in response Ms Driay wrote to various individuals in Sahara:

“In that case of extreme tension when our buyers are calling almost every hour… I would have appreciated a bit more communication from your side.

Send me news !?!?

What if the buyers quire rightfully rejects the cargo as not being naphtha at all and ask for heavy discount?!?!

What if master refuses to load a dark product?

Counting on you claiming all demurrage to ppmc, since our laycan was definitely confirmed as 25-26^th.

Our buyers also need to give information to the final receiver who happens to be a good client of ours of the crude oil side.. petrogal!

And our buyers are the sellers of jet to cover ppmc DPK short, so we’d better keep them happy on one side to have the other side as smooth as it could be.

I imagine you are doing what shall be done, but please communicate.

Have not seen a single email from you on the topic.”

On the same day PPMC told Sahara to instruct the Master to ensure that the first 200 m³ of product received during line flushing should be segregated. Choil objected that this was not what had been agreed on 30 July “between our traders” namely that the shore line displacement would be discharged back to the shore and the first 1200 m³ would be segregated on board. On 6 August PPMC wrote to Sahara to say that PHRC was willing to backload the first 200 m³ provided that the vessel was configured to handle such an operation. This letter was sent by Sahara to Choil.

At 1700 hours on 1^st August the vessel berthed. From 2000 on 1^st until 1153 on 2^nd August she was waiting for power restoration in order to complete tank inspection.

Choil sent Sahara an e-mail rejecting Sahara’s proposed revisions of 24^th July (see para 22 above). Included in the e-mail was a rejection of Sahara’s comments about quantity, laytime and demurrage and a maintenance of Choil’s wording; a requirement that demurrage should be time barred after 90 days and a rejection of the West Africa Clause together with a requirement that the price be based on bill of lading weight in air.

Sahara replied on the same day accepting that demurrage should be time barred after 90 days but maintaining earlier comments on quantity, laytime, and the West Africa clause and resisting the suggestion that the price be based on bill of lading quantities rather than as measured by SGS.

Choil and Petrogal entered into an amended resale contract in respect of which the pricing period was to be 13-17 August 2007, as opposed to 6^th – 10^th August. This contract provides in terms:

“In the event the property would not meet the above list of specifications parties have agreed that the contract can then be re-negotiated or cancelled”.

The vessel’s tanks were visually inspected and found clean by SGS. The analysis of previous cargoes of gasoline showed less than 1000 ppm MTBE.

From 1624 hours on 4 August until 1740 on 6 August the vessel was awaiting shore readiness to connect the loading arm.

SGS reported to Sahara and Choil that the colour in shore tank 57A was + 19 as measured in SGS’ laboratory (by the manual method) and + 23 in the refinery laboratory (by the automatic method); that, as a result the refinery management had ordered the loading to commence; but that efforts to recirculate the shore line content back to tank 52tk57F had failed. A refinery certificate of quality in respect of tank 57A puts the colour at + 24.

At 1633 Choil complained to Sahara that Sahara had failed to produce any cargo despite the tender of a NOR within the loading period.

At 1854 LT loading commenced. An initial line flush of somewhere around 311 or 331 cu.m (different figures appear in the papers) was loaded to the vessel’s starboard slop tank.

SGS reported to Sahara and Choil that PHRC had completed the transfer of cargo from intermediate tanks into export tank 57A. It also reported that, based on the PHRC laboratory samples, the colour was + 29 and that the vessel had, presently loaded, 14,208 cubic metres with Saybolt colour + 19 - + 23 in all cargo tanks. He asked that the Master be advised to transfer what had so far been loaded (which had been spread between all tanks) together with the line content (which he described as 15000 cu.m) into as few separate tanks as possible in order that the vessel might receive the later cargo into segregated tanks. This exercise, which required the suspension of loading, took place between 2125 LT on 8^th August and 0530 on 9^th August.

The Owners of the vessel e-mailed Choil, who passed it on to Sahara, to say that, if the shippers wanted to take back the quantity in the slops, they should let the vessel know so that extra quantity would be loaded. The ship would then rise up to the safe sailing draft of 9.2; otherwise the stipulated draft would be exceeded.

The shore line content of 1200 cbm which was taken on board after loading was resumed was transferred to a tank or tanks into which the originally loaded cargo had been segregated.

Mr Andrew Choynowski of Choil set out Choil’s position on the terms rejecting Sahara’s proposals on quantity and laytime and maintaining Choil’s wording on the WAF clause. Sahara replied saying that it stood firm on its amendments and suggesting that the traders who made the deal should have a meeting. This never occurred.

The Master reported that the intake would be about 28,400 mt because the density was 1.010 and because it was necessary to take on a minimum of 100 mt of fresh water on departure (almost nil having been previously contemplated).

The vessel recommenced loading at 1450 but suspended loading at 2020 because of shore pump failure.

The shore recommenced loading at 0755. There was a suspension of loading from 1536 to 1640 as a result of a request from the shore to ascertain the shore tank level.

From 0150 hours on 11^th August until 1945 hours on August 12 the vessel was awaiting terminal readiness to re-commence loading. Loading was not possible because of the low level of the tank.

At 1945 the shore recommenced loading by gravity; and at 2012 loading by pump.

Loading was completed at 0048. From then until 16^th August, according to the Statement of Facts, the vessel was awaiting charterers’ instructions to discharge the excess cargo.

What had happened (according to the Master, whose account is likely to be correct) was that at the end of loading the Master gave the terminal half an hour’s notice to load at a reduced rate as agreed but the terminal continued at the original rate. 5 minutes notice was given to stop loading. When a draught of 9.2 metres was reached the Master gave instructions to stop. But the terminal said that their pump was still running (there appears to have been some problem with it) and that the manifold should not be shut in order not to damage the loading arm. As a result loading continued for a further 16 minutes so that the vessel was overloaded by about 250 mt. The shore refused to take the excess back ashore or to accept the line flush taken on board at the commencement of loading, which the Master put at 200 mt. Sahara reminded Choil that their supplier was prepared to take back 200 cu.m but no more: see para 49 above.

On the same day a new problem arose because the customs authorities detained the vessel on the grounds of “non documentation of export cargo with the Nigerian Customs service”. They wanted to see a number of documents including the bill of lading, Nigerian export permit, clean report of inspection, final invoice and two specified forms.

In the course of the day the ship’s agents reported to Choil and Sahara that the refinery refused to accept either the line content or the overloaded naphtha, in spite of an instruction from the management of PPMC, because they did not want to be responsible if there was a cargo discrepancy after discharge. Sahara was liaising with the refinery to produce a letter of indemnity in order to resolve the matter.

The vessel was reported by SGS as having a current draught of 9.29m having on board approximately the following:

On 16^th August SGS e-mailed to Choil a report on a sample blended in the proportions 23:15 from (a) tanks 3B and 4 A and (b) tank 57A i.e. two of the intermediate tanks and the loading tank. It revealed a Saybolt colour of + 17 and a MTBE content of 1200 mg/kg. M2S on behalf of Choil told SGS they found it hard to believe that the volume of MTBE could be 24 times what is tolerated i.e. 50ppm; wondered whether there had been a conversion error; and asked for the matter to be checked.

An SGS report of 17^th August of separate samples from all 3 tanks which had been analysed at Rotterdam showed the following results:

The Master reported that it would be necessary to discharge about 430 mt (circ 332 cu.m. of line content and 120 cu.m of cargo) in order for the vessel to rise up to the stipulated draft of 9.20 m.

The terminal indicated that it would not take back the line flush (because the specific gravity of what was in the vessel’s slop tank was different to that contained in the line flush) but would take back the overloaded cargo: of 280 cu.m. On the same day the Master advised that, if no line flush was to come ashore, more cargo than previously stated would have to be discharged.

Between 1512 and 1630 the vessel discharged her excess cargo back to the shore.

By 1300 the terminal cargo documents were on board and by 1430 they were signed. From 1430 on 18 August until 1545 on 21 August the vessel was under arrest by Customs “due to no perfection of Export/Import of Customs Documents”.

The Bill of Lading which is dated 13^th August acknowledges shipment of 28,290.07 metric tonnes. On 20^th August Choil asked Sahara to cancel that bill of lading because it contained the line flush.

At 1541 the ship’s agent reported that all issues had been resolved with the customs and the vessel would sail with the morning tide. According to the SOF the vessel was released at 1545. The vessel cleared outwards customs at 1800 and thereafter waited for high tide in order to sail.

At 0900 the vessel sailed.

On 27^th August SGS produced a report on a composite sample, received by SGS in Holland on 24^th August from holds 1C, 2C, 5C, 8C, 3W, 4W, 7W & 8W. It revealed a Saybolt colour of + 15 and an MTBE content of 1700.

On 28^th August Petrogal, having received the SGS report, rejected the cargo on the ground that the MTBE content determined on the basis of the ship’s tanks composite was not acceptable.

On 29^th and 30^th August (Footnote: ⁶) SGS produced the following analysis:

On 30^th August SGS produced the following analysis:

On 31^st August Choil, having received the final SGS report, complained to Sahara about the MTBE content, colour and density of the cargo. Mr Nwagagbo of Sahara promised to look into it on receipt of all supporting documents. On the same day Ms Driay told Choil that “no guarantees were ever made on MTBE” and that the quality of what was in the tank was for Choil’s information only. She quoted from the exchange set out in para 5 above.

A certificate from a company called Inspectorate relating to samples received on 2.9.2007 from some of the ship’s tanks showed MTBE values of between 760 and 2226.

Choil e-mailed Sahara to reserve its right to reject the cargo and to claim damages for it being out of normal Port Harcourt Naphtha specification.

Sahara told Choil that it had lost its right to reject the goods.

On 12^th September Choil notified Sahara that it was endeavouring to mitigate its losses by selling the cargo. It also notified Sahara that it would be claiming for all losses suffered as a result of the naphtha being off specification and not in accordance with the contractual quality given that (a) it was contaminated with MTBE when normal running production of naphtha at Port Harcourt did not contain such extremely high levels and (b) it was off spec on colour.

On 12^th September 2007 Choil concluded a mitigation sale to Blue Ocean Associates Ltd of 28,300 metric tons Naphtha +/- 5% on outturn basis, exact quantity in seller’s option, DES one safe port one safe berth or discharging place Amsterdam during 13-15 September 2007. The price was to be the average of the mean quotations as published by Platts Marketscan for naphtha under the heading “CIF NWE/Basis ARA” (hereafter “average Platts) during 1-31 October 2007 less US $ 31.50. The sellers’ quality obligation was limited to supplying product which corresponded with the description.

On 13^th September 2007 the vessel arrived at Amsterdam. She gave NOR at 1439; commenced discharge at 1224 on 14^th September and completed it at 1740 on 15^th September.

The likelihood is that the high levels of MTBE contamination were the result of contamination from gasoline in the shore tanks. I accept the evidence of Mr Stokes, Choil’s expert, to that effect.

As a result of the MTBE contamination it could not be used in the refinery for gasoline production or as chemical feedstock. It could be used in blending gasoline. Uncontaminated it could have been used in the refinery and, at least theoretically, as feedstock but chemical producers would ordinarily seek naphtha with a high paraffin content (e.g. 60% plus) because that would make for more economical use.

The following prices either were or would have been applicable:

Choil sold to Petrogal at average Platt’s during 13 – 17.8.07 plus $ 17. That sale went off because of the excessive MTBE content. The replacement sale to Blue Ocean was at average Platt’s during 1-31 October 2007 minus US $ 31.50. Choil claims the difference between + $ 17 and - $ 31.50 being $ 48.50 x 28,290.07 mt. i.e. $ 1,372,068.40

In addition Choil incurred additional costs in taking the vessel to Amsterdam instead of Leixoes, and certain hedging losses for both of which it claims.

Choil relies on (i) the express provision in the July terms:

“Quality

Naphtha of normal running production as produced by Port Harcourt Refining Company with following actual specifications as determined at loadport on the basis of samples drawn from shore tanks

together with the other terms of the specification contained therein; and (ii) the statutorily implied terms as to correspondence with description; satisfactory quality and fitness for purpose.

Sahara contends that the product was sold without any warranty as to the quality of the naphtha. The sale was “as is” – see the exchange referred to in para 5 above – and the acceptance of that term is confirmed in Ms Driay’s e-mail of 18 July 2007 when it refers to Choil having “received the specs taken from the tank which is what is being made available to us”.

Choil contends that the exchange between Mr Secchi and Ms Driay on 17^th July was no part of the contract between the parties and is, in any event, insufficient to exclude the conditions implied under the Sale of Goods Act 1979.

It is common ground that in the gasoil and gasoline trade the expression “as is” is used to signify that there will be no escalation of the price based on the density of the product. That is not, however, an expression which is used for that purpose in the sale of naphtha, unless the naphtha is paraffinic and the counterparty is a petrochemical end-user, which was not this case. Mr Secchi was not however familiar with the naphtha trade.

Mr Secchi’s evidence is that when he used the phrase on 17^th July he intended it to signify that there would be no price escalation clause. Ms Driay’s evidence is that she intended it to signify that the product was sold without any warranty of quality, which she regarded as the significance of the words “as is” in a sale of naphtha.

The bargain made between the parties is to be determined by the meaning which the words used would convey to a reasonable person in their position and not by their subjective intentions. In my judgment the words would convey to the reasonable reader that the naphtha was being sold in the state in which it was in fact made available by PHRC to Sahara, and, thus to Choil. Mr Secchi’s interpretation, based on his understanding that the words would mean the same in the naphtha trade as they would or might in the gasoline/gasoil trade, cannot determine the objective meaning of the words in the context of a sale of naphtha.

I do not accept that the 17^th July exchange is to be left out of account in determining what the parties had by 19^th July agreed. The exchange on 17^th July established the basis upon which the naphtha was to be bought. The e-mail of 18^th July followed on from and expanded the agreement of the previous day to which it referred (“following out conversation”). The deal set out in that e-mail was confirmed by Choil on 19^th July.

In my judgment, the combined effect of the 17^th July exchange and the 18^th July e-mail was that the contract was to be on terms that the naphtha sold was to be of PHRC naphtha quality, i.e. having characteristics within the range for naphtha normally produced by PHRC. The expression “as is” was sufficient to indicate that the naphtha to be received would have whatever characteristics (within that range) the cargo supplied to Choil ex PHRC happened to have. But, whatever might have been the position if the words “as is” had stood alone, they cannot in context be taken to signify that the sellers could provide cargo which was not of normal PHRC quality for naphtha because of its very high MTBE content.

Sahara’s evidence is that it is usual to sell Nigerian naphtha (at a heavy discount in price) without any warranty as to quality because its quality is variable and the means to determine important aspects of quality relevant to European , US and Far East buyers do not exist locally. Naphtha is purchased FOB without warranty, and, when the quality of the cargo on board ship has been accurately determined, is sold CIF with an appropriate warranty of quality. It submits that, in that context, “PHRC naphtha quality” (or “Naphtha of normal running production as produced by Port Harcourt Refining Company”) should be interpreted as meaning a sale without any warranty as to quality at all.

I accept that sales of Nigerian naphtha are often made “as is” or without warranty and at a heavy discount for the reasons set out in the previous paragraph. But I do not accept that the term “Quality: PHRC naphtha quality” can or should be interpreted as if it said or meant that there was literally no term as to quality of any kind. The inclusion of a “Quality” term is inconsistent with this. If the parties had intended that all that was warranted about the product sold was that it could be called “naphtha” they would have expressed themselves differently. Choil was, bound to accept naphtha, whatever its characteristics, provided it was “PHRC naphtha quality”. But it was not that obliged to accept a cargo which was heavily contaminated by a substance which was not the result of naphtha production and which is not normally present in naphtha produced by PHRC. I note that Ms Annesley, the expert called by Sahara, accepted that the term “as is” would not be understood as going “as far as to permit MTBE content”; and that, in the subsequent communications between the parties, no suggestion is made that the reference to “as is” meant that there was no warranty whatever as to the quality of the product.

The above analysis assumes that the contract between the parties is contained in and/or evidenced by the 18^th and 19^th July exchange and not by the 20^th July terms or any part of them. For present purposes it does not matter whether or not that is so. There is no material distinction between the words “PHRC naphtha quality” in the offer of 18^th July, confirmed as acceptable on 19^th July, and “Naphtha of normal running production as produced by Port Harcourt Refining Company” in para 4 of the 20^th July terms.

In any event, it is, common ground between the parties that the effect of the dealings between them that, unless (as Choil contends) the 20^th July terms were accepted outright, the effect of the dealings between the parties subsequent to the despatch of the 20^th July terms was that that they had reached agreement on all of them (such that they form part of the contract between them) save those in respect of which there was express disagreement.

The 20^th July terms contained, in addition to para 4, provision in clause 12 as to the joint appointment of an independent surveyor to monitor and verify the quality and quantity of the product loaded and for making complaints with regard to quantity and quality. I do not accept that all that it was contemplated that the inspector should do was to determine whether or not the product shipped can be called “naphtha”.

The e-mail of 18^th July stated in the “Quality” section “You have received the specs taken from the tank which is what is being made available to us”. The e-mail of 20^th July referred to naphtha “with following actual specifications as determined at loadport on the basis of samples drawn from shore tanks” and then set out a number of characteristics including Saybolt Colour + 23.9. I do not regard these provisions as amounting to a warranty that the bulk would conform to the sample. They were and would have been understood as an informative statement of what had been analysed (“actual specifications as determined at loadport”) from a sample drawn from shore tank 52TK03A.

Choil had been provided prior to the contract with a certificate of quality from PHRC in respect of that tank dated 11^th July: see para 4. But there was no reason to believe that the cargo to be shipped on board would be segregated in that tank. In ordinary course the refinery would be adding new production to existing stocks. The quality of the cargo delivered would be affected by production of further naphtha and any movement of naphtha between tanks. The figures given were actual as opposed to maximum or minimum figures. They were thus inappropriate as part of a warranted specification, which would always contain maximum or minimum figures or both because the bulk would never comply exactly with a precise figure derived from an individual sample. Inclusion of such a term in a letter of credit would make it practically impossible to tender conforming documents, although it has to be observed that those terms were included in the letter of credit that was opened.

On 23^rd July (see para 17 above) Mr Secchi had asked for some supplementary results in respect of the naphtha. The e-mail set out specifications under various headings (including qualities already referred to in the 11^th July report) with various actual figures, presumably lifted from documentation relating to some other contract. I do not regard the fact that he asked for this information as indicating that there was no warranty of quality or at all (although it is consistent with the absence of a warranty of conformity with sample) nor do I regard the fact that he told Ms Driay to pay no attention to the results as signifying anything other than that these specific results related to some other cargo.

The naphtha supplied did not conform to the contractual standard. MTBE is not a by product of naphtha production (either by PHRC or anyone else) and MTBE on this scale (between 650 ppm and 2300 ppm) was grossly abnormal. 50 ppm is the maximum that is tolerated.

In providing this naphtha Sahara was in breach of the implied condition that the cargo would comply with its description viz “PHRC naphtha quality”/“Naphtha of normal running production as produced by Port Harcourt Refining Company” and of the implied term that it should be of satisfactory quality, although the latter obligation adds little or nothing to the former.

Section 53 of the Sale of Goods Act 1979 provides that:

“(2)

The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.

(3)

In the case of breach of a warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered the warranty”..

The rule is only a prima facie rule. There is authority that, in appropriate circumstances a different date may be taken and that, in an FOB sale, the value may be taken at a place other than the place of shipment.

In Van den Hurk v R Martens & Co Ltd [1920] 1 KB 850 the defendants sold and delivered to the claimant in Manchester sodium sulphide in drums. They sold it either ex store or f.o.b. Manchester. It was impracticable to open the drums until they reached the actual user and not customary in the trade to sample them before then. The drums were resold by the claimant and did not reach their ultimate consignees at Lyons and Genoa until some months later. They were then found to be of inferior quality and were rejected. Bailhache, J held that the damages were to be assessed at the date when the drums were opened by the ultimate consignees at those two places.

In Obaseki Bros v Reif & Sons Ltd [1952] 2 Lloyd’s Rep 364 logs were sold f.o.b. Sapele on terms that they were to be graded and measured by a Brokers’ Panel when they arrived in the UK and the price based on the results. When they arrived the buyers rejected them on quality grounds. The umpire awarded damages by reference to the market value at the UK destination of goods of fair average quality as called for by the contract and the market value of the goods as delivered. Lord Goddard, CJ upheld the award, observing that it was no good fixing the value of the goods in West Africa when the buyers wanted them in England, their ultimate destination. He rejected the contention that the award was wrong because it was made on a cif basis and held that the correct date was the date when the Broker’s Panel examined the goods before which no right of rejection would arise.

Choil’s primary case is that its loss should be calculated in accordance with section 53 (3) of the Act as being the difference between the sound arrived value of uncontaminated cargo and the actual arrived value of the actual cargo as of 28^th August 2007. If this be so, it accepts that the losses which it suffered after the resale of the cargo to Blue Ocean, and, in particular, its hedging losses, are irrelevant.

It submits that 28^th August is the correct date because that was when Choil and its sub-buyer could first reasonably be expected to understand the true extent of the contamination of the cargo on board ship and respond to it. It was on 27^th August that SGS produced its report for Choil on a composite sample of the cargo actually loaded on board. Choil received those results on the evening of the 27^th (or possibly the morning of the 28^th). SGS’ earlier results had been based on a blend of shore tank contents, some of which had never been loaded on the vessel. The shore tanks on which SGS reported on 16^th August were 3B/4A and 57A in a 23:15 ratio. What was actually loaded on the vessels came from was 57A, which was refilled twice, and some from 57F. The contents of 3B/4A, which formed the 23 in the 23:15 ratio, were never loaded at all.

Sahara submits that the prima facie measure of damages under section 53 (3) is displaced where the seller and buyer contemplate when they enter into the contract of sale that it is not unlikely that the buyer will sub-sell the goods on the same or similar warranties as to the condition and description of the goods and that a breach of warranty by the seller will put the buyer in breach of warranty in his sub-sale. In such a case the buyer’s claim for damages must be assessed by reference to the sub-sale and not according to section 53 (3) of the Sale of Goods Act 1979: Chitty on Contracts, 13^th Ed 2008, Vol II paras 43-464 & 465; Kwei Tek Chao v British Traders & Shippers Ltd [1954] 2 QB, 459, 489; Bence Graphics International v Fasson UK Ltd [1998] QB 877,102.

Here however, as Sahara contends, the prima facie measure of damages is not displaced such that section 53(3) applies and any sub-sales are irrelevant. This is because (a) Sahara’s sale to Choil was not on the same or similar warranties as to the condition and description of the naphtha as Choil’s sale to Petrogal and (b) the practice in the trade is for the seller to sell FOB Nigeria, without warranty, and, when the quality of the naphtha has been determined, for the buyer to sell on CIF or similar terms. The relevant date for measuring damages is 13^th August 2007 – the date of shipment.

Both parties thus contend for the application of section 53 (3), although the measure for which Choil contends is not an exact application of section 53 (3) since it does not involve taking the market value of the contaminated naphtha at the place and time of delivery under the contract.

Sahara is right to point out that a buyer may be precluded from relying, or entitled not to rely, on the normal rule for the assessment of damages. Thus in Biggin v Permanite Devlin J held that where the sub-sale was within the contemplation of the parties the original buyer’s damages must be assessed by reference to that sub-sale whether he likes it or not. If it is the original buyer’s:

“liability to the ultimate user that is contemplated as the measure of damage and if in fact [the bitumen] is used without injurious results so that no such liability arises, the [original buyer] could not claim the difference in market value and say that the sub-sale must be disregarded”.

In Bence Graphics the majority of the Court of Appeal overruled the judge’s award based on section 53 (3) and held that the damages should be measured only by reference to any liability that the claimant might have incurred to third parties.

Where there is a chain of contracts the dispute is often as to whether or not the original buyer can recover damages from the seller reflecting his liability to the person to whom he sold or whether the claim of the ultimate buyer can be passed up to the original seller. Some controversy in the early cases arose as to whether, in order for such a recovery to be made, it was necessary that the contractual undertakings as to the description, condition or quality of the goods should be identical in all the contracts in the chain.

In Biggin v Permanite Devlin J in effect indicated that the question was one of causation:

“If the variation to a description is such that it is impossible to say whether the injury that ultimately results would have flowed from the breach of the original warranty , the parties must as reasonable men be presumed to have put the liability for the injury outside their contemplation as a measure of compensation. If this is, as I believe the nature of the principle, it must be applied very differently according to whether the injury for which the defendant is being asked to pay is a market loss or a physical damage. In the former case …any variation that is more than a matter of words is likely to be fatal, because there is no way of telling its effect on the market value. In the latter case the nature of the physical damage will show whether the variation was material or not”.

Thus the buyer may be able to recover from his seller damages which he has had to pay to a sub-buyer for damage or loss caused by what is a breach of both the sale and the sub-sale (and remoter) contracts. I call this “the sub-sale measure”. Whether or not the buyer can recover under the sub-sale measure does not depend upon the identity or close similarity of terms in the contract and sub-contract(s), or, for example, on all of them being FOB contracts, but on whether it is apparent that the loss or damage claimed for is a breach of all the relevant contracts.

The fundamental reason why the sub-sale measure is not appropriate in the present case is that such a measure is usually applicable when the parties contemplate that the particular goods supplied to the buyer will be used by the buyer for the purposes of satisfying a particular sub contract or sub-contracts; or when goods are purchased for the purpose of being used to make a particular product.

As Devlin J said in Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459,489:

“It is perfectly true that the defendants knew that the plaintiffs were merchants who had bought for re-sale, but everybody who sells to a merchant knows that he has bought for re-sale, and it does not, as I understand it, make any difference to the ordinary measure of damages where there is a market. What is contemplated is that the merchant buys for re-sale, but if the goods are not delivered to him he will go out into the market and buy similar goods and honour his contract in that way. If the market has fallen he has suffered no damage; if the market has risen the measure of damages is the difference in the market price. If, for example, a man sells goods of special manufacture and it is known that they are to be re-sold, it must also be known that they cannot be bought in the market, being specially manufactured by the seller. In such a case the loss of profit becomes the appropriate measure of damage. Similarly, it may very well be that in the case of string contracts, if the seller knows that the merchant is not buying merely for re-sale generally, but upon a string contract where he will re-sell those specific goods and where he could only honour his contract by delivering those goods and not others, the measure of loss of profit on re-sale is the right measure.”

Slater v Hoyle & Smith [1920] 2 KB 11,20; Wertheim v Chicoutini Pulping Co [1911] AC 301,489; Bence Graphics v Fasson Ltd; Louis Dreyfus Trading Ltd v Reliance Trading Ltd [2004] EWHC 525, where the parties had in contemplation that the very sugar that was agreed to be sold would be sold pursuant to a particular sub-sale (Footnote: ⁷).

In the present case Choil was buying for re-sale generally, such that prima facie its damages are not to be measured by reference to any particular sub-sale.

So far as the question of timing is concerned, I accept that the starting point is to consider the value of the MTBE contaminated naphtha on or about August 28^th 2008 for the reasons set out in para 122 above. It was on and after that date that, in the light of the results from samples of the cargo actually on board, it became clear that the cargo was going to be rejected and that a substitute buyer would have to be found. It was only then that Petrogal rejected the cargo, although they had (as Ms Driay explained) known about the earlier results showing colour problems and excessive MTBE. They waited until the results from the ship came in and must then have concluded that they could not use it. I do not think that Choil is to be criticised for not seeking to resell the cargo before then. The 28^th August date is also close to the time when the vessel was at her intended discharge port.

Choil submits that the difference between the sound and the actual value of the naphtha may be regarded as $ 48.50 per metric ton. On 25^th July Choil had resold the naphtha to Petrogal CFR Leixoes at average Platt’s during 13^th – 17^th August + $ 17. On 12^th September Choil managed to sell the MTBE contaminated product for average Platt’s during October 2007 - $ 31.50. This was the best price that could reasonably be obtained. There were in fact only two willing buyers – Blue Ocean and Gunvor. The difference in time between August and October meant that the Platt’s figures used in the two sales differ. But the level of Platt’s is irrelevant. Since both sound and contaminated values were fixed by reference to Platt’s the Platt’s figures may be ignored. The difference between sound and contaminated naphtha is constituted by the difference between + $ 17 and - $ 31.50 i.e. $ 48.50. Accordingly Choil’s damages, by reference to the bill of lading quantity of 28,290.07 are $ 1,372,068.40

In addition Choil incurred the following additional costs (as to the quantum of which no point is taken):

The validity of this approach depends on three matters:

As to (a) I regard the price agreed in the Petrogal contract of 25^th July as a realistic indicator of the market price as at 3^rd August (when the contract was amended with a new pricing date) of naphtha of the quality specified in that contract CFR Leixoes . Petrogal is a substantial Portuguese company with a refinery and petrochemical operations. It is unlikely to have paid over the odds; nor do I regard the price as above market because, if Choil was unable to meet the quality terms, Petrogal could cancel the sale without Choil having to pay damages. That provision would largely benefit Choil.

As to (b) I am satisfied, in the light of the evidence of (a) Mr Stokes, (b) Mr Persson, the broker on the sale to Petrogal, and (c) Mr Gonelle of Gunvor, that the price obtained from Blue Ocean was the best price reasonably obtainable at the time when the sale was made given the extent of the contamination, and that it could not have been sold any earlier than it was. Mr Stokes gave evidence that in August and September 2007 there were only 3 possible buyers for MTBE contaminated cargo: (i) Blue Ocean; (ii) Greenergy; and (iii) Gunvor International B.V. Greenergy told Mr Choynowski of Choil that they were not interested. Gunvor bid Platts - $ 35, the highest it was prepared to bid for this level of MTBE contaminated cargo. Blue Ocean put in the highest bid of Platts - $ 31.50. Trafigura and Vitol were not prospective customers because the majority of Trafigura’s cargoes in Europe were being blended for the US market and Vitol were blending for the West African market where some of the countries will not accept MTBE.

As to (c) Sahara submits that the + $17/-$ 35 comparison is no guide to the difference between sound and MTBE contaminated naphtha on 28^th August or on any other date.

Firstly, Sahara says, the presence of MTBE had no effect on the market value because naphtha with MTBE greatly in excess of 50 was saleable to companies which would blend it into gasoline. The blending process involves an increase in the octane content of the naphtha which requires the addition of MTBE. A buyer of naphtha who wanted it for blending would, therefore, benefit from the addition of MTBE because it would mean that he would have to add less. It is thus more valuable to him than regular naphtha.

This is true but, as Sahara accepts, there are fewer potential buyers of naphtha who are not concerned about MTBE. As a result the price obtainable may be less. Further the value of MTBE to a gasoline blender should not be overestimated. In a cargo worth about $ 17 million, the benefit to a gasoline blender would be about $ 8,500.

Secondly, even if MTBE contamination had an effect on value, the + $17/- $31.50 difference is not a proper measure of the difference in value between sound and contaminated cargo on the date of delivery i.e. 13^th August. This is for four reasons:

Insofar as those submissions are based on 13^th August being the relevant date on or shortly after which Choil should have sold the cargo or on a failure by Choil to sell the cargo as soon and at the best price possible, I disagree with them. But I accept that it is not possible, convenient though it would be, to take the +$17/-$ 35 difference as the measure of the difference between sound cargo of the contractual quality and contaminated cargo on or around 28^th August (or any other date).

Firstly I am not convinced that the premium or discount over Platt’s reflects nothing but differences in quality. It will reflect the fact, if it be such, that the cargo in question is naphthenic naphtha, which can be used for gasoline production or blending, as opposed to paraffinic naphtha, which would not be used to blend gasoline and is generally used as feedstock for chemical production. Platts prices relate to paraffinic naphtha and naphthenic naphtha is likely to be at a premium by comparison. It will also reflect the particular quality specification of the cargo. But it is likely to reflect other factors as well such as the timing of the sale and of delivery under it, the extent of supply and demand at the time the contract is made, seasonal factors and market sentiment (or the views of the particular traders).

Secondly the Petrogal contract (i) was amended on 3^rd August, (ii) had a pricing period of 13^th-17^th August, and (iii) contained precise provisions as to quality which were absent from the Sahara – Choil contract, which merely provided for PHRC naphtha./normal running production quality. It is impossible to infer that the difference between these quality provisions made no difference to the price.

In those circumstances it is necessary firstly to consider what should be regarded as the market value of naphtha of PHRC quality CIF NWE on about 28^th August . In this respect a number of difficulties arise.

Choil has advanced its primary case by reference to the +$17/-$35 difference. Choil’s expert evidence does not expressly address the sound value of the cargo on or around 28^th August. Mrs Annesley on behalf of Sahara has produced a table (Table 3) which sets out in the eighth column under the heading “Market price of naphtha CIF NWE ‘Normal” prices as at August 16^th August ($ 640), and September 7^th ($ 674) and 12^th ($ 690). For some reason she did not include the date of rejection. The prices in that column represent, as I understand it (Footnote: ¹⁰) (a) the fixed price at those dates for a swap in which what is swapped is the monthly average of the Platts naphtha prices for September plus (b) a premium to reflect the fact that Platts prices relate to paraffinic naphtha whereas the naphtha presently under consideration is naphthenic naphtha (sometimes referred to as N + A). In the summer months the latter commands a premium because it can be used for blending gasoline. The premium is shown in the seventh column. It has been assessed by Mrs Annesley from what she gleaned from the commentary and quotations in Platts as to the type of premiums applicable for naphthenic naphtha over paraffinic naphtha.

The swap price is, essentially, a forecast on any given day of the mean of Platts prices over the next or a subsequent month. As Mrs Annesley put it in evidence the prices “will not ever be that …because they are not very good at forecasting, naturally, but that is what they are prepared to trade at”. That circumstance begs the question as to what delivery period should be taken into account in any assessment of damages. By 28^th August the vessel was not far off Leixoes. But a contract under which the goods would arrive there, or elsewhere in NWE by that date, unless it related to goods already afloat, would necessarily have been made several days beforehand. Platts’ figures assume delivery CIF NWE will be 10-25 days ahead of the contract.

In Glencore Energy UK Ltd v Transworld Oil Ltd [2010] EWHC 141, an f.o.b sale of crude oil had as a result of unusual events, a March pricing period but what became, by amendment, a June delivery date. Blair J assessed damages for non delivery by reference to what should have been the bill of lading date (26^th June) and took the average of the 5 Platts quotations following that date. He rejected the submission that the market price of the oil in late June should be assessed by reference to the dated Brent swaps price prevailing some weeks earlier. He did so on the ground (i) that it was wrong in principle to adopt a time for calculating damages equivalent to the making of the contract as opposed to its performance; (ii) if you did, it was impossible to know which prior date to choose, and (iii) that the price which he chose was the price you would have to pay if you wanted to buy a cargo of Brent on 26^th June, even though you would be buying for future delivery.

I respectfully agree with that analysis. As it seems to me the correct figure to take for the sound market value on 28^th August, if such a figure was available, would be the price on that date of a cargo of the contract quality on a vessel which would in ordinary course arrive in NWE in very early September, by which time the Prem Mala was sitting off Portugal.. In default of that it seems to me appropriate to take the average Platts CIF NWE for 28^th August which is $ 652 plus a premium to reflect the fact that Platts relates to paraffinic, not naphthenic, naphtha which would have to be assessed.

The evidence before me does not reveal an appropriate figure for such a premium on that date. There is, however, a figure of $ 10 in Mrs Annesley’s Table 3 as the assessed premium to the naphtha swap (which is also based on naphthenic naphtha) for 13^th August, $ 6 for 16^th August and $ 8 for 7^th September. I do not think I should be doing Sahara any injustice if, in the light of her figures I took $ 7, making $ 659.

If $ 659 is taken the sound value becomes $ 18,643,156.13.

In Biggin v Permanite Devlin, J observed that “one can very rarely arrive at an accurate figure of unsound value” . That is particularly so if a value is sought at a particular date. Sound goods for which there is a market will have a market value on any given day. Unsound goods of the same type will probably not. There is no market in the generally accepted sense for naphtha with very high amounts of MTBE. The figures that appear in Mrs Annesley’s report for the “Market price for naphtha CIF NWE for gasoline blending including MTBE” (column 9 of Table 3) do no more than reflect her opinion that there was no difference between the value of naphtha with and without MTBE, a proposition which I do not accept.

It is plain that the price of naphtha was rising during September. In those circumstances it can be argued that the value of the cargo in its contaminated state as at 28^th August cannot be calculated by reference to a sale on 12^th September. Sahara ought not to be able to take advantage of an adventitious rise in naphtha prices from which Choil itself could have benefited if sound cargo had been supplied to it.

I do not accept this for two reasons. Although the Blue Ocean sale was made on 12^th September I regard it as a reliable indicator of the true value of the MTBE contaminated cargo on and after 28^th August. It was a sale made as soon as it could be at the best price reasonably obtainable. If a faulty product cannot be sold until a short period has elapsed in order to find a buyer its value can properly be regarded as whatever it will fetch when that sale takes place. It is otherwise if the buyer could have sold the goods but in fact retains them in which case he will do so at his risk. As Devlin J said in Biggin v Permanite“if the actual damaged goods are sold with all faults , good evidence can be obtained of the difference in value…”

Further the section 53 (3) measure (“the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered the warranty”) is only a prima facie measure. The basic measure is “the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. In a case such as this that loss (if there is a loss) is the value of the goods, had they been sound, less whatever the buyer can sell them for.

The price under the sale to Blue Ocean was $ 20,255,579.27 which exceeds $ 18,643,156.13 by $ 1,582,431.14 On the face of it, therefore, Choil has not established a loss.

Trading companies such as Choil habitually hedge in order not to be caught with open positions in a volatile market. Choil was required to do so by its trade finance bank (Footnote: ¹¹). When Petrogal rejected the naphtha as a result of MTBE contamination Choil was left with a long open position on naphtha. The evidence of Ms Driay shows Sahara was well aware of the likelihood of Choil hedging, and the reasonableness of it doing so. It would have done the same.

On 30^th August, after consultation with its bank, Choil sold 225,000 barrels , approximately equivalent to the cargo laden on the Prem Mala, of October Brent (Footnote: ¹²) at 72.33 a barrel. It then rolled over the sale into November by buying in the October Brent and selling 225 lots (1,000 barrels each) of November Brent. It then purchased 117 lots of November Brent, which it later rolled forward into December by selling 117 lots of December Brent. The hedges were carried out on the Brent crude index, because there is no live naphtha market for hedging purposes, and the naphtha market was likely to follow the Brent market.

During October it purchased 108 (225-117) lots of November Brent (thus closing the open November Brent positions); and 117 December Brent positions, thus closing the December Brent positions. Choil also gives credit for the profit made on a hedge relating to the differential between the price of naphtha and the price of crude oil of $ 90,159.36. . In Choil’s summary of it hedging position there appears an item “realised paper loss” of $ 340,215. Mr Choynowski was unable to explain to me how this was calculated or what exactly it represents. I therefore decline to allow it. Choil’s hedging losses may be regarded as $ 2,625,643.15 - $ 340,215 = $ 2,285,428.15.

The effect of this exercise was that, if the market fell during the second half of September and October, Choil would profit on the hedge, but lose on the physical, i.e. the value of the cargo in which it was long. Conversely, if the market rose, as it did, Choil would lose on the hedge, as in the event it did, but gain on the physical. In essence Choil had placed itself in a position of having sold 225,000 barrels of sound naphtha at 72.33 per barrel on 30^th August making $ 16,274,250.

It was suggested to Mr Choynowski that he had in fact begun hedging in relation to this contract before 28^th August. Having heard his evidence I accept that he did not. In any event such hedging would not have been in consequence of Sahara’s breach.

In my judgment Choil is prima facie entitled to recover $ 2,285,428.15 as representing losses attributable to a reasonable attempt at mitigation. There is, in principle “no sensible or commercial reason why the Court should not take into account the costs of the hedging instruments”: Addax Ltd v Arcadia Petroleum [2000] 1 Lloyd’s Rep 496. In that case Morison J would, if he had been concerned with the claimant’s position with their suppliers, have taken into account the hedging costs. In the present case the effect of Choil being left long in naphtha was to expose it to the risk of severe losses if the market dropped. It was reasonable for it to protect itself against those losses by hedging in the way that it did. .In fact the market rose. Sahara will have benefited from that rise by virtue of the method of calculation set out above which gives credit for the price obtained on 12^th September (by reference to an October pricing period). There must be set against that the losses which Choil suffered in protecting itself against a possible fall in the October prices. That protection was necessary and reasonable because the price to be obtained under the Blue Ocean contract was for an October pricing period i.e. some distance ahead.

Thus, subject to the impact of clause 13 of the 20^th July terms, Choil’s losses are $ 2,285,428.15 - $ 1,582,431.14 = $ 702,997.01. To that should be added the costs of $ 505,160.36 set out in para 134 above. The consequence of the cargo being contaminated was that it could not be delivered at its intended destination but only, in the event, at Antwerp. In calculating the true value of the damaged cargo it is necessary to take into account the additional costs incurred in effecting the sale. The resulting figure is $ 1,208,157.30.

Clause 13 of the 20^th July terms provides:

“Neither party shall be liable for any consequential, indirect or special losses or special damages of any kind arising out of or in any way connected with the performance of or failure to perform the agreement.

Neither the seller nor the buyer shall in no circumstances be liable for; -more than the difference between the contract price and the market price; -any loss of profit; -cost of overheads thrown away; or –loss resulting from shut-down of seller’s plant.

I do not regard the damages so far discussed as consequential, indirect or special. Such a limitation covers damages within the second limb of Hadley v Baxendale (1854) 9 Exch 341l see Watford Electronics Ltd v Sanderson CFL Ltd [2002] FSR 19. The damages in issue constitute the difference between the sound arrived and damaged values of the goods as well as the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty together with the reasonable costs of mitigation. In Addax Morison J held that a limitation to consequential damages would not apply to hedging costs which were part and parcel of the claimant’s positions with its suppliers (if that had been the relevant inquiry). It seems to me that a similar result should apply here where the hedging in question was part and parcel of the claimant’s dealings in respect of the cargo unexpectedly left on its hands. Further in the trade in which both parties operated hedging was an every day occurrence. Anyone in Choil’s position would have been expected to hedge, as Mrs Driay made clear. (Her only criticism was that Choil had not hedged early enough). It did not require any special knowledge to realise that hedging was what Choil was likely to do. It was regarded as a normal and necessary part of the trade.

More problematic is the ambit of the second paragraph of the clause. Like all exemption clauses it must be construed with some strictness, even though here it is applicable to both buyer and seller and was first put forward by the seller. So construed I cannot regard it as applicable to damages for delivery of defective product. The difference between contract and market price is readily applicable in the case of non delivery or non acceptance, in whole or in part. It seems to me inapplicable to a claim for defective delivery where the classic measure is the difference between the market price at the date and place of delivery less the value of the goods at that date and place in their damaged state. To this comparison the contract price is not relevant (save insofar as it may be indicative of the market price). Further in the case of defective delivery the contract price and the market price of the goods, if by that is meant the market price of sound goods, may be identical. Yet it cannot have been intended that there should be no recovery. If what is meant is the market price of damaged goods, there may well be, as here no such price. I do not believe that the draftsman must be taken to have had in mind damages for defective quality. At any rate it is unclear that he so intended. I regard the provision as inapplicable to the present claim. Such a conclusion derives support from the reference to “-costs of overheads thrown away; or – loss resulting from shutdown of seller’s plant” which seems to refer to damages for non acceptance.

Choil claims to be entitled to recover accrued demurrage of $ 468,152.08 under the naphtha contract. The details are set out in the calculations attached to the Points of Claim. Sahara has paid $ 272,781.25 towards the $ 740,933.33 due leaving a balance of $ 468,152.08. Sahara argues that only $ 270,400 was due and claims the overpayment. The dispute between the parties raises three issues: (i) when did laytime start; (ii) what is the agreed laytime; and (iii) was demurrage suspended between 0048 on 13^th August and sailing on 1600 hours on 21^st August.

As to (i) the issue is whether laytime started at 0100 on 27^th July 2007 i.e. 6 hours after NOR given at 1900 on 26^th July, or at 1700 on 1^st August, when the vessel berthed, or at some stage in between.

Clause 9 of the 20^th July terms provides for laytime to start either 6 hours after NOR tendered or upon berthing and to be 36 hours SHINC. On 24^th July Sahara e-mailed saying that laytime should be 42 hours and should commence 6 hours after nor if tendered within agreed delivery range and nor to be tendered between 0600 and 1600. Choil submits that this response came too late because the 20^th July terms had already been accepted. By all or any of the following:

I do not agree. At 1739 in 20^th July Ms Driay had made it plain that Sahara would comment on the 20^th July terms on Monday. She did not in fact do so until Tuesday morning. But her message was sufficient to indicate that the 20^th July terms were not necessarily accepted and she made it plain that one of them in particular was not. In those circumstances the actions specified in the previous paragraph are not to be regarded as acts of acceptance by Sahara of the totality of the terms.

Choil submits that, if that is so, the question of laytime is governed by the last sentence of clause 9 of the 20^th July terms which provides:

“Laytime shall otherwise be calculated as per Charter Party Terms and Conditions”.

The charterparty was on the standard ASBATANKVOY form which provides for a total laytime for load and discharge ports of 84 hours and for laytime to commence 6 hours after NOR. The latter provision therefore governs the commencement of laytime and the laytime is 42 hours (1/2 of 84).

I do not accept this. “Otherwise” in clause 9 means otherwise than provided for by the earlier part of the clause, and, therefore, is to deal with matters which that earlier part does not address e.g. as to whether or not a notice had to be given in office hours. Moreover since Sahara rejected the laytime proposals put forward in the 20^th July terms in favour of its own proposals (NOR within office hours, laytime to commence 6 hours after NOR, and to be 42 hours in length), it necessarily rejected the introduction of Asbatankvoy terms. They are themselves difficult to apply to the contract of sale. They provide for a total laytime of 84 hours at both ends, allowing the charterer to use up however much time it wishes at the loadport provided that the total time at both ports is 84 hours or less; whereas the sale contract is concerned only with the position at loading. It is not self evident that for the purposes of incorporation into the contract of sale the laytime figure must be halved.

Choil in turn, rejected Sahara’ proposed amendments in relation to laytime. The position, therefore, is that the parties have reached no concluded agreement as to when laytime shall start or how long it shall be. Sahara and Choil went on to perform the naphtha contract in open disagreement as to what the laytime provisions were. I cannot regard the fact that they did so, by Sahara making and Choil accepting delivery of the naphtha on board Prem Mala as an acceptance of Sahara’s terms.

In those circumstances “the buyer must give adequate notice enabling the seller to get the goods on board within the shipment period, and the seller must then load in a reasonable time and in the customary manner”: see Benjamin on Sale of Goods7^th Ed 20-031. In the present case I decline to hold that the failure of the vessel to berth until 1^st August was as a result of any failure to have cargo ready for loading. The vessel was delayed in berthing because there were two other vessels before it in the queue. The sellers cannot, therefore, have been in breach of their obligations until the vessel berthed. Accordingly, as it seems to me, laytime did not begin until the vessel berthed on 1^st August.

The next question is what would constitute a reasonable time for loading. There is little material on which to make judgment, other than the fact that the parties disagreed as to whether it was 36 or 42 hours. I have come to the conclusion that I should take the latter figure. It is for Choil to establish what the figure is. 42 hours is the figure argued for by Sahara, and, therefore, represents an acceptable maximum. It also represents ½ the amount agreed under the ASBATANKVOY charter on which, in the alternative Choil seeks to rely.

Accordingly the vessel was not on demurrage until 1100 on 3^rd August. By my calculations that means that, on the assumption that she remained on demurrage thereafter, the demurrage claim falls to be reduced by 178 hours (0100 on 27^th July to 1700 on 1^st August 2007) which at $ 32,000 per day amounts to $ 178,266.67.

In those circumstances the vessel remained on demurrage, unless the delay was caused by Choil’s fault or when the conduct of the shipowner has made the vessel unavailable for cargo operations. Stolt Tankers Inc v Landmark Chemicals S.A [2002] 1 Lloyd’s Rep 786, where demurrage was interrupted during the period in which the vessel, although previously on demurrage, was engaged in loading cargo for other charterers. It is, therefore, necessary to consider the periods over which it is claimed that Choil was at fault.

The vessel was delayed during this period as a result of the terminal overloading the vessel by about 200 mt. despite requests from the Master to stop loading. The terminal failed to stop loading because there was a defect in the loading machinery and to have shut the manifold would have damaged the pump and loading arm. These are failings within the seller’s sphere of responsibility. As a result the vessel exceeded her draft limits at the berth. Thereafter most of the delay was caused because the Terminal refused to take back any cargo. That dispute was only resolved when at 1512 on 17^th August the Terminal finally started discharging the excess quantity, discharge being completed at 1630 on the same day.

Sahara contends that the delay was caused because of Choil's breach in nominating Prem Mala which, so it is said was unable to carry the minimum quantity of 28,500 mt.

In fact the vessel was, as I find, able to load the minimum contractual quantity, assuming that there was no problem with any draft restriction. The reason why she only carried 28,290 mt. was because of the draft limits applicable at the berth. But Sahara, having had provided to them the Intertank Q 88 questionnaire which specified the vessel’s draft (12.66m) and summer deadweight tonnage accepted the vessel, warranted the safety of the port and the berth. It thereby warranted that they would be safe for a vessel giving her particular characteristics; and that she would be able to load the full contractual cargo without exceeding the draft restrictions at the berth. Mr Smith submitted that if a ship is chartered to go to a particular berth the buyer had to get a ship which could go into that berth and out of it with the maximum contractual quantity. Here there was only one berth at which a vessel of this size could load naphtha.

I do not regard that as the correct way of looking at the matter. The contract did not provide for the vessel to load at a specific berth, Even if it had done so that would not alter the obligation on the seller to ensure that the berth was safe: The Archimidis [2007] 2 Lloyd’s Rep 101 The risk that it would not be safe for a vessel carrying the full contract amount rested on the seller.

Insofar as the delay after 1512 on 17^th August is concerned it was not as a result of any fault of the buyer or because the vessel was not available to the sellers. It arose because (a) the berth was not safe for a vessel carrying the minimum contractual or any greater quantity and (b) there was a dispute about taking the excess cargo back; (c) the vessel was under arrest (since 13^th August) by the Customs.

There was a further delay during this period before the terminals cargo documents were signed.

There was further delay during this period whilst the Vessel was under arrest for not having the required “import/export customs documents”. Under Incoterms 2000 for FOB contracts it was Sahara’s duty to “obtain at its own risk and expense ... all customs formalities necessary for the export of the goods”. Delay resulting from detention by customs on account of the absence of requisite documentation was not Choil’s fault. If and insofar as any delay in relation to the documents was the result of having to change figures because of the problems with taking cargo off (which has not been established) that was not Choil’s fault either.

There is an unpleaded suggestion that the vessel should have availed itself of an early departure procedure, the nature of which is not clear to me, under which the ship could depart without documents. The Master did not want to do that because he felt that the ship might be in difficulties on any return visit. Since Sahara was bound to obtain the necessary documents it is not, in my judgement open to it to contend that the buyers and the Master should have been satisfied with not having them.

Accordingly the demurrage due but unpaid is $ 468,152.08 less $ 178,266,67 = $ 281,885.41.

The contract provided for 30,000 mt +/- 5% in buyer’s option. By its e-mail of 24^th July M2S on behalf of Choil declared its intention to load up to the vessel’s full capacity (i.e. approx 29,400 mt) but no more than 31,500 mt. That nomination followed an exchange of messages between M2S and Braemar, the vessel’s brokers, in which Mr Harrison of Braemar said that the vessel could probably load 29,400 mt. But the next day Braemar relayed to Choil a message from the Master saying “We should be able to load 28,500 mt.” It is not clear to me why 29,400 mt was taken as the vessel’s full capacity on 24^th July and 28,500 was put forward on 25^th when the vessels DWT was 47,000. Mr Karia suggested that the lower figures were attributable to a perception as to the effect of the draft restriction at Port Harcourt. That seems to me plausible given that SGS had reported on the draft restriction the previous day. In those circumstances I think that I should take the 29,400 figure. In the event Sahara delivered only 28,290.07 mt, a shortfall of 1,109.93.

Choil’s damages are the difference between the CIF market price as at 28^th August less the freight (so as to produce an FOB price) less the FOB contract price. That works out as follows:

Clause 12 of the July terms, on which Sahara relies in relation to this claim, provides:

“Any complaint with regard to the quantity or quality of product supplied under the agreement must be notified in writing to the seller within 30 days of completion of loading and must be accompanied by documentary evidence supporting the complaint”.

Mr Smith relied on Metalimex Foreign Trade Corp v Eugenie Maritime Co Ltd [1962] 1 Lloyd’s Rep 378 and The Voltaz [1997] 1 Lloyd’s Rep 35. In the former case the clause provided “Arbitration in London… Any Claim has to be made in writing within six months of final discharge...” In the latter case the clause read “Any claim by charterers must be presented within 60 days of completion of discharge…and if there is any occasion for an arbitration … the Charterer and Owner agree to appoint their respective arbitrators not later than (6) months following the date of completion of discharge”. In the former case compliance with the clause was held to be a condition precedent to the making of any claim. In the latter case it was held that unless the claimant, be it Charterer or Owner, appointed their arbitrator within 6 months of discharge the claim was to be regarded as time barred.

Although every case must depend on the exact words of the clause, and although these cases concerned arbitration clauses, it seems to me that clause 13 must have a similar construction. A complaint within the stipulated time is a condition precedent to a claim. If the clause does not mean that it is difficult to give it any sensible commercial meaning – a consideration which either led to or heavily influenced the decision in each of those cases.

By 18^th August Sahara was in possession of the bill of lading which reveals the shortfall. The quantities loaded are also set out in the SGS report of 18^th August which I infer was received by Sahara since SGS were jointly appointed inspectors. On 5^th September BCG, Choil’s bank, advised Sahara’s bank, Credit Agricole, which advised Sahara, that the documents tendered were being refused on account of short shipment.

This seems to me sufficient notification in writing together with documentary evidence. The clause does not require notification to come from the buyer itself; nor do I regard it as essential that any notification of the shortfall and the documentation that supports it should be provided at the same time. It is sufficient that the complaint is made within the 30 days and that the documentary evidence comes forward within the same time period. In any event it was not necessary for Choil to provide Sahara after 18^th August with documentation or information which it already had: The Mozart [1985] 1 Lloyd’s Rep 239; The Chanda [1985] 1 Lloyd’s Rep 563.

Mr Smith submits that, even if all that be so, there was nothing recognisable as a complaint. Neither the bank’s rejection of documents, nor the bill of lading nor the SGS report were complaints. I regard this as too strict a view. The essential purpose of the clause is that the seller (in this case) should be told by or on behalf of the buyer that there has allegedly been short delivery, that that is something of which the buyer complains, and to have supporting documents. When the bank told Sahara that it was not going to pay anything under the letter of credit on the grounds, inter alia, that there had been short delivery that was complaint enough.

Accordingly the amount due to and from the parties are as follows:

Accordingly I propose to give Choil judgment for that sum.