Mena Energy DMCC v Hascol Petroleum Ltd

This case is concerned with two transactions, one for the sale of fuel oil and the other for the sale of gasoil by the claimant (“Mena”), a UAE company engaged in the trading of crude oil and petroleum products, to the defendant (“Hascol”), an importer of such products into Pakistan.

The first transaction was a contract concluded on 19 September 2014 which provided for two shipments of “HSFO 125 cSt”, that is to say of high sulphur fuel oil with a maximum viscosity of 125 centistokes. The viscosity of fuel oil imported into Pakistan is important because the product is used to power generators whose pipes are not heated; in winter months, therefore, it is necessary to use fuel with low viscosity. However, HSFO 125 cSt is not available as a finished product in the region, as the product coming out of the refineries generally has a viscosity of over 180 cSt or even 280 cSt. It is therefore common practice to blend higher viscosity fuel oil with other components such as gasoil and cutter stock to create HSFO with a viscosity of 125 cSt or less.

As is common in oil trading, the contract provided that the price was to be based on published Platts prices for a spread of dates on and either side of the bill of lading date.

The first shipment under the fuel oil contract consisted of three such components loaded separately on board a vessel called the “Chemtrans Rhine”. These were to be blended on board the vessel during the voyage from Fujairah to Karachi by circulation and heating of the cargo within the vessel’s tanks. On arrival, the vessel’s tanks were sampled and an analysis carried out by the Hydrocarbon Development Institute of Pakistan (“HDIP”) determined that the viscosity of the cargo was 192.92 cSt. As a result, import of the cargo into Pakistan was not permitted. Mena, however, was confident that further blending would solve the problem and, when analysis by SGS appeared to confirm this, requested that the cargo be re-sampled. Although re-sampling in such circumstances had sometimes occurred in the past, on this occasion HDIP refused, saying that this was not permitted under Pakistani law. There was, therefore, an impasse. The cargo could not be discharged without HDIP’s permission, which HDIP was refusing to give. Mena was insisting that the cargo was in accordance with the contract and that it was entitled to have it re-sampled. Hascol wanted the cargo, which it needed in order to supply its customers. Ultimately, an agreement was reached in a telephone conversation which took place on 21 November 2014. It was agreed that the vessel would return to Fujairah where the cargo would be discharged, further blended as necessary, reloaded onto the vessel and returned to Karachi where it was confidently expected to be on specification so that HDIP would permit its discharge. That is what happened.

However, there are disputes as to what exactly was agreed in this conversation, in particular (1) whether what was agreed was a final settlement of all existing claims and counter claims up to that point, (2) what obligation Mena undertook as to the date by which the vessel would return to Karachi, (3) how the price payable for this shipment would be calculated, and (4) whether Hascol agreed to contribute to the cost of this exercise.

Mena’s case is that what was agreed was a final settlement, that it undertook to use best endeavours to ensure that the vessel returned to Karachi by 26 November 2014 but gave no guarantee that this could be achieved, that the price would continue to be calculated by reference to the existing bills of lading, and that Hascol agreed to contribute to the cost of the return voyage, up to a maximum of US $150,000, by way of an increase in the price payable under (what it says was) the recently concluded gasoil contract. Hascol’s case is that no final settlement was reached and that the parties merely agreed that if the vessel returned to Karachi by 26 November 2014 the existing bills of lading would continue to be used for calculating the price, but that if it did not return by this date, the parties would revert to whatever their rights were under the original contract. It denies any agreement on its part to contribute to the cost of the return to Fujairah.

In the event the vessel did not arrive back at Karachi until 30 November 2014. Hascol contends, therefore, that the condition for the continued use of the existing bills of lading was not satisfied and that it is entitled to claim damages for Mena’s failure to supply a contractual cargo on time, the market price of fuel oil having fallen since the date of the contract.

Resolution of these issues depends in part on the evidence of Mr Maroof Soomro of Mena and Mr Saleem Butt of Hascol, the individuals who had the critical conversation, and in part on analysis of the contemporaneous documents which shed light on them. In the event that Hascol’s version of the agreement is accepted, it will be necessary also to consider the underlying contractual position.

As was the case with all the parties’ previous dealings, the fuel oil contract provided for payment by a confirmed letter of credit to be opened at the latest five working days before the first day of the loading laycan. A letter of credit for the first shipment was duly opened, issued by Hascol’s bank, Summit Bank of Karachi, and confirmed by Habib Bank Ltd, Dubai, with National Bank of Fujairah (“NBF”) as the advising bank. On 18 November 2014, while the vessel was still at Karachi and the question of what was to happen to the cargo was unresolved, Mena presented documents under the letter of credit. The documents, which on their face complied with the letter of credit, were accepted by NBF who discounted the amount payable under the credit and were also accepted by Habib Bank as the confirming bank. Those responsible for checking the documents at Summit Bank concluded that the documents complied with the credit and should be accepted, but this view was overruled at a higher level in the bank at the request of Hascol. Accordingly Summit Bank rejected the documents, alleging that they contained discrepancies. Eventually, as a result of pressure from Habib Bank and the State Bank of Pakistan, Summit Bank was compelled to agree that it would accept the documents and reimburse Habib Bank, but at this point Hascol obtained an injunction from the court in Karachi to restrain payment from being made. The injunction only remained in place for a short time. As a result of the commercial pressures on Hascol, including the issue by Summit Bank of a PDA Notice (“Past Due Acceptance”, in effect a notice of default) it was forced to agree to the withdrawal of the injunction and as a result, Summit Bank finally accepted the documents and duly reimbursed Habib Bank on the maturity date for payment under the letter of credit.

What had happened in relation to the first fuel oil shipment meant that, when the time came for letters of credit to be opened for the second fuel oil shipment and (if there was such a contract) the gasoil contract, Hascol was unable and unwilling to do so, a position which it made clear to Mena. Up to the stage of closing submissions in the trial, Hascol blamed Mena for this. It contended that Mena’s presentation of documents was a breach of an implied term of the sale contract and that as a result of Mena’s wrongful conduct banks were unwilling to open a letter of credit with Mena as the beneficiary. It contended further that this afforded it a defence to Mena’s claims for failure to open a letter of credit for the second fuel oil shipment and the gasoil contract. This defence was supported by the factual evidence of witnesses from Hascol and Summit Bank. Mena on the other hand contended that Summit Bank’s flagrant breach of its obligations under the UCP 600 in relation to the first fuel oil shipment had become common knowledge among banks providing trade finance, with the result that such banks were not prepared to confirm a letter of credit with Summit Bank as the issuing bank. Mena’s position on this issue was obviously correct, both factually and legally, and Hascol abandoned its argument after the conclusion of the evidence.

As a result of Hascol’s abandonment of a defence based on Mena’s conduct in relation to the letter of credit, the issues in relation to the second fuel oil shipment are fairly narrow. By the conclusion of the trial only two points remained live. It is now common ground that although Mena did not give Hascol sufficient notice to enable it to open a confirmed letter of credit five working days before the first day of the laycan period at the load port, the effect of an email sent by Mena on 26 November 2014 was that Hascol was obliged to open a credit by 3 December 2014. However, by the end of November and the beginning of December Hascol was already making it clear that no such credit would be opened and, on 2 December 2014, Mena cancelled the chartperparty of the vessel which it had chartered to carry the cargo. Hascol contends that the effect of this cancellation was that there was no longer any laycan period at the load port and that, as a result, it was no longer under any obligation to open the letter of credit. That is Hascol’s first remaining defence. The second is that because Mena did not accept its failure to open a letter of credit as a repudiation of the contract discharging it from further performance, the contract remained alive so that it was Mena which was in breach for failing to supply the cargo. I should add that Hascol contended in its opening submissions that Mena was not in a position to perform the second fuel oil shipment and that its claim in relation to that shipment ought to fail for that reason also. However, for reasons which I gave in a ruling at the outset of the trial, it is not open to Hascol on the pleadings and in the light of the way in which the case has developed to advance this point by way of a defence to liability. I say nothing about it as a point which may be relevant to quantum in due course.

The second transaction concerned a contract for the sale of gasoil which Mena contends was concluded orally on 17 November 2014 and confirmed in an email described as a deal recap on the same day. Hascol, however, contends that no such contract was ever concluded because the parties had failed to agree on the date by which a confirmed letter of credit was to be opened. Mena contends that it was agreed, as in the case of all but one of the parties’ previous transactions and as stated in the deal recap, that the credit was to be opened five working days before the first day of the loading laycan. (The exception was a contract at short notice which required the credit to be opened on the following day). Hascol, however, says that on this occasion it explained that it could not agree to this and wanted to be able to open the credit only two working days before the first day of the loading laycan. It maintains that the parties never reached agreement on this point and accordingly no contract was concluded. Alternatively, if there was a contract by which it undertook to open a confirmed letter of credit, Hascol contends that Mena repudiated the contract by demanding payment at the rate of US $93.75 per barrel instead of the price actually agreed which was US $93.25. Mena responds that the price increase of US $0.50 per barrel represented Hascol’s agreed contribution to the cost of returning the first fuel oil shipment to Fujairah for re-blending.

In these circumstances Hascol has a claim for damages for delay in the supply of the first fuel oil shipment, while Mena has claims for damages suffered as a result of Hascol’s failure to open a confirmed letter of credit for the second fuel oil shipment and the gasoil contract. There is also a counterclaim by Hascol for short delivery under the first fuel oil shipment.

The trial before me has been concerned with liability only.

Oral evidence was given by a number of factual witnesses.

Mena’s principal witness was Mr Maroof Soomro, a trader with about nine years’ experience in the trading of petroleum products. He was the main individual who conducted negotiations with Hascol and was the principal point of contact. He was a straightforward and honest witness, who was accepted by Hascol’s witness Mr Butt as having dealt honestly with him in their dealings together. Evidence was also given by Mr June Lavaro, Mena’s business development director and Mr Soomro’s superior; by Mr Rafi Harris, Mena’s financial controller; and by Mr Rashid Al Ghurair, the chief executive officer and the owner of the company. These were in general honest and reliable witnesses doing their best to recall events, although I found some of Mr Lavaro’s evidence implausible – for example, his statements that he telephoned Mr Butt to confirm Hascol’s agreement to compensate Mena by paying an extra US $0.50 per barrel on the gasoil contract and that he could not remember whether Mena had found alternative employment for the “Port Louis”, the vessel chartered for the second fuel oil shipment. Although I have borne these points in mind, they were peripheral failings which do not affect my overall conclusions on the critical issues.

Hascol called three factual witnesses: Mr Mumtaz Khan the chairman and chief executive officer of the company; Mr Saleem Butt, the chief operating officer; and Mr Ahsan Durrani of Summit Bank. Mr Durrani’s evidence was concerned only with the letter of credit issues which Hascol has now abandoned. Neither Mr Khan nor Mr Butt were credible witnesses on important issues. Both adopted an argumentative approach to their evidence and were reluctant to accept points which they perceived to be against Hascol’s interests. For example, they both asserted that, contrary to the unequivocal statements in letters written to HDIP and the Pakistan Ministry of Petroleum & Natural Resources on 18 and 20 November 2014 (the latter signed by Mr Butt personally) that Hascol was confident that the product was on specification after completing its re-circulation, this was not in fact their true belief. Mr Butt’s evidence was unsatisfactory in a number of further respects to which I shall come. For the moment (because it will be unnecessary to deal in any detail with the matters arising out of Mena’s presentation of documents under the letter of credit for the first fuel oil shipment) I will merely say that much of Mr Butt’s evidence on these matters was untenable. In particular he insisted that Summit Bank agreed with Hascol’s view that there were discrepancies in the documents presented when in fact it was crystal clear that the senior management of the bank only refused to accept the documents (thereby overruling the bank’s own letter of credit department) at the request of Hascol; that the bank’s attempt to justify to its regulator its refusal to accept the documents was a document into which Hascol had a major input; and that (despite Mr Butt’s denial) what purported to be an independent letter from Summit Bank blaming Mena for its inability to open a confirmed credit for future transactions was no such thing.

Expert evidence relating to fuel oil blending and sampling was given by Mr David Edwards on behalf of Mena and by Mr Syed Gohar on behalf of Hascol. Mr Edwards was well qualified to give evidence and did so with care. Mr Gohar had very limited practical experience of these matters in a marine context. Where their evidence differs, I prefer that of Mr Edwards. There was also evidence from experts in documentary credit practice, but in view of Hascol’s abandonment of its case on the issues to which their evidence was relevant, I need say no more about this.

As already noted, HSFO with a viscosity of maximum 125 cSt is not available as a finished product in the region and the cargo therefore had to be blended. For this purpose Mena needed to identify the components which would make up the cargo and to calculate the proportions of each component which would be needed. Blending of the components can take place either in shore tanks before loading or on board the carrying vessel. Blending in shore tanks is more efficient to produce a homogenous cargo but blending on board is also common in the industry. Blending on board carries the risk, however, even if the supplier’s calculations are correct and the cargo is loaded into each tank in the correct proportions, that the cargo may not be fully blended by the time of arrival at the discharge port, with the different components forming strata in the vessel’s tanks. However, while this may be a problem if the contract requires the cargo to be homogenous in the vessel’s tanks at the discharge port, in practice the discharge of the cargo from the vessel under pressure into the shore tanks will mean that the cargo will be thoroughly blended by the time discharge has been completed.

The fuel chemistry experts agreed that the internationally accepted procedures for taking samples of crude oil and petroleum products from a vessel’s tanks are as set out in ASTM D4057. Two kinds of sample are common, either running samples (in which a sample is taken by drawing a container through the full height of a column of liquid, thus obtaining a sample which is representative of the cargo at all depths) or spot samples (in which samples are obtained from specified heights in the tank). These spot samples will typically be either (1) upper, middle and lower (“UML”) or (2) top, middle and bottom (“TMB”): the difference concerns the locations from which the samples will be taken. It is, however, open to the parties to specify how many spot samples should be taken and from which locations. Spot samples will, by definition, only indicate the specification of the cargo at the particular locations from which they are taken. The experts agreed that in the case of a non-homogenous or stratified cargo, running samples are preferable to spot samples. These will give a more accurate picture of the overall cargo quality. On the other hand, running samples will not indicate whether the cargo in each tank was stratified. If the objective is to ascertain whether the cargo was non-homogenous or stratified, spot samples will be needed.

A composite sample consists of product drawn from each of a number of tanks and combined in appropriate proportions as a single sample. A ship’s tanks composite sample will therefore enable the average specification of the whole cargo to be ascertained, but will not indicate any differences between individual tanks, let alone any lack of homogeneity within any such tank. It follows that such a sample cannot show whether a cargo consisting of separate components has been successfully blended, either in shore tanks at the load port or on board the vessel during the voyage, into a homogenous cargo. It would only show the average specification (including viscosity) of the cargo as a whole.

Samples can be taken with the hatches either open or closed. In some ports sampling with the hatches open may not be permitted, but when this is possible it provides in general much more accurate results. Open hatch sampling was permitted, and indeed took place, at Karachi.

I set out now a narrative of the parties’ dealings so far as relevant to the liability issues described above.

There had been two previous contracts between the parties, both in August 2014, for the sale of gasoline CFR Karachi. Both contracts were successfully performed and the parties developed a good working relationship. Negotiations were conducted by email and telephone conversations which would culminate in a telephone conversation in which terms were agreed orally. These terms would then be recorded in an email described as a “deal recap” sent by Mr Soomro of Mena on the same day as the final telephone conversation. The deal recap would indicate that it would in due course be followed by a formal signed contract.

There is an issue between the parties as to the point at which a binding contract was concluded. Mena’s case is that contracts negotiated in this way were concluded in the telephone conversation and that it was understood by both parties that the deal recap was a record of what had been agreed by telephone, not an offer by Mena to contract on these terms. Thus the parties were bound immediately regardless of whether the formal written contract was later forthcoming. Hascol agrees that the formal contract was not necessary, but contends that although described as a “deal recap”, the email sent by Mr Soomro should in fact be analysed as an offer to contract, so that the parties would only become bound once it was accepted. However, Hascol never thought it necessary to confirm its acceptance of the terms set out in the deal recap and never did so. Although he insisted that the position was different so far as the gasoil contract in issue in this case was concerned, Mr Butt accepted in general that business between the parties was done by means of an oral telephone agreement which was then recorded in a deal recap email. This was also, despite some isolated statements implying that the contract was only concluded when the deal recap was sent, a fair understanding of Mena’s evidence viewed as a whole.

In my judgment there is no doubt that the oral agreements concluded on the telephone were and were intended to be binding. The “deal recap” emails were precisely what they said they were, namely a record of the terms which had been agreed.

Hascol never suggested that any of Mr Soomro’s email records of what had been agreed were mistaken although, if it had thought this, Mr Butt would have said so. It is apparent that in all previous cases Mr Soomro who prepared the deal recaps did so carefully and accurately. This will be a factor to bear in mind when considering (1) whether his record of the telephone agreement concerning the 21 November 2014 conversation is accurate and (2) the email, also described as a “deal recap”, purporting to confirm the conclusion of the gasoil contract on 17 November 2014.

After the conclusion of the fuel oil contract but before the disputed conclusion of the gasoil contract, there were two further contracts between the parties. On 20 October 2014 they concluded a contract for the sale of 25,000 mt of gasoil and on 11 November 2014 they concluded a contract for the sale of 10,000 mt of gasoil. These contracts, negotiated and concluded in the same way, were also successfully performed.

All but one of the contracts between the parties concluded before the disputed gasoil contract provided for payment by a confirmed letter of credit which was to be opened five working days before the first day of the laycan period at the load port. (The exception was the contract dated 11 November 2014 which provided for the credit to be issued “tomorrow” because the cargo was urgently required, although the formal contract when drawn up included the usual five working days clause). This gave Mena the assurance of payment which it needed in order to commit to the purchase of the product and to charter a vessel.

The laycan periods at the load port were not specified in the contracts which said nothing about the way in which Hascol was to be informed what they were. This was information which Hascol would need in order to know the date by which it was obliged to open a letter of credit, but in practice this was never a problem. Mena would provide Hascol with the necessary information, either in response to an inquiry or of its own accord.

The fuel oil contract which has given rise to the present dispute was concluded on 19 September 2014 in the same way as the parties’ previous contracts. It provided for two shipments of HSFO 125 cSt, each of 25,000 mt +/- 10%. The product was to be delivered CFR Karachi in a date range of 5-10 November in the case of the first shipment and 25-30 November in the case of the second shipment. The contract price was to be based on the mean of various Platts quotations for HSFO 180 cSt to be delivered FOB Arab Gulf on dates on and either side of the bill of lading date, plus a premium of US $46.

Payment was to be by confirmed letter of credit 30 days after the bill of lading date, with the credit to be issued at least five working days before the first day of the loading laycan. (In theory this could have given rise to a problem because, when the price depends on the market price prevailing on and around the bill of lading date, the parties cannot know in advance what that price will be and therefore cannot know the exact amount for which the letter of credit will be needed: if the market rises after the date of the contract, the seller may be exposed. However, this does not appear to have created any problems in practice between these parties and the point need not be further considered).

Relevant terms of the contract, taken from the parties’ signed contract, were as follows:

“6.

Payment

… The L/C shall be established in good order at least five (5) working days before first day of 3-days loading date range and the L/C shall be subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, UCP 600 and acceptable by seller. Failure by buyer to procure the opening of the L/C and specified above shall constitute a repudiatory breach of this contract giving seller the right to terminate this contract and/or withhold the loading of cargo until the L/C is received by seller in good order. Any cost and delays for such reason shall be for account of buyer.

In case usual shipping documents are not available at the time of negotiation, payment shall be effected against presentation of seller’s commercial invoice and seller’s letter of indemnity (“LOI”) as per Annexure B. …”

“12.

Inspection

(1)

Governing quality shall be based on ship tanks composite sample at discharge port drawn by the mutually agreed independent inspector prior to commencement of discharge and tested in accordance with international sampling and testing procedure.

(2)

(2A) The inspector will prepare report with reference to the test results of the composite sample(s) drawn from the vessel’s tanks at discharge port in presence of HDIP representative(s) and that of composite sealed sample(s) of the product (load port samples) retained by the master. The samples will be tested in the inspector’s laboratory and HDIP laboratory, Karachi, simultaneously. The test results by HDIP laboratory for the composite samples obtained from the vessel’s tanks at discharge port shall be final and binding on both parties with regards to quality of cargo loaded on board.

(2B) If the composite sample does not conform with the prescribed specifications at HDIP then the supplier may request the buyer to re-sample the cargo from vessel tanks and test at HDIP for quality verification in presence of independent inspectors or nominated representatives of seller and buyer after seeking necessary approvals. The acceptance of 3^rd party inspectors and approvals to witness shall not be unreasonably withheld. The re-test result of HDIP will be final and binding for both parties.

(3)

Certificate of quality in respect of the product issued by independent inspector shall be conclusive, except in case of fraud or manifest error, but without prejudice to the rights of either party to file a claim for quality.

(4)

The quantity of the product shall be determined by mutually agreed independent inspection company at seller’s terminal. The final quantity shall be determined basis seller’s tanks. Independent inspector’s findings to be final and binding on both parties save for fraud or manifest error for invoicing purposes but without prejudice to the rights of either party to file a claim for quality.

(5)

Buyer/seller to appoint a mutually agreed independent inspector report and discharge port quantity and quality with costs to be shared equally between seller/buyer.”

I have adopted paragraph numbering in clause 12 for ease of reference as suggested by Mr Simon Rainey QC for Mena. In the contract itself there was no such numbering and what I have set out as paragraphs 2A and 2B comprised a single paragraph.

At this stage I would make the following observations on clause 12:

That leaves two issues which may be relevant in the present case. First, was the cargo required to be homogenous so far as viscosity at the discharge port was concerned? Hascol contends that it was, saying that viscosity formed part of the description of the product and that a non-homogenous cargo could not properly be described as “HSFO 125 cSt”. Mena denies this, saying that it was only necessary for analysis by HDIP of a ship’s tank composite sample (which the parties would have understood would not indicate whether the product was homogenous) to produce a result of 125 cSt or less. Second, what is the position if, despite a request by the supplier pursuant to paragraph 2B, no re-sampling is carried out? Hascol contends that in such circumstances the initial analysis result showing the cargo to be off specification must stand and is final. Mena contends that once a request for re-sampling is made, the initial certificate is no longer final and binding whether or not re-sampling actually takes place.

The quantity of the cargo delivered was to be determined at the load port “basis seller’s tanks” by a mutually agreed independent inspector. This determination was likewise to be final and binding in the absence of fraud or manifest error.

The letter of credit for the first fuel oil shipment was issued by Hascol’s bank, Summit Bank Ltd of Karachi. The confirming bank was Habib Bank Limited, Dubai and the advising bank was NBF. The credit was for deferred payment, 30 days from the bill of lading date, and was subject to UCP 600. It was important to Hascol have the benefit of a period of credit before it was required to pay. This gave it the opportunity to sell the cargo and collect payment from its customers.

The terms of the credit included the following:

Although it is common in the oil industry for a letter of credit to provide for payment against the beneficiary’s letter of indemnity if shipping documents including bills of lading are not available, the effect of this is that the issuing bank may be called upon to accept documents without obtaining any security interest in the goods. The issuing bank is, therefore, more than usually dependent on the creditworthiness of its customer, the applicant.

On 21 October 2014, Hascol accepted Mena’s nomination of the “Chemtrans Rhine” to perform the first fuel oil shipment and, in reliance on this acceptance, Mena entered into a voyage charter of the vessel with laydays at the load port of 1-3 November 2014.

On 28 October 2014 Mena offered to increase the quantity of the first fuel oil shipment to 30,000 mt +/- 10%. Hascol responded that it could not accept this increase “due to ullage constraints” (as Mena knew, it had limited storage facilities), but the parties did agree to increase the quantity for this shipment to a maximum of 30,000 mt less a tolerance of 10%. They agreed also to reduce the price by a modest adjustment in the premium over the applicable Platts price to US $44.75 per mt.

Loading of the “Chemtrans Rhine” took place at Fujairah between 5 and 12 November 2014. The cargo was loaded in three parcels, 280 cSt fuel oil, cutter stock and gasoil, to be blended on board the vessel. A separate bill of lading was issued for each parcel, each of which described the cargo received on board simply as “fuel oil”. To some extent it may be said that this was not accurate. In the case of the gasoil parcel, for example, what was loaded was a cargo of gasoil, not fuel oil. However, there was no pleaded issue relating to the description of the cargo in the bills of lading and the point was not explored in evidence. It was certainly the intention and expectation of all concerned that, by the time the vessel arrived at the discharge port, the cargo would be fuel oil.

Before loading a hand-blend sample of the cargo was taken – that is to say a sample drawn in the correct proportions from each of the three parcels which were to make up the cargo, which sample was then blended by hand. This was tested by Inspectorate on 13 November 2014. A certificate of quality issued on the following day confirmed that the sample met the contractual specification, with a viscosity of 101.6 cSt. By its nature, this analysis said nothing about whether the parcels to be loaded would be blended, properly or at all, once on board the vessel, but it indicated that given sufficient blending the cargo would be on specification.

The vessel arrived at Karachi at 06:30 hours on 15 November 2014 and tendered NOR at the anchorage. Spot samples were drawn from the vessel’s tanks in the presence of SGS and HDIP representatives. They were drawn through the vessel’s closed sampling system.

The samples were analysed by SGS and HDIP, each of whom issued a test certificate. HDIP’s results indicated a viscosity of 192.92 cSt for the ship’s tanks composite sample, while SGS’s test results indicated a viscosity of 184.9 cSt. These results were in broad agreement with each other, suggesting that there was nothing wrong with HDIP’s laboratory analysis. Both exceeded the contractual maximum of 125 cSt. The SGS certificate (but not the HDIP certificate) stated that the samples had been “drawn under restricted and closed conditions” and that as a result SGS could not guarantee that the test results were representative of the actual cargo quality. As already indicated, sampling through a vessel’s closed system can be inaccurate.

On receipt of these results Hascol emailed Mena on 16 November 2014 to say that the cargo was not acceptable. The email included the following request:

“Basis above, this product is not acceptable kindly arrange replacement.”

There was some debate at the trial as to whether this email constituted a rejection of the cargo. Although it appears to be so, in fact Hascol still wanted and needed the cargo in order to supply its customers and did not persist in this attitude. I accept the evidence of Mr Soomro that, following receipt of this email, he had a telephone conversation with Mr Butt in which the parties discussed ways to resolve the problem that the cargo could not be discharged in Pakistan unless its viscosity was certified by HDIP as complying with the contract. The obvious way to achieve this was for the cargo to be further blended and re-sampled. Over the next few days both parties made efforts to solve the problem in this way.

The first step was that on 16 November 2014 Mena instructed SGS to take running (rather than spot) samples from each of the vessel’s cargo tanks. Running samples taken by open hatch sampling on that day were analysed and resulted in an overall viscosity of 113.6 cSt, which was in accordance with the contractual specification. On 17 November 2014 Mr Soomro wrote to Hascol acknowledging that the viscosity when tested by HDIP and SGS had been off specification, but adding that a running sample had indicated a viscosity well below 125 cSt. He expressed the hope that the matter would be sorted out very soon. In addition he asked Hascol to make various amendments to the letter of credit which were needed before discharge of the cargo, which Hascol duly did on the same day. It was evident, therefore, that both parties hoped and expected that the cargo would soon be delivered.

The next step was for re-circulation of the cargo to be carried out on board the vessel. This took place on 17 November 2014 and on the following day Mena instructed SGS to take further samples, both running and UML. When analysed, the running samples taken showed an average viscosity of 108.9 cSt, which was in accordance with the specification. The UML samples showed an average viscosity of 118.1 cSt, but they also showed that in all but three tanks the cargo was stratified, with viscosity readings in most cases between 230 cSt and 286 cSt at the upper levels. The SGS analysis report included the comment that:

“From above test results of individual UML samples it is evident that product is still not fully homogenized and need to be properly/fully homogenized prior re-sampling upon re-berthing of the vessel.”

The basis on which this comment was made is not apparent. It raises the question already referred to whether Mena’s obligation was to deliver a fully homogenised cargo or merely a cargo from which a ship’s tank composite sample could be drawn with a viscosity of 125 cSt or less.

Mena advised Hascol that the running samples taken by SGS now showed the cargo to be on specification. Hascol explained that HDIP would not accept these results, but would need to conduct its own re-sampling. At this stage both parties expected this to happen. Hascol made clear that it would not accept the NOR (and thus would not be liable for demurrage) until re-sampling and re-testing had been carried out by HDIP "as per our contract", but both parties expected this to happen imminently.

Accordingly Hascol wrote to HDIP on 18 November 2014 referring to the re-circulation of the cargo which had occurred since HDIP’s initial inspection and requesting that HDIP’s representatives should attend on board for further sampling. Its letter stated that:

“We are confident that the product is on spec after completing its re-circulation.”

Hascol’s witnesses agreed that they would not have misstated the position to HDIP but nevertheless denied that this was their actual contemporary belief. I do not accept this denial. At this stage the parties’ relationship was still good. They trusted each other, wanted to find a solution to the problem and believed that they had done so. There was no reason for Hascol to disbelieve Mena’s explanation that the re-circulation exercise had proved to be successful.

Unfortunately, however, HDIP refused to re-sample the cargo. That refusal was maintained despite Hascol’s attempt to persuade the Ministry of Petroleum & Natural Resources to instruct HDIP to do so. This attempt was made by telephone on 19 November 2014 and by letter on the following day. Mr Butt’s letter repeated the statement of Hascol’s confidence that the cargo was on specification after its re-blending.

In order to demonstrate that it had done its best to arrange for re-sampling, Hascol provided Mena with copies of its letters to HDIP and the Ministry on the morning of 21 November 2014. It was therefore apparent to Mena that Hascol believed the cargo to be in accordance with the contract.

There was an issue whether re-sampling of a cargo (as distinct from further testing of an existing sample) was prohibited as a matter of Pakistani law. This issue was addressed by Pakistani law expert witnesses, although in the event the parties agreed that it need not be decided and the witnesses were not called. At all events, however, until this point the parties had clearly expected that re-sampling would be permitted and would show the cargo to be in accordance with the contract. There would otherwise have been no point in requesting HDIP to attend for further sampling. On 19 November 2014, however, Hascol wrote to Mr Soomro as follows:

“Reference telecom of today. Please note Ministry of Petroleum and Natural Resources not accepted our request for retesting of re sampling of HSFO tanker of Chemtrans Rhine under the rules retesting of existing sample is allowed. You are therefore requested to instruct Master to take back the cargo.”

Re-testing of the existing sample was pointless. There was no reason to think that a new analysis would produce a different result.

The refusal of HDIP to re-sample the cargo meant that a new solution would have to be found. Hascol still wanted and needed the cargo and believed that it now complied with the contractual specification. However, unless HDIP gave its approval, discharge in Pakistan would not be allowed. It was therefore a real possibility that the vessel would have to leave Karachi without discharging. Accordingly Mena instructed the vessel’s agents to begin the necessary formalities for leaving the port.

The solution which the parties discussed over the next two days was for the vessel to go to the nearest port where further blending could be carried out, either by means of a ship to ship transfer or by discharge into a shore tank and reloading, after which the vessel could be brought back to Karachi. It was anticipated that in these circumstances HDIP would be willing to sample the cargo and that all would be well. This was first proposed by Mr Butt in an email dated 20 November 2014 which followed a telephone conversation with Mr Lavaro:

“I strongly recommend you, provided the new report (testing done by you privately) are within the limits, to take the ship back to the nearest port, do the STS bring back the ship Pakistan under new laycan.”

Mr Lavaro responded that Mena was willing to consider this proposal:

“Though we know and we are confident our cargo are on-spec from the beginning, we have decided and will try to consider your proposal in good faith and spirit of cooperation.

It is our intention to re-solve this issue amicably and maintaining an even stronger business relationship with your good selves.

I appreciate if you can send your detailed proposal for the resolution of this issue at the earliest.”

There followed a conversation between the two principals, Mr Al Ghurair of Mena and Mr Khan of Hascol. Mr Al-Ghurair maintained that Mena had a contractual right to have the cargo re-sampled at Karachi, but Mr Khan insisted that this was impossible. Mr Khan said that the vessel should go to the nearest port for re-blending, to which Mr Al-Ghurair responded that the nearest port was Fujairah and that such an operation would be expensive. He asked who would pay for it. Mr Khan’s evidence was that he replied that it was Mena’s responsibility to supply cargo in accordance with the contract and that it was not Hascol’s problem if that cost extra money. Mr Al Ghurair accepted that this was Mr Khan’s position in this conversation.

As requested, Mr Butt set out Hascol’s detailed proposal in an email dated 20 November 2014 at 15:15 hours. It offered two possibilities, the second of which (a one-year agreement for the supply of 12 cargoes) need not be considered further. The first was as follows:

“1.

The ship should go back to Fujera, prepare all new documents including but not limited to BL, load port documents, loading test reports, ship ullage reports, etc and report Pakistani for delivery to us.

2.

We will take a new laycan for ship for HSFO delivery on 23/25 Nov 14. If the ship manages to report as per laycan, we can manage to sell the cargo to our customers at same rates, as old rates will apply to all the deliveries made before 30 Nov 2014 and product reached into their tanks. Otherwise the new BL rates will apply. In Pakistan, prices are changes fortnightly and are based on last 15 days Platts average + PSO premium. You also have the option to charge us PSO price once it is announced.”

In effect, therefore, what Mr Butt was saying was that prices in the domestic market in Pakistan were regulated, with fortnightly changes, and that a new price (which the parties understood would be lower because the market had fallen) was due to take effect at the end of the month. If the vessel was able to return within the proposed new laycan of 23-25 November, that would give Hascol enough time to discharge the cargo and deliver it to its customers before the new price would apply. In that event Hascol would be content to pay for the cargo at the contract price calculated by reference to the original bill or bills of lading. On the other hand, if the vessel did not arrive within the new laycan, Hascol would want to pay a lower price, calculated by reference to a new bill of lading issued following the re-blending operation at Fujairah.

Mr Butt followed up his proposal the next morning, 21 November 2014, reiterating that because re-sampling at Karachi was not possible, there was “no other option but to formulate an alternative strategy”. He added that in pursuance of this, Hascol “have already taken a laycan of 26-28/11 for delivery of the product” and asked for a response to the proposal of the previous day. His statement that Hascol had taken a laycan of 26-28 November for delivery was not quite right as in fact its proposal had been for a new laycan of 23-25 November, but does indicate that the proposal for a new laycan of 23-25 November was not necessarily Hascol’s last word on the matter.

Mr Soomro’s response to Hascol’s proposal was set out in an email dated 21 November 2014 at 12:08 hours. After maintaining that Mena was entitled to have the cargo re-sampled, Mr Soomro continued:

“In order to take the alternate course of action to take the product to the nearest port and bring back the same with the same BL and new set of surveyor documents, will incur a cost. We are ready to take this alternate course of action and would try to reach within the laycan and tender NOR by 26^th Nov on best endeavour basis (all goes well, weather permitting), provided on your agreement the following:

•

The cost of entire exercise taking back the product and bringing the same product with the BL and new surveyor documents the cost would be split in the ratio (80% HASCOL : 20% MENA)

•

The price would remain the same as per the original BL.

Please confirm as soon as possible in order to avoid further damages.”

This counter departed from Hascol’s proposal in four ways:

Mr Soomro followed this counter proposal with an email in which he protested again that Mena had a contractual right under clause 12 to have the cargo re-sampled, adding that this was not unreasonable because the latest SGS reports showed it to be in accordance with the contract. He insisted that, contrary to Hascol’s earlier refusal to accept liability for demurrage, any demurrage or other costs arising would be for Hascol’s account.

Mr Butt replied, insisting again that re-sampling was not allowed under Pakistani law and that it was Mena which had failed to act in accordance with the contract. Nonetheless, he added, Hascol wished “to settle this matter amicably”.

Mr Soomro responded, again referring to Mena’s right to re-sampling under clause 12 and stating that:

“We have proposed the alternate course of action splitting the cost (80% Hascol : 20% Mena) of taking the product back and bringing it back again and keeping the price same as per BLs, in good faith to resolve this amicably.”

He concluded by warning that the demurrage rate in the charter party was US $17,500 per day and that any damages and costs due to delay would be for Hascol’s account.

Mr Butt replied in an email sent at 17:05 hours in which he warned that Hascol’s customers who had not received the product had made claims running into millions of dollars and caused Hascol immense loss of goodwill, for which Mena would be held liable.

At this point on the evening of 21 November 2014 Mr Soomro and Mr Butt spoke by telephone. There were other conversations between the parties on that day, including a conversation in which Mr Lavaro participated, but it is not suggested that any agreement was reached before the conversation between Mr Soomro and Mr Butt.

It is worth pausing at this point to summarise the position as it stood immediately before the critical conversation.

It is common ground that an agreement was reached in the telephone conversation that the vessel would return to Fujairah where the cargo would be discharged, further blended as necessary, and reloaded onto the vessel, which would then return to Karachi where it was confidently expected to be on specification so that HDIP would be satisfied and Hascol would accept it. However, as already mentioned, there are disputes as to what further terms were agreed in this conversation, in particular (1) whether what was agreed was a final settlement of all existing claims and counter claims up to that point, (2) what obligation Mena undertook as to the date by which the vessel would return to Karachi, (3) how the price payable for this shipment would be calculated, and (4) whether Hascol agreed to contribute to the cost of this exercise.

Mena’s case is that what was agreed was a final settlement, that it undertook to use best endeavours to ensure that the vessel returned to Karachi by 26 November but gave no guarantee that this could be achieved, that the price would continue to be calculated by reference to the existing bills of lading, and that Hascol agreed to contribute to the cost of the return voyage, up to a maximum US $150,000, by way of an increase in the price payable under (what it says was) the recently concluded gasoil contract. Hascol’s case is that no final settlement was reached and that the parties merely agreed that if the vessel returned to Karachi by 26 November 2014 the existing bill of lading would continue to be used for calculating the price, but that if it did not return by this date, the parties would revert to whatever their rights were under the original contract. It denies any agreement on its part to contribute to the cost of the return to Fujairah.

My findings as to what was agreed will be set out later in this judgment.

It is necessary to consider what the parties said about their agreement in the days following the telephone conversation. There were two email threads, each dealing with a different subject matter, which need to be borne in mind. One was between Mr Soomro and Mr Butt, the two individuals who had participated in the telephone conversation. The other was between Mr Soomro and Mr Ansari, Hascol’s chief financial officer, and was concerned with an amendment to the letter of credit to extend the maturity date for payment. Mr Ansari had not participated in the telephone conversation and his knowledge of it came from Mr Butt. However, it was not his concern to record what had been agreed but (as the subject heading of his email made clear) rather to deal with the practical matter of obtaining an extension to the credit maturity date.

The post conversation exchanges began with an email from Mr Ansari at 10:03 hours on 22 November 2014 in which he referred to the fact that “as per discussions between us now the on-spec product will be supplied to Hascol in the laycan of 26 Nov 2014”, adding that because of the delay in delivery Hascol required an amendment to the letter of credit to provide that payment was to be made 46 days from the bill of lading date. Hascol relies on this email because it refers to a date of 26 November with no mention of “best endeavours”. As I have indicated, however, it was not the purpose of this email to record the terms of the parties’ agreement. It may be noted that the request for an extension to the credit was only necessary if the existing bills of lading were to be used. The sale contract and the letter of credit provided for payment 30 days after the bill of lading date, which gave Hascol time to resell the cargo and collect payment from its customers. If a new bill of lading was to be used, no extension to the credit would be needed.

At 10:38 hours on 22 November 2014 Mr Soomro sent an email to Mr Butt as follows:

“Reference to our yesterday’s discussions on the below email, both parties (Hascol & Mena) played a positive role in order to resolve the issue amicably as discussed. Therefore, that ship sailed from Karachi port company Fujairah and report back to Karachi by Nov 26^th on Best endeavor basis (all those well weather permitting) with the same BL and new surveyor documents.

Looking forward to a mutually beneficial business relationship.”

The “below email” referred to was Mr Butt’s final email of the previous day warning of the claims for which Mena would be held liable.

This message was clearly intended, in accordance with Mr Soomro’s usual practice, as a record of what had been agreed in the telephone conversation. Five points should be noticed.

Mr Butt responded at 11:48 hours:

“Thanks for your email and getting the matter resolved amicably.

As discussed with you and June, Hascol will accept the old BL and new surveyor documents, test reports, etc provided the ship reports back by 26 Nov 14.

The reason for accepting 26 Nov 14 as reporting date is due the fact that current pricing in Pakistan will remain valid till 30 Nov 14 and we will be able to dispatch the product to our customers whose orders are pending from initially contracted laycan in 5/7 Nov 14 before 30 Nov 14.

We would also request you to kindly extend credit period for payment under LC by the delayed time. Our CFO has already sent you a request for credit period extension.

Let me assure to your team that our endeavour is always to create ‘win-win situation’ for all the players in order to have a sustainable relationship.”

This message also refers to there having been an amicable resolution, a point on which the parties were agreed. Hascol relies on this message because its reference to the vessel reporting back by 26 November does not include any mention of “best endeavours”. If this email is to be regarded in isolation as a statement of Hascol’s version of what had been agreed, it therefore supports Hascol’s case on this point. However, the whole tenor of the message is that an amicable resolution has been achieved, resulting in a “win-win situation” for both parties. That would not be the position if in fact Mr Butt was disagreeing on a fundamental point, namely whether the 26 November date was subject to “best endeavours”, which he knew from Mr Soomro’s email to be Mr Soomro’s understanding of the agreement reached. If the true position was that Mr Soomro was saying (as he clearly was) that “best endeavours” had been agreed, while Mr Butt’s understanding was that it had not, it is to be expected that this email would have been written in very different terms, pointing out expressly that Mr Soomro had mis-stated the parties’ true agreement. Similarly, if Mr Butt had thought that Mr Soomro was attempting by his reference to “best endeavours” to make a major inroad into what had been agreed after having second thoughts, he would have written in very different terms. Accordingly, when this email is viewed in its proper context, it does not in my judgment bear the weight which Hascol seeks to put on it. As it is, the fact that it was written in terms which referred to an amicable resolution and a “win-win situation” means that it is not surprising that Mena did not read it as conflicting with Mr Soomro’s summary and therefore saw no need to reiterate that the agreement reached was one to exercise best endeavours. That was consistent also with the middle paragraph of the email which explained again that the really important date for Hascol was 30 November rather than 26 November 2014.

The next message was a response by Mr Soomro to Mr Ansari’s request for an extension of the letter of credit payment date, sent on 23 November at 10:36 hours:

“Reference to your below email, although the product was on spec (SGS reports already provided), in good faith both parties agreed to take the ship to Fujairah and bring back the same by November 26, 2014.

Again in good faith, we agreed to your below request to make the amendment ‘payment in 46 days from BL date’.”

Again Hascol relies on the absence of any reference to “best endeavours” but for the reasons already explained this is of limited significance. In particular, this email was concerned with the practical matter of amending the letter of credit rather than with recording the parties’ agreement. The amendment was duly made.

The “Chemtrans Rhine” tendered NOR at Fujairah at 08:00 hours on 24 November 2014 but was unable to berth immediately due to congestion. Discharge of the cargo into a shore tank began at 05:10 hours on 25 November. Prior to discharge ships' tank composite samples drawn by Inspectorate showed, rather surprisingly in view of the SGS results obtained at Karachi, a viscosity of 159.1 cSt when UML samples were taken and 159.3 cSt when running samples were taken. However, when the cargo was sampled in the shore tank after discharge, it had a viscosity of 95.25 cSt. After reloading on board the vessel, the viscosity was 92.8 cSt. The operation had, therefore, been successful.

While discharge was under way Mr Soomro advised Mr Butt that the vessel was expected to arrive at Karachi by 29 or 30 November 2014. Mr Butt raised no objection in his response. In the event the vessel arrived back at Karachi on 30 November.

By this stage Hascol had learned that Mena had presented documents to NBF for negotiation under the letter of credit and that Habib Bank as the confirming bank had accepted the documents. As the full shipping documents were not available, Mena presented its invoice together with a letter of indemnity in the prescribed form and the vessel’s NOR at Karachi. Hascol disputed liability under the letter of credit and persuaded Summit Bank to reject the documents, alleging that there were discrepancies. As Summit Bank was no longer prepared to maintain this wholly unjustified stance, Hascol had issued court proceedings in Pakistan and on 29 November 2014 had obtained an injunction to restrain Summit Bank from accepting the documents. Accordingly there was a delay in discharge which did not take place until 3 December 2014.

As Hascol no longer contends that Mena’s presentation of documents was wrongful or that the events to which it gave rise afford it a defence to Mena’s claims regarding the second fuel oil shipment and the gasoil contract, it is unnecessary to record the events relating to this part of the case in any detail. It is sufficient for the purpose of this judgment to note four points. First, it was never pleaded by Hascol that Mena’s presentation of documents was other than in good faith. Any such allegation would have been hopeless. Second, the position adopted by Hascol, first in persuading Summit Bank to reject the documents and then in seeking to restrain payment by obtaining an injunction, demonstrated a complete misunderstanding of the function of a letter of credit in international trade. Indeed, Mr Butt’s evidence was that he had never heard of the concept of a bank making decisions whether documents should be accepted on the basis of the documents alone (cf. Article 14(a) of the UCP 600). That is surprising as Hascol regularly contracted on terms which required it to open a letter of credit to be governed by the UCP 600. Third, Mena was right to say that, in overruling the view of its own letter of credit department, Summit Bank was in flagrant breach of its obligations under the UCP 600. Fourth, these events led to a serious breakdown in the good relationship between the parties which had previously existed.

There was also an issue about which bill(s) of lading should be used. On 1 December 2014 Mr Butt wrote to protest at the vessel agent’s instruction that the original bills of lading should be used:

“… The said email has come as a sheer surprise to us since the amended agreement concluded between us regarding usage of the previous B/L vide email dated 22^nd November 2014 clearly mentioned that we shall accept the previous B/Ls … issued during first call of the vessel at Karachi, only to accommodate you, provided only if your vessel calls back at Karachi by 26^th November 2014. The reason for acceptance of such B/L was also clearly mentioned therein i.e. that we would still be able to minimize our financial losses by selling the product to our customers within the month of November on the November price issued/announced officially in Pakistan. It was also brought in your knowledge that we were facing immense pressure from our customers and they had already threatened us with legal action due to non-supply of the subject cargo. …”

The email went on to demand a new bill of lading so that Hascol could calculate a revised (and lower) price. The email dated 22 November 2014 to which Mr Butt referred was his email timed at 11:48 hours. This later email substantially repeated Hascol’s position, but with considerably greater emphasis, and was the first occasion on which it maintained that it was entitled to the issue of a new bill of lading in order to calculate the contract price.

Later on 1 December 2014 the court order which Hascol had obtained two days earlier to restrain payment under the letter of credit was served on Mena. Mena had by then obtained payment by means of its discounting of the documents with NBF. Its concern was that Hascol should take delivery of the cargo in order to avoid a liability in demurrage and that was its focus when on the same day it handed the matter over to its solicitors to pursue the correspondence. In the event analysis by HDIP of new discharge samples showed a viscosity of 82.47 cSt and on 2 December, under extreme pressure from Summit Bank, Hascol agreed that the documents could be accepted and the cargo could be discharged. No new bill of lading was provided, but Hascol insisted that the existing bills were being used only for the purpose of compliance with import formalities.

It will be recalled that the fuel oil contract provided for the product to be delivered CFR Karachi in a date range of 5-10 November 2014 in the case of the first shipment and 25-30 November in the case of the second shipment. On 12 November, because the “Chemtrans Rhine” was already delayed in arriving at Karachi, the delivery date for the second shipment was put back to 7-9 December 2014. At the same time Hascol approved the “Port Louis” as the carrying vessel.

In the event, no doubt because of the problems encountered with the first fuel oil shipment, it was only on 26 November 2014 that Mena requested the opening of a letter of credit for the second shipment. The same email, from Mr Soomro to Mr Butt, requested also a letter of credit for the gasoil contract:

“Reference to our today’s discussion, please be informed that the cargoes for December delivery are ready. Ships would be reaching the load ports on 30^th Nov Gasoil and 2^nd Dec Fuel oil to deliver on the following dates:

Fuel oil delivery: December 7-9, 2014

Gasoil delivery: December 8-10, 2014

You are requested to issue the LC at the earliest. Contracts to follow. …”

This was the first indication of the loading date range for the second fuel oil shipment. Obviously if the first day of the range was to be 30 November 2014, it was already too late for Hascol to open a letter of credit five working days beforehand. The parties agree that in these circumstances the correct analysis is that Mena had waived compliance with this time limit, but that it was entitled to reinstate it by giving notice, which it had done by sending this email. They agree further that Hascol was entitled to a reasonable time which in the circumstances meant that a letter of credit had to be opened by 3 December 2014.

However, by this stage Hascol was unwilling to take any more cargoes from Mena, whether fuel oil or gasoil, and was both unable and unwilling to open a letter of credit. Mr Butt’s evidence was that he made this position clear to Mr Soomro by telephone in response to Mena’s request. It was made clear also in Mr Butt’s email dated 27 November 2014 stating that it could “only confirm the laycan once the LC of FO is released” (or in other words, as Mr Butt explained that Mena would have understood from this message, Hascol could not accept any further cargoes or even confirm a delivery date until it received payment from its customers for the first fuel oil shipment, thereby releasing the credit line which it would need in order to open any new letter of credit).

On 30 November 2014 Mena sent pro-forma invoices for the second fuel oil shipment and the gasoil contract, but Hascol ignored these.

Also on 30 November 2014 Mena requested the owners of the vessel which had been chartered to carry the second fuel oil shipment, the “Port Louis”, to cancel the charterparty. From then on, although Mena did make further express requests to Hascol to open a letter of credit for the gasoil contract and protested through its solicitors at Hascol’s failure to do so, it did not make a similar complaint in relation to the second fuel oil shipment, either before or after the cancellation of the charterparty which was finally agreed with the shipowners on 2 December 2014. It is because of this omission that Hascol suggested Mena was itself not in a position to perform the second fuel oil shipment, but as already indicated I ruled at the beginning of the trial that this point was not open to Hascol as a defence to liability.

In the event no letter of credit for the second fuel oil shipment was issued, either by 3 December 2014 or at all.

It is necessary now to go back in time to the negotiations which, according to Mena, resulted in the gasoil contract. These began with an email sent by Mr Butt on 10 November 2014 to a number of traders, including not only Mena but also Shell, Mobil, Glencore and Vitol, which set out Hascol’s requirements for cargoes between 14 November and 14 December 2014. Five such cargoes were listed, of which the third and fourth were gasoil cargoes of 25,000 mt and 10,000 mt respectively. Hascol indicated that it was willing to receive offers in which the pricing was either fixed or to be calculated as a premium over the applicable Platts prices. The “deal status” was described as “firm”, indicating that these were cargoes which Hascol definitely intended to purchase.

On 15 November 2014 Mena responded to this tender by making offers to supply the two gasoil cargoes. Its offer gave Hascol the option to choose either a fixed price or an average price over the month of November for cargoes imported into Pakistan less a discount. As usual, payment was to be by a confirmed credit to be issued at least five working days before the first day of the loading laycan. This was followed by a telephone conversation between Mr Soomro and Mr Butt in which Mr Butt told Mena that Hascol wanted a fixed price and that Mena would have to improve on the price of US $96 per barrel which it had offered. Mr Butt confirmed the point in an email dated 17 November 2014 at 12.26 hours:

“As discussed we need a fix pricing”.

The email made no reference to the other terms of Mena’s offer which were in the usual format in which the parties had previously contracted.

There was then a conversation between Mr Lavaro and Mr Butt. Mr Lavaro thought that it took place on 16 November 2014, but 17 November is more likely. Mena’s case is that terms were agreed in this conversation, resulting in a concluded contract for the supply of one cargo of 30,000 mt of gasoil at a fixed price of US $93.25 per barrel, with payment by confirmed letter of credit to be issued at least five working days before the first day of the loading laycan. Hascol says that no contract was concluded, for two reasons. The first is that there was no agreement on the date by which a confirmed letter of credit was to be opened as, on this occasion, Hascol explained that it wanted to be able to open the credit only two working days before the first day of the loading laycan. The second is that even if agreement was reached orally, the agreement would only become binding when made (or confirmed by both parties) in writing.

Although it was Mr Lavaro who had the relevant conversation, it was Mr Soomro who, as usual, sent a confirmatory email to Mr Butt later on 17 November 2014. It was headed “Gasoil December Deal Recap” and followed the format of other such recaps, including the statement that:

“Reference to your discussion with Mr June, we are pleased to conclude 30 KT max. Gasoil deal with M/s Hascol Petroleum Limited as per following: …”

The recap provided for payment by a confirmed letter of credit “to be issued at least 5 working days before first day of loading laycan”.

Mr Butt agreed in cross examination that he understood this deal recap as a recap just like all the others which Mr Soomro had sent and not an offer by Mena. He maintained, however, that its status would be different if its contents were challenged by Hascol.

Mr Butt did not respond to Mr Soomro’s email. Instead, only nine minutes after he had received it, he forwarded it to Hascol’s logistics and supply department, with a copy also to Mena, commenting:

“Price agreed – see other terms and condition. port qasim 5000 at Karachi 5000 at Sheikarpure 20000 MCH.”

Karachi, Sheikarpure and MCH were inland depots. Thus the email indicated which quantities were to go to which depot after discharge of the cargo at Port Qasim. Mr Butt’s evidence was that this was a way of asking his logistics and supply department whether it was content with the terms proposed and that the reason for copying Mena was to tell Mr Soomro that the deal recap was still “in progress”. However, I do not accept this evidence. The email did not ask for comments, nor did it indicate any possible issue with the terms which Mr Soomro’s email had set out.

On the following day, 18 November 2014, Mr Hassan Jan of Hascol’s financial department responded to Mr Soomro’s recap as follows:

“Offer is acceptable on following conditions:

•

Fixed price USD 93.25/BBL.

•

Quality: Gasoil 0.5 Sulphur (Max) PSO winter specs.

•

Quantity: 30,000 MTs (max) including loading tolerance in disport laycan of 8-10/Dec.

•

LC to be issued 2 days prior to loading.

•

Vessel age be less than 20 years.”

It is not apparent why Mr Jan described Mr Soomro’s deal recap as an offer when it was plainly no such thing. Moreover, the first three of his bullet points were already included in the recap, while the fifth (although not specified in the recap or in the parties’ previous dealings as a contractual requirement) was known to be a practical requirement in order for approval to discharge a vessel in Pakistan to be obtained. That left the fourth point, which according to Mr Butt was a point on which the parties had failed to agree in his conversation with Mr Lavaro on 17 November. Mena, contends, however, this point had not been raised previously and that Mr Jan’s email is more accurately regarded as a request to change the terms previously agreed.

Mr Soomro immediately rejected this request. In an email sent just over an hour later he responded:

“Reference to your below email, as you are aware that LCs from Pakistan need confirmation and in case if the LC is issued 2 working days before loading laycan LC cannot be confirmed. Therefore, we stick to LC issuing 5 working days before first day of loading laycan as per the format provided by us.

Thanks for your understanding.”

The word “stick” is significant. Mena relies on it as language which indicates that agreement on the point had already been reached and that Mena wanted to adhere to that agreement. I accept that this is the natural meaning of the email. Hascol contends that the email is to be regarded as a counter proposal, putting forward Mena’s preference for the credit to the opened five working days before the laycan, but that still the parties were not ad idem. Without waiting for a reply, no doubt because he regarded the position as already clear, Mr Soomro asked Hascol to approve the vessel “DK Yusuf” as the carrying vessel for the gasoil cargo. Hascol did so in an email dated 19 November 2014 at 11.08 hours.

Mr Butt’s evidence was that on 19 November 2014 he called Mr Soomro to discuss the letter of credit issue and told him that a five day period was unacceptable for Hascol because of the delays in Mena’s delivery of the first fuel oil shipment, but that Mr Soomro continued to insist on a five day period and that no agreement was reached. Mr Soomro agreed that there was such a telephone conversation, but said that as far as he was concerned, this point had already been agreed. It is not apparent whether this conversation took place before or after Hascol’s acceptance of the “DK Yusuf”. If the conversation took place and Hascol then accepted the vessel, that would demonstrate that Hascol was not maintaining its position. As Mr Lavaro said, no importer would accept a vessel nomination if it did not consider a contract to have been agreed, a point on which his evidence was not challenged. If the conversation took place afterwards, it was too late. Hascol had already accepted the vessel.

On 20 November 2014 Mena fixed the vessel to lift the gasoil cargo. It is inconceivable that it would have done this if it had believed that a contract for the sale of the cargo had not yet been concluded.

As already described, it was during this period that the parties were discussing a solution to the problem which had arisen in relation to the first fuel oil shipment. On 21 November 2014 the conversation occurred in which it was agreed that the “Chemtrans Rhine” would return to Fujairah. It is Mena’s case, denied by Hascol, that as part of this agreement Hascol agreed to contribute to the cost of this exercise, up to a maximum of US $150,000, by way of an increase of US $0.50 per barrel in the price payable under the gasoil contract.

The next event, so far as the contract was concerned, was Mena’s email dated 26 November 2014 set out above in which it informed Hascol that the cargo was ready, that the vessel would be reaching the load port on 30 November, and requested Hascol to issue a letter of credit at the earliest. As also described above, Mr Butt made clear that no letter of credit would be issued. He did not, however, suggest at this stage that no contract had been concluded for the gasoil.

On 27 November 2014 Mr Soomro sent the formal sale agreement for the gasoil contract to Hascol for signature and stamping. The contract provided for payment by confirmed letter of credit to be established at least five working days before the first day of the loading date range, and for a fixed price of US $93.75 per barrel. This was consistent with Mena’s version of the 21 November 2014 telephone agreement according to which a price increase of US $0.50 had been agreed. The same price of US $93.75 was included in the provisional invoice and the draft letter of credit for the gasoil contract which Mena sent to Hascol on 30 November and 1 December 2014 respectively. Also on 30 November 2014, Mena advised that the “DK Yusuf” would reach the load port in Bahrain on 1 December 2014 and repeated its request for a letter of credit to be issued at the earliest.

Hascol did not respond to any of these messages, either by suggesting that there was no concluded contract for the gasoil or by pointing out that Mena had got the price wrong. It simply insisted through Mr Butt that no credit would be issued because of Mena’s failings in relation to the first fuel oil shipment and the letter of credit.

On 1 December 2014 at 17:43 hours, Mr Soomro sent a further email to Mr Butt advising that the vessel had arrived at the load port and requesting once again that Hascol issue the letter of credit for the gasoil contract. In addition Mr Soomro put Hascol on notice that it was in default in not issuing the letter of credit. A similar message was also sent by Mena’s solicitors on the same day. It may be that this was premature in that, as notice of the load port laycan had only been given on 26 November 2014, Hascol’s time for issuing the letter of credit had not yet expired. However, Hascol had made clear that it was not going to issue a letter of credit and (if there was a contract) was therefore in anticipatory breach. In response Mr Butt sent an email on 3 December 2014 denying for the first time that any gasoil contract had been concluded.

There were nevertheless some further discussions over the next few days as to possible terms on which Hascol might take delivery of the gasoil. However, it was clear throughout that Hascol was not in a position to issue any confirmed letter of credit. Although Mena was willing to consider the possibility of accepting an unconfirmed credit, no agreement about this was ever reached. Hascol’s final position remained that no binding gasoil contract had ever been concluded. It is therefore unnecessary to record these exchanges, although it is worth noting that on 4 December 2014 Mr Soomro referred in an email to “the deal, done on 17^th November for the supply of Gasoil as per the agreed terms and conditions and amended price discussed on November 21, 2014”. This was clearly a reference to what Mena contends was the agreed price increase to compensate Mena for the cost of the re-blending exercise.

Having set out in some detail the parties’ relevant exchanges, I turn now to my findings as to what was agreed in the 21 November 2014 telephone conversation as to the terms on which the “Chemtrans Rhine” was to return to Fujairah to discharge and reload the cargo. Although there are points to be made on both sides of the argument, in the end I have no hesitation in accepting Mena’s case, that is to say that (1) the agreement was intended be a final settlement of all existing claims and counter claims up to that point, (2) Mena undertook to use best endeavours to ensure that the vessel would return to Karachi by 26 November 2014, but did not undertake any greater obligation than this, (3) the price payable for this shipment would continue to be calculated by reference to the existing bills of lading, and (4) Hascol agreed to contribute to the cost of the exercise up to a maximum of US $150,000, to be paid by an increase of US $0.50 in the price payable under the gasoil contract. My reasons are as follows.

First, I accept the oral evidence of Mr Soomro on these issues which was clear, consistent and compelling. It is true that Mr Soomro’s first witness statement did not refer to the agreement as having been made in full and final settlement, nor did he say anything about best endeavours (although he did make this point in his second witness statement), but he maintained throughout that Hascol did agree to contribute to the cost of taking the cargo back to Fujairah. His oral evidence, however, was that:

“Then after a series of negotiation with Mr Butt, he agreed that Hascol will be compensating Mena to maximum of $150,000 for this voyage but he said that this point cannot be written or mentioned anywhere because Hascol is a public limited company and this cannot be warranted out – this cannot be public knowledge. And simultaneously, he said – I mean he was referring to 23/25 November of laycan. I knew it is. It will be a Herculean task to go back to Fujairah and bring back the ship and I agreed with him that 26^th, we will do on best endeavour basis. So this is what this agreement was and for this 150,000 he said that ‘I will compensate you for the (inaudible) 50 cents and on subsequent deals’. This was the whole conversation which I had.”

Mr Soomro added that:

“… what was agreed was written over here, that it will be on best endeavour basis and nobody can guarantee that the oil cargo or a shipment will be (inaudible) on this date guaranteed, there are so many factors which are beyond – I mean, which are uncontrollable from the shipper’s side, though nobody will guarantee an exact date. I will always say on best endeavours basis. … I never agreed that this will be definitely, I always agree this will be on a best endeavour basis.”

Second, Mr Butt’s evidence was contradictory and it became apparent that he had very little recollection of the conversation. I do not accept that his evidence was a reliable account. He was essentially arguing a case based on his interpretation of the documents. Thus his first witness statement said (wrongly) that the critical conversation took place on 22 November 2014. He described the agreement reached as being that “provided the product was on-specification, Hascol would be willing to accept [it] on the basis of the old B/L on the condition that the ship reported back by 26 November” and suggested that “whilst initially Mena was caveating its obligations as being on a ‘best endeavours basis’ only, it eventually dropped this requirement (as shown by Maroof’s email to Mr Ansari on 23 November)”. It appears that this, rather than being evidence about the conversation, was essentially commentary on the documents. In his second witness statement Mr Butt denied that there had even been any discussion of compensating Mena for the cost of taking the cargo back to Fujairah.

In oral evidence Mr Butt was asked whether the terms agreed in the telephone conversation on 21 November 2014, whatever they might be, were intended as an amicable resolution of all the disputes and claims that the parties had between each other, including any dispute as to whether the cargo was off specification. This was put to him in a number of ways, and he accepted in each case that this was what had been agreed, for example that “this was meant to be a settlement deal that would wash out the past and have a new deal for the future”.

When asked about the content of the conversation, Mr Butt said at first that the question whether 26 November was an “absolute date” or a date which Mena would use best endeavours to meet was expressly discussed. However, when asked again he said that he could not remember what had been discussed:

“Mr Justice Males: … I am asking about the conversation that you had with Mr Soomro on the 21^st. Now, are you saying that the question whether it should be best endeavours or absolute was explicitly discussed and it was agreed it was to be absolute and not best endeavours, or are you saying something different from that?

A.

My Lord, I am not saying that it was best endeavours or it was absolute because I don’t remember at that particular time what was discussed, but at a later stage in this, the best endeavours word was removed.”

So far as the question of contribution to the cost of the exercise was concerned, Mr Butt accepted (contrary to his witness statement) that this issue had been discussed but denied that any agreement had been reached.

Third, and importantly, Mena’s version of the conversation accords better with the contemporary documents, for the reasons already canvassed in the course of the narrative set out above. In outline:

Fourth, it is inherently implausible, in the circumstances as they existed immediately prior to the 21 November 2014 telephone conversation, that Mena would agree to the return of the vessel by 26 November without qualification (a “Herculean task”, as Mr Soomro described it) and would abandon its demand that Hascol make a contribution to the cost of the reblending exercise. It had both of these points well in mind in the exchanges before the conversation. They were not, as Mr Butt’s evidence implied, afterthoughts which only occurred to Mena when it realised that it had agreed to something which it could not fulfil.

Fifth, for the reasons which I shall explain in relation to the gasoil contract, I regard Mr Butt’s evidence about the telephone conversation on 17 November 2014 and its aftermath as thoroughly unreliable. So too, as already mentioned, was much of his evidence relating to the compliance with the specification of the first fuel oil shipment after re-sampling by SGS and the letter of credit issues. Inevitably this affects my assessment of his evidence as to the 21 November telephone agreement.

Last but by no means least, although there is no immediately contemporary documentary support for Mena’s case that Hascol agreed to contribute to the cost of the reblending exercise, the subsequent conduct of the parties is otherwise inexplicable. The fact that Mena put forward a price of US $93.75 per barrel in the formal gasoil contract sent to Hascol for signature, in the provisional invoice and in the draft letter of credit speaks volumes. Even more compelling is the fact that Hascol never questioned why Mena was putting forward a price which was US $0.50 higher than had been agreed. At this stage Hascol was not denying the existence of a contract and, if it had not understood why Mena had increased the price in this way, it would undoubtedly have questioned this.

Mr Butt’s evidence about this was hopelessly contradictory. As already noted, he claimed in his second witness statement that the question of compensating Mena had not even been discussed in the 21 November 2014 telephone conversation, but admitted in cross-examination that it had, albeit maintaining that no agreement had been reached. When asked in cross-examination about the documents in which Mena had put forward a price of US $93.75, Mr Butt said at first that “we refused to accept that”. When it was pointed out that Hascol had done no such thing, he suggested that the reference to US $93.75 showed that not even the price of the gasoil contract had been agreed. However, this was untenable. On his own account of his email dated 17 November 2014 sent only nine minutes after receiving Mr Soomro’s deal recap, the price of US $93.25 per barrel was the one thing which he acknowledged had certainly been agreed between the parties. Faced with this contradiction, Mr Butt fell back on the claim that he had not noticed the increased price:

“My Lord, I can confirm that I have not seen this, I have not done any such deal which permits them to increase the price from 93.25 to – I don’t know what the price – …

Mr Justice Males: Just a minute. You are saying now, I think, that you never noticed the increase by 50 cents; is that what you are saying?

A.

Yes. The honest, you know, thing is that I did not notice, you know, that it is this -

Mr Justice Males: But five minutes ago you said ‘he put that in the contract, he sent me the invoice of 50 cents more and we refused to accept that’.

A.

Yes.

Mr Justice Males: So which is it?

A.

This we came to know when he gave us the pro forma invoice for opening of the LC.

MR RAINEY: Okay. So you noticed it in the invoice, didn’t you?

A.

At the pro forma invoice, yes. ”

Mr Butt was prepared on this issue to say whatever came into his head. But the fact is that he had no answer to the point.

In the light of these matters, I accept Mr Soomro’s evidence that Mr Butt told him that he did not want Hascol’s agreement to pay compensation in this way to be put in writing because he did not want it to become public knowledge in the light of Hascol’s status as a public company. This may perhaps be a strange thing for Mr Butt to have said, but I accept that he said it.

Hascol advanced no case that Mena had failed to use best endeavours to return the vessel to Karachi by 26 November 2014 and I am satisfied that Mena did its best to ensure the return as soon as possible. This was in any event in Mena’s interest.

These conclusions mean Mena is entitled to succeed so far as the first fuel oil shipment is concerned and Hascol’s counterclaim must be dismissed.

It is therefore unnecessary to determine what would have been the rights and wrongs of the parties’ respective positions if the 21 November 2014 telephone agreement had been as contended by Hascol. However, as the matter was argued, I will state my conclusions briefly.

It is necessary to begin by identifying Mena’s obligations so far as the viscosity of the cargo was concerned. Clause 12 provided that compliance or otherwise with the quality specification was to be determined by reference to a ships’ tank composite sample to be drawn at the discharge port prior to commencement of discharge. As the parties should have understood, such a sample would indicate the overall composition of the cargo, but would not indicate whether the cargo was homogenous, either from one tank to another or within individual tanks. That would be so regardless of whether the sampling method adopted consisted of running or spot samples. Nevertheless no further sampling or analysis requirement was stipulated in the contract. Accordingly, what Mena was required to provide in relation to viscosity so far as clause 12 was concerned was a cargo from which a ship’s tanks composite sample with a viscosity of 125 cSt or below would be drawn at the discharge port.

Hascol contends that in addition to the requirements of clause 12, the cargo was required to comply with its description as “HSFO 125 cSt” and that a cargo which was stratified as shown by the UML samples drawn by SGS on 17 November 2014 (which showed an average viscosity of 118.1 cSt for the whole cargo, but also that in all but three tanks the viscosity ranged between 230 cSt and 286 cSt at the upper levels of the tanks) could not properly be so described. It relied on the comment in the SGS analysis report that the product was still not fully homogenised and needed to be properly/fully homogenised before re-sampling upon re-berthing of the vessel.

I would accept that the viscosity of the cargo forms part of its description and that quality and description are in principle capable of being separate. Nevertheless, for some purposes there is no practical distinction between the two requirements. In the well-known case of Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11 the goods were described as “No. 3 Hard Amber Durum Wheat” and the contract provided that an inspector’s certificate was to be final as to quality. In fact the goods did not contain sufficient hard and vitreous kernels and therefore were only “Amber Durum Wheat”, not “Hard Amber Durum Wheat”. The argument that the certificate was not final as to whether the goods complied with their description was rejected. Lord Denning MR made the point with characteristic clarity:

“The first point taken by the buyers was that the certificate was only final as to ‘quality’. It was not final, they said, as to the ‘description’ of the goods. The error here they said was an error in the description and not as to quality. We were treated to a learned discussion on the difference between ‘quality’ and ‘description’. We were referred to cases on sale of goods and to the provisions of the statute. I confess that I found the discussion unhelpful. The ‘description’ of goods often includes a statement of their quality. Thus ‘new-laid eggs’ contains both quality and description all in one. ‘Quality’ is often part of the description. In this very case the word ‘hard’ is a word both of quality and of description. If a certificate is final as to the quality ‘hard’, it is final as to that description also. The quality and description cannot be separated. Finality as to one means finality as to the other.”

In my judgment the same reasoning applies here. Viscosity undoubtedly formed part of the quality specification with which the fuel oil had to comply as well as being part of the description. The contract contained an agreed mechanism in clause 12 for ascertaining the quality of the cargo, including its viscosity. That mechanism was to determine the viscosity of the cargo for all purposes, including compliance with description. It required only that the viscosity of a ship’s tank composite sample should meet the specification.

There are two further considerations which support this conclusion. The first is that the contract contained no criteria for determining whether a stratified or non-homogenous cargo was acceptable. For example, would it be acceptable if the cargo was stratified in one of the vessel’s tanks only? What degree of stratification would be acceptable? What if the cargo in some or all of the upper layers was only marginally above 125 cSt? These are matters which could easily have been dealt with, either by stipulation in the contract or by more detailed provision as to the number of spot samples which needed to be drawn and leaving it to the HDIP analysts to exercise judgment as to whether the cargo was properly described as “HSFO 125 cSt”. The fact that they were not suggests that the parties were content to accept the analysis result based on a single ship’s tanks composite sample.

The second consideration is that although clause 12 provided for sampling to take place in the vessel’s tanks at the discharge port, the parties would have understood that what really mattered to Hascol was the cargo which it received into its shore tanks and that the process of discharging the cargo under pressure would itself cause the cargo to be thoroughly blended. For all practical purposes, therefore, it would not matter to Hascol whether the cargo was stratified, on board the vessel, so long as it could be confident that, once thoroughly blended in the course of discharge, the cargo would meet the viscosity requirement. It was therefore sufficient for Hascol’s purposes that a ship’s tanks composite sample demonstrated that the overall viscosity of the cargo was 125 cSt or less, and that the correct components had been loaded on board in the correct proportions. There is therefore no need to read the contract as imposing any requirement as to the homogeneity of the cargo or to imply any term to that effect.

The next question is whether the cargo complied with the requirements of clause 12 on arrival at the discharge port. HDIP’s analysis of the ship’s tank composite sample showed that it did not. Provisionally at any rate, that analysis was final and binding in accordance with paragraph 2A of clause 12. However, Mena requested that the cargo be re-sampled, as it was entitled to do pursuant to paragraph 2B of the clause. That re-sampling did not take place because HDIP refused to re-sample, maintaining rightly or wrongly (I need not decide which) that to do so was against Pakistani law, notwithstanding that such re-sampling had sometimes taken place in the past. The question therefore arises, what is the position if, despite a request by the supplier, no re-sampling is carried out? Hascol contends that in such circumstances the initial analysis result showing the cargo to be off specification must stand and is final. Mena contends that once a request for re-sampling is made, the initial certificate is no longer final and binding whether or not re-sampling actually takes place.

I would reject Mena’s submission that the clause imposes an obligation on Hascol to obtain any approvals necessary for re-sampling to take place. This seeks to read the words “after seeking necessary approvals” in paragraph 2B as if they read “after obtaining necessary approvals”. In my judgment the clause cannot be read in this way. It is not what it says and to read it in this way would be inconsistent with the following sentence which contemplates that in some circumstances approval by the third party inspectors may be withheld reasonably – which would probably include, although the point was not explored in argument, a refusal based on a reasonable view that re-sampling would be against the local law.

However, the fact that Hascol was not obliged to obtain any necessary approvals does not mean that the initial HDIP certificate remained final and binding. I would hold that it did not. The clause provided that Mena had a right to “request” re-sampling and contemplated that it would do so armed with evidence that something had gone wrong with the HDIP analysis. It provided for load port samples to be retained and also for discharge port samples to be analysed not only by HDIP but also by an independent inspector. This suggests that although it was the HDIP analysis which was to be final and binding, re-sampling would generally be requested when either the load port samples or the analysis of discharge port samples by the independent inspector gave grounds for believing that the HDIP analysis was in error. These other samples had no other contractual function. It would be anomalous in such circumstances if, despite this and despite a request for re-sampling, the HDIP analysis was nevertheless to continue to bind the parties.

I would if necessary hold, therefore, that once Mena exercised its right to request re-sampling, the HDIP certificate was no longer final and binding.

It is not suggested that there was any other final certificate if the HDIP certificate lost its final status. The final question on this part of the case, therefore, is whether the cargo was in fact in accordance with the contractual specification. This must be determined at the discharge port. It is here that the expert evidence as to the most reliable method of sampling becomes relevant. That depends, of course, on what it is that the sampling and consequent analysis needs to show. If, as I have held, what matters is the overall composition of the cargo and not whether it was stratified, it is apparent that the most reliable samples to show the composition of the cargo on arrival at the discharge port were the running samples drawn with open hatches by SGS on 16 November 2014. These were drawn after the initial spot sampling exercise using the vessel’s closed sampling system which resulted in the HDIP and SGS certificates showing that the cargo was off specification. However, they were drawn before any further re-circulation of the cargo had taken place and were therefore reflective of the position on arrival. For the reasons explained by the experts, and in accordance with ASTM D4057, running samples are more accurate than spot samples and open hatch samples are more accurate than samples drawn through the vessel’s closed sampling system.

Accordingly, although the sampling and analysis which occurred does not speak with one voice (in particular, it is odd that both running and spot samples drawn by Inspectorate on the vessel’s return to Fujairah showed an overall viscosity of 159.1 cSt or 159.3 cSt respectively, although it is not known whether these were taken with open or closed hatches), I would have found that the cargo was in accordance with the contract on arrival at the discharge port. It follows that, even if I had accepted Hascol’s version of the 21 November 2014 telephone conversation, Hascol’s counterclaim would have failed.

The total quantity of cargo as stated in the bills of lading, and therefore the quantity for which Hascol paid under the letter of credit, was 30,064.47 mt. This was derived from certificates of quantity issued at the load port based on measurements from the shore tanks from which the three separate parcels were loaded. However, the quantity received in accordance with measurements at the discharge port was only 29,887.86 mt, an apparent shortfall of 176.61 mt (or just over 0.5% of the loaded quantity). Hascol counterclaims accordingly for short delivery.

Mena responds that in accordance with paragraph 4 of clause 12, quantity is to be determined for contractual purposes “by mutually agreed independent inspection company at seller’s terminal. The final quantity shall be determined basis seller’s tanks”. It submits that even if, as here, there was no mutually agreed independent inspection company at the load port, and thus no final and binding certificate, nevertheless the contract provided for the quantity to be determined “basis seller’s tanks”, and that the certificates at the load port represent the best (and only) evidence of that quantity.

Hascol does not take issue with this approach, but contends that it does not avail Mena because the product was never held in the seller’s tanks. As I understood it, this contention has two aspects. The first is that Mena had no tanks of its own. However, in what was known to be a contract with a trading company such as Mena, which would probably own no tanks of its own and might not even own the product until it was loaded on the vessel (or even later depending on its purchase arrangements) the phrase “seller’s tanks” refers simply to the shore tanks from which the product was loaded. The second aspect of Hascol’s contention is that what was measured in the shore tanks was not “the product" (i.e. “HSFO 125 cSt”) but three separate parcels which were to be blended on board the vessel in order to create “the product”. There is nothing in this point. Blending on board the vessel was common in the industry (although this was the first time that Mena had done it) and was not prohibited by the contract. In the context of a cargo to be blended in this way, the “product” in clause 12 refers to the total quantity of the parcels which are to be loaded on board to comprise the cargo.

In any event, even if the “basis seller’s tanks” provision is disregarded, it has not been proved that the difference between the load port and discharge port figures represents a real loss as distinct from a paper loss explicable on the basis of measurement differences.

This counterclaim fails.

As already indicated, the issues arising in relation to the second fuel oil shipment are now much narrower than they were at the beginning of the trial. The only remaining issues are (1) whether the cancellation of the charterparty of the “Port Louis” on 2 December 2014 meant that Hascol was no longer under any obligation to open a letter of credit by 3 December 2014 and (2) whether Mena’s claim is defeated by reason of a failure to accept Hascol’s breach in not opening a letter of credit as repudiatory.

By the time that Mena notified Hascol of the load port laycan, it was already too late for Hascol to open a letter of credit five working days beforehand. Accordingly Mena must be taken to have waived compliance with this time limit, but reinstated it by giving notice by its email dated 26 November 2014, the effect of which was that Hascol was obliged to open a letter of credit by 3 December 2014. In my judgment the obligation to open a letter of credit by the stipulated date did not depend on the existence (or continued existence) of a charterparty of the proposed carrying vessel. The way that the contract was contemplated to work was that Mena would notify the intended load port laycan, which would identify the date by which Hascol was obliged to open a letter of credit. But in general Mena would (or at least might) only commit itself by fixing the vessel once the letter of credit had been opened. It is therefore entirely possible that at the date when the load port laycan is notified, there may be no charterparty in existence. That cannot affect Hascol’s obligation.

It would in any event be paradoxical in the extreme if Mena’s prudent cancellation of the charterparty (whether or not it had alternative employment for the vessel) in the face of Hascol’s adamant and repeated refusal to open a letter of credit were to relieve Hascol of the obligation to do so. That cannot be right.

Hascol’s next argument is that its refusal to open a letter of credit was a renunciation of the contract which had no effect in law unless and until it was accepted by Mena as bringing the contract to an end and that, because Mena did not do so, it was itself in breach for failing to supply the cargo. However, this argument does not distinguish between anticipatory and actual breaches. Up to and including 3 December 2014 Hascol’s refusal to open a letter of credit was an anticipatory breach, but once the deadline had passed it became an actual breach, for which Mena is entitled to claim damages. Contrary to Hascol’s submission, the contract did not remain alive for performance indefinitely. The time for performance of the contract had passed and Hascol was in breach.

Hascol suggested that Mena’s pleaded case is limited to a plea that Hascol had committed an anticipatory breach, but I do not read it as being so limited.

In any event there can be no question of Mena being in breach of the contract for failing to deliver cargo in circumstances where no letter of credit had been opened. Where a contract requires payment by letter of credit, the opening of a credit is a condition precedent to the seller’s obligation to supply the goods: Kronos Worldwide Ltd v Sempra Oil Trading S.a.r.l. [2004] EWCA Civ 3, [2004] 1 Lloyd’s Rep 260. In the present case, that position was reinforced by the terms of clause 6 of the contract, providing that a failure to open the letter of credit would be “a repudiatory breach of this contract giving seller the right to terminate this contract and/or withhold the loading of cargo until the L/C is received by seller in good order”.

Accordingly Mena is entitled to damages for Hascol’s breach of contract.

Hascol contends that no contract was concluded for the sale of gasoil, in part because no agreement was reached in the telephone conversation of 17 November 2014 as to the date by which a letter of credit would need to be opened and in part because any agreement would only become binding when made (or confirmed by both parties) in writing.

I have no doubt that the parties did in fact reach agreement in the telephone conversation between Mr Lavaro and Mr Butt. This was Mr Lavaro’s evidence, which I accept. Mr Butt’s written evidence was that the relevant conversation took place with Mr Soomro and not with Mr Lavaro (even though the deal recap sent by Mr Soomro refers to “your discussion with Mr June”, that being Mr Lavaro’s first name). Mr Butt said that he told Mr Soomro in the conversation that Hascol could only issue the letter of credit for the gasoil two working days before the first day of the loading laycan, but that the parties were unable to agree about this. In a further witness statement served on the eve of the trial Mr Butt acknowledged that Mr Lavaro may have been on the call, but maintained that Mr Soomro had led the discussion on behalf of Mena. In this statement Mr Butt said that it had been Mr Soomro who first raised the subject, proposing that the letter of credit be opened by five days before the loading period and that he had disagreed with that proposal. He continued in his oral evidence to insist that the topic had been expressly discussed and that the parties had disagreed.

I find that the question of the date by which a letter of credit should be opened was not mentioned expressly at all in the telephone conversation. Mr Lavaro had no need to mention it and it would have been surprising if he had done so. By this stage it was a standard term in the parties’ dealings that the letter of credit would be opened at the latest by five working days before the first day of the loading period. There was express discussion of price (a fixed price of US $93.25 per barrel was agreed) and quantity (the parties agreed to combine the two proposed gasoil shipments for which Hascol had invited tenders into a single contract for 30,000 mt). In all other respects it was simply agreed that the contract would be in accordance with the parties’ usual terms. To the extent that Mr Butt claimed that he was the one who raised this topic, a matter on which he was not consistent, I do not accept his evidence.

If the issue had indeed been raised in the telephone conversation and the conversation had ended with no agreement being reached, it is inconceivable that Mr Soomro would have sent his deal recap, either in the terms which he did or at all. He and Mr Lavaro would have known that it had not been agreed that a letter of credit would “be issued at least 5 working days before first day of loading laycan” and that, as a result, no contract had been concluded. To have stated that a contract had been concluded on these terms would have been both dishonest and pointless – dishonest because Mena would have known that it was not true and pointless because it would invite immediate contradiction.

In the event there was no contradiction although Hascol knew perfectly well that what Mr Soomro had sent was intended as a record of an agreement reached on the telephone and not an offer to contract. Mr Butt’s immediate reaction was to send the deal recap to the relevant individuals in his logistics and supply department (with a copy to Mena) so that they could make the necessary operational arrangements. It was only on 18 November 2014 that Hascol’s financial department realised that a requirement to open the letter of credit five working days before the loading period could create a problem for Hascol in view of its very limited credit lines. That is the explanation, in my judgment, for Mr Jan’s list of points on which he said that Mena’s “offer” would be acceptable. Four of those five bullet points did not need to be mentioned. The remaining point, that the letter of credit be issued two days prior to loading, was a new point. It was, albeit not so described, a request to amend the terms agreed. That is certainly how Mr Soomro understood it, in his response explaining that “we stick to LC issuing 5 working days before first day of loading laycan”.

All of the subsequent correspondence before Mr Butt’s email dated 3 December 2014, drafted by Hascol’s lawyer in Pakistan, is inconsistent with any belief on the part of Hascol that no contract had been concluded. During that period Hascol approved the vessel to carry the cargo, agreed to a US $0.50 increase in the contract price by way of compensation for the “Chemtrans Rhine” re-blending exercise, and notably did not deny the existence of any contract when Mena called for the opening of a letter of credit and sent Hascol a formal contract for signing. Mr Butt’s attempts in cross examination to suggest that there was no need to do so because he believed that the impasse about the date for issuing a letter of credit was a minor point which would be sorted out in some way lacked any credibility. If Mr Butt had thought that no contract had been concluded, he would undoubtedly have said so.

I do not accept that it was necessary for the oral agreement reached on the telephone to be confirmed in writing. As in all the parties’ previous dealings, an oral agreement was binding. The deal recap was a record of that agreement. It was of course important that it should be accurate and, if it had not been, it would have needed to be corrected. But Mr Soomro’s recap was an accurate record in the case of the gasoil contract, just as it had been in every previous case. In any event, even if no contract was concluded on the telephone and it is necessary to analyse the parties’ subsequent exchanges in terms of offer/counter offer and acceptance, it is apparent that a contract was concluded which required the opening of a letter of credit five working days before the loading period. If Mr Soomro’s deal recap must be regarded, however artificially, as an offer, it was plainly accepted by Mr Butt copying Mena on his message to his logistics and supply department which demonstrated Hascol’s acceptance of the terms proposed. Or if that were not enough, it was accepted by Hascol’s acceptance of Mena’s vessel nomination and further by the 21 November 2014 agreement to increase the price by US 0.50 per barrel.

Finally, Hascol contends that Mena repudiated any contract concluded by demanding payment at a price of US $93.75 instead of the US $93.25 which had been agreed. I have already disposed of this argument by my finding that the price increase represented an agreement by Hascol to pay compensation for the “Chemtrans Rhine” re-blending exercise. However, even if there had been no such agreement to pay compensation, repudiation is not lightly to be inferred. The price of US $93.75 in the formal contract, provisional invoice and draft letter of credit sent by Mena was just as or more likely to be a straightforward mistake or typographical error by Mena than a demand (slipped in without explanation) for a price increase without which Mena would refuse to perform the contract. Accordingly the documents sent by Mena did not evince an intention not to be bound by the terms agreed. Even if there had been no agreement to pay compensation, therefore, I would have rejected Hascol’s argument that Mena was in repudiation.

For the reasons explained above Hascol’s counterclaims relating to the first fuel oil shipment are dismissed. Mena is entitled to judgment for damages to be assessed on its claims relating to the second fuel oil shipment and the gasoil contract.