Palmali Shipping SA v Litasco SA

This judgment follows the hearing of a number of applications in an action in which the claimant (“Palmali”) currently seeks damages of c.US$1.9 billion under what it contends was a long-term contract of affreightment (“the COA”) with the defendant (“Litasco”, a subsidiary of the Russian oil company Lukoil).

The applications which arose for determination were:

I issued rulings on iii) and iv) above in the course of the hearing. This judgment sets out my decision on i) and ii).

The facts in this case are hotly disputed, and for present purposes it is sufficient to set out the principal contentions of the parties, and the history of the litigation.

In summary, Palmali contends that the COA gave it the exclusive right to carry oil products to be shipped by Litasco between various ports in the Caspian Sea/Black

Litasco denies that the COA was enforceable, pointing to what it says are a series of commercially implausible features of the arrangement. If it was ever binding, Litasco denies that it was extended. There are also issues as to the correct construction of the provisions of the COA, and as to whether the COA was varied or waived, or Palmali is estopped from contending otherwise.

Palmali commenced proceedings in July 2017, and a 5-7 week trial of both liability and quantum was listed for June 2020. That trial was adjourned by consent, and refixed for February 2021. Both sides accept that this date is no longer viable – an issue to which I return later in this judgment.

Following supplemental disclosure by Palmali, issues arose as to the basis on which Palmali had pleaded its claim for damages which led to Litasco’s reverse summary judgment application which is dealt with below. In addition, an issue emerged between the parties as to whether Palmali had in fact pleaded a claim for damages of the Minimum Quantity Obligation. That issue was determined against Palmali by HHJ

Palmali’s ultimate owner and principal witness, Mr Mansimov, was arrested and imprisoned in Turkey, and it now appears unlikely that he will be able to give evidence at the trial. At a hearing on 15 July 2020, HHJ Pelling QC held that the trial should proceed as scheduled.

In its current form, Palmali’s Particulars of Claim pleads:

So far as the figure in f) is concerned, a distinction is drawn between “third party vessels” and so-called “own fleet” vessels:

Litasco does not seek summary judgment on the issue of whether any and if so what obligations were owed under the COA, nor as to whether the Minimum Quantity and Exclusivity Obligations were breached. Nor does it seek summary judgment on the basis that Palmali has suffered no recoverable loss (indeed Litasco accepts the possibility that a very much smaller loss might, if other elements of the claim are established, be recoverable). Instead it seeks summary judgment on the current quantification of Palmali’s loss of profit claim.

CPR 24.2 allows summary judgment “on the whole of a claim or on a particular issue”. I see no reason why the particular means of quantifying a damages claim cannot constitute “a particular issue”. In any event, if that formulation of the case is hopeless, the Court clearly has power to strike it out rather than allow costs to be incurred in addressing it (under CPR 1.4(2)(c) and 3.4 if necessary) and Litasco seeks such relief in the alternative. The effect of striking out (or summarily determining) the pleaded quantification of a claim for damages for breach of contract is not, however, to determine the claim for damages altogether. Rather, it will put the claimant in the position where it will need to amend its Statements of Case to advance a viable claim, and to satisfy the requirements for obtaining permission to amend in order to do so. The precise form of any order necessary to give effect to any determinations I make is best addressed in the course of consequential submissions.

I can set out the matters giving rise to the summary judgment application shortly, because there was little dispute as to the overall position:

Mr Béar QC submits that these documents make it clear that the distinction between “own fleet” and “third party” vessels assumed in Palmali’s calculation of its loss of profits claim, and in particular the assumption that no expenses would have been incurred by Palmali in obtaining vessels in the former category for use under the COA, is misconceived. Once the amounts payable by Palmali to the ship owning companies are factored into the equation, he submits that Palmali has, at best, suffered a loss of the 2.5% of any earnings it would have been entitled to retain, something

Palmali accepts that this would be the position if the terms of the SMAs were reflected in the practical operation of all vessels used to lift cargo under the COA (which it says was not the case), and it also accepts that the quantification of loss in its Particulars of Claim has proceeded on a fundamental misapprehension which requires correction. The ultimate effect of Palmali’s evidence (which involved a later correction of the evidence initially served in response to the summary judgment application and in respect of which investigations are still ongoing) is as follows:

Palmali seeks permission to amend its Particulars of Claim to formulate its loss of profit claim on an alternative basis, but it is not yet in a position to put forward a fully-formulated alternative case. In addition to the continuing investigations as to how cash flows operated in respect of vessels in the Rostov Fleet, there is a further issue as to what assumptions should be made as to the source of the vessels which would have been used to carry the additional cargoes which Palmali says it would have lifted under the COA if Litasco had performed its obligations (i.e. what proportion of those cargoes would have been lifted by vessels from the Malta Fleet and/or vessels which were subject to SMAs and what proportion by vessels from the Rostov Fleet).

Against that background, Palmali sought to adjourn the summary judgment application to allow it an opportunity (in effect), to get its tackle in order so far as formulating the amendments to its case is concerned. However, I concluded that this was not the appropriate course, in circumstances in which the summary judgment application has been outstanding for some time, and when issues of principle are raised by the summary judgment application which I can resolve now.

The approach which the court should adopt on a summary judgment application is well-known. I was referred by Litasco to the summary of the relevant principles in The LCD Appeals [2018] 4 CMLR 23, [38]-[39]:

“38.

The court may strike out a statement of case if, amongst other things, it appears that it discloses no reasonable grounds for bringing the claim: CPR 3.4(2)a). It may grant reverse summary judgment where it considers that there is no real prospect of the claimant succeeding on the claim or issue and there is no other compelling reason why the case should be disposed of at trial: CPR 24.2(a)(i) and (b). In order to defeat an application for summary judgment it is only necessary to show that there is a real as opposed to a fanciful prospect of success. Although it is necessary to have a case which is better than merely arguable, a party is not required to show that they will probably succeed at trial. A case may have a real prospect of success even if it is improbable.

Furthermore, an application for summary judgment is not appropriate to resolve a complex question of law and fact.

39

The relevant considerations were helpfully set out in passages from Easyair Ltdv Opal Telecom Ltd [2009] EWHC 339 (Ch) per Lewison J (as he then was) and from the judgment of Lord Woolf MR in Swain v Hillmann [2001] 1 All ER 91 at [94]”.

In Easyair Lewison J stated as follows (at [15]):

“As Ms Anderson QC rightly reminded me, the court must be careful before giving summary judgment on a claim. The correct approach on applications by defendants is, in my judgment, as follows:

i)

The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success …

ii)

A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable … iii) In reaching its conclusion the court must not conduct a “mini-trial”.

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents.

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary

judgment, but also the evidence that can reasonably be expected to be available at trial.

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.

vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant’s case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction”.

I should begin by clearing the legal ground of certain issues which have not featured in this application. The terms of the SMAs would suggest that Palmali acts as agent rather than principal when entering into contracts for the employment of the vessels. However, neither party has presented its case on that basis.

So far as the COA is concerned, it long pre-dated the various SMAs, and so cannot have been concluded by Palmali pursuant to any agencies the SMAs brought into being. In any event, one can see considerable difficulty in analysing the COA as a contract entered into on by Palmali on behalf of any owning company whose vessel might be used to lift cargo under the COA over the course of its 10-year term or any extension. Indeed I understand that many of the owning companies were only formed or acquired vessels after the COA was signed.

So far as individual carrying voyages are concerned, COAs frequently operate as “umbrella agreements”, obliging the parties to perform a series of carrying voyages on commercial terms set in the COA, which individual voyages are then the subject of their own voyage charters (see e.g. Gunvor SA v Crugas Yemen Limited [2018] EWHC 2061 (Comm), [7]). The contractual position so far as individual voyages under this COA was concerned is opaque. The evidence of Mr Erdem was as follows: “Palmali was also named as the disponent owner of the vessels to perform voyages for Litasco under the COA as evidenced by the Annual Addenda entered into between Litasco and Palmali each year in the case of the voyages from Tatyanka and Nikolaevskiy and as owners in addenda for voyages from ports in the Black Sea.

It was Palmali’s position that, to the extent that individual contracts were entered into with Litasco within the framework of the COA, these were concluded by Palmali as principal, and that those provisions of the SMAs which required Palmali to hold amounts paid in respect such voyages in separate accounts were not operated.

In those circumstances, it has not been necessary to consider the application, in an individual voyage context, of the common law exceptions to the inability of a contracting party to recover a third party’s loss (namely claims by an agent to recover the losses of an undisclosed principal or by a contracting party who holds the benefit of a contract on trust to recover substantial damages even though it would have to account for all or some of any recovery to a third party). Nor was it necessary to consider what significance (if any), the position pertaining to contracts for individual carrying voyages may have had for claims under the COA, where no issues of agency or trust could arise.

It is not substantially in dispute that the current formulation of Palmali’s claim for loss of profits under the COA is defective. It certainly does not reflect what Palmali now says is the underlying position, and to that extent it cannot go to trial in its current form, and will require an attempt at re-pleading. I deal with Palmali’s application for permission to amend below.

However, Litasco’s summary judgment application goes considerably further than this. It contends that Palmali’s quantification of its loss has failed to reflect all of the expenses it would have incurred in carrying additional cargos under the COA, because it has failed to bring into account the amounts which it would have become liable to pay the owning companies for the use of their vessels. That issue would arise even after Palmali had amended its claim.

For vessels which were subject to SMAs (and as I have indicated, the effect of Palmali’s more recent evidence is that not all vessels which would have been used

While Mr Russell QC referred at times during his submissions to the position set out in the preceding paragraph as one which prevailed “in the books” or “on paper”, he confirmed that it was not Palmali’s case that the SMAs and invoices were “sham” documents (using Diplock LJ’s definition in Snook v London and West RidingInvestments Ltd [1967] 2 QB 786, 802). Palmali accepts that the documents did create or record the legal rights and obligations which they purported to create or record.

Determining the loss which a claimant has suffered for the purposes of awarding damages involves a “net loss approach” which takes account of expenses caused or benefits lost by the breach, but also expenses saved and non-collateral benefits obtained as a result of the breach (Chitty on Contracts (33^rd) para. 26-001). As Lightman J noted in National Employers’ Mutual General Assurance Ltd v AGFHoldings (UK) Ltd [1997] 2 BCLC 191, 202:

“The critical focus of attention must be the assets and liabilities, the rights and obligations, of the company”.

In conducting this “net loss” calculation, the law of damages does not generally distinguish between a liability, and the discharge of that liability. It is well-established that an unpaid liability can constitute a loss for the purposes of awarding damages. The authorities on this issue were reviewed by the-then Peter Gross QC in Total LibanSA v Vitol Energy SA [2001] QB 643. He held at p.650 that there was “no general common law rule in English law that liability without payment does not constitute a recoverable loss”

Palmali’s argument that the court should ignore the liabilities which it accepts would have come into existence if further cargos had been lifted under the COA when calculating its “net loss” involves a very significant departure from the conventional position. The argument suggests that the accounting which Palmali and the other companies performed did not reflect, or fully reflect, the economic reality of the position, although Mr Russell QC accepted that the inter-company debt was a “real”

Palmali points to a number of cases which have re-emphasised the overriding importance of “the compensatory principle” in the law of damages, which is concerned (within limits) with achieving restitutio in integrum in fact, rather than the simply applying rules or presumptions regardless of whether they achieve that goal: The Golden Victory [2007] 2 AC 353; Bunge v Nidera BV [2015] Bus LR 987 and Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102.

I accept that there might well be circumstances in which, for the purposes of carrying out the “net loss” calculation, it will not be appropriate for the court’s analysis to start and end with the identification of the relevant rights and liabilities. Mr Russell QC referred me to the decision of Nugee J in Stanford International Bank Limited vHSBC Bank Plc [2020] EWHC 2232 (Ch) in which an issue arose as to whether a company had suffered a loss when one of its assets had been used to discharge one of its liabilities without its authority. At [25] he stated:

“It is easy to see that someone who needs, and whose solicitor is holding, cash to complete a purchase, for example, would be able to complain if instead of using the money to complete the purchase the solicitor used it to discharge some other debt, however much that other debt might be a liability of his, because the client might thereby be exposed to an action from the vendor for failing to complete the purchase and it is no comfort to say, “Oh, but, don’t worry, your money, instead of being used in the way you wanted to use it, has been used for something else which you would have had to do sooner or later”. So I do not dispute Mr Fenwick’s suggestion that even in the case of a solvent person, wrongfully using his money to pay one of his debts can lead to consequential losses for which damages can be awarded, but where the loss that is claimed is simply the loss of the money paid out, in general I think Ms Robertson’s proposition that you have to give credit for the fact that your liabilities have been diminished by a corresponding amount is probably in most, if not all, circumstances a good answer”.

When considering whether an undischarged liability always constitutes a loss, the editors of McGregor on Damages (20^th) observe at para. 10-30:

“If a particular expense has already been incurred but not yet paid by the claimant, the amount thereof may be included in the damages where the claimant is under a legal liability to pay the third party … Should, however, it be clear and certain that the liability will never be discharged, and the expense never paid, by the claimant, recovery will be denied him so as to avoid his reaping a windfall; it was so held in Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GmbH”.

Biffa, reported at [2009] PNLR 5, is a decision of Ramsey J in which damages were sought for a liability which had not yet been paid, and which the judge found would never be paid. He held:

“78.

On that basis, it is evident that Biffa will not discharge the liability to MEH by making payment or incurring a loss for which they are entitled to be compensated. Indeed, in my judgment, Biffa will never pay MEH for

two reasons. First, Biffa's liability to MEH has, as pleaded and would, in any event be discharged by Biffa setting off its own claim for damages for that sum against its liability to MEH for that sum. No payment will occur and any sum recovered by Biffa would not be needed to compensate it for any loss that it has suffered. Secondly, given the fact that MEH is now insolvent, the prospect of Biffa's liability for the invoice being dealt with at all is, in any event, remote.”

79.

Rather, if Biffa were to recover from OT the sum invoiced by MEH it is evident that Biffa would retain that sum and not pay that sum to MEH. It would, in a real sense, obtain a windfall instead of compensation for a loss that it has suffered.

80.

In certain circumstances where a windfall might occur it is appropriate, as identified in Total Liban at 663 to 664, for the court to adjourn the decision on quantum or, for instance, to make a quantum award on condition that the money is paid to a third party or that it is held on trust for that purpose. The purpose of that type of order in this case would be to prevent Biffa from obtaining a windfall and to ensure that the liability of Biffa to MEH on which the award of quantum would be premised was properly discharged. For the reasons set out above, this is not a case where such an order is appropriate because on the facts it is evident that any sum paid by OT would give rise to a windfall rather than compensate Biffa for a loss in relation to any liability to MEH.”

Similarly, if it could be established to the requisite standard of arguability that any liability on the part of the claimant which had been avoided as a result of the breach is one which would have been waived or forgiven in any event, that might well be a reason why that liability should not be brought into account, or at least not accounted for in full, for the purposes of the “net loss” analysis.

However, Palmali does not seek to claim the loss of use of the amounts due, but it is said not paid, to the owning companies. Instead, it contends that damages should be assessed on the basis that no liabilities to the owning companies need be brought into account because the owning companies will never be paid. That case is not supported by Palmali’s evidence. Mr Erdem’s evidence as to the treatment of the inter-company balances in favour of the owning companies was as follows:

“Palmali then used the freight it collected to (i) defray the OPEX of the vessel direct; (ii) it would pay the instalments of the loans on the ships to the relevant bank either directly or it would pay the balance of the freight including the profit element to its parent company … which would use the money partly to pay the loans on the ships and partly to fund its business activities”.

Two of these uses involved expenditure for the benefit of the owning company (expenses on the voyage which under the SMA the owning company was obliged to meet, and Palmali was entitled to discharge on its behalf, or the repayment of loans made to the owning companies for the acquisition of their ships). These amounts were, therefore, remitted to the owning companies, there being no difference for this purpose between payments made to an owning company and those made to a third party on its behalf (Glory Wealth Shipping Pte Ltd v Flame SA [2016] EWHC 293 (Comm), [19]). So far as amounts paid to the parent company are concerned, no doubt these were treated as a short-circuited form of dividend to the common owners of both Palmali and the owning companies, which could have been “papered-up” if necessary.

There was no evidence from Palmali, the only party in a position to adduce such evidence, as to the effect such payments had on the inter-company balances in favour of the owning companies from time to time. One would expect that the balances would be reduced by any such payments, which were treated as payments on the owning company’s behalf, albeit with the informality of authorisation commonly found in dealings between companies forming part of the same economic unit. But if that is wrong, then the liabilities remained, and therefore represent a debit to be brought into account in the “net loss” calculation. In summary, Palmali’s evidence falls very far short of establishing an arguable case that, notwithstanding the liabilities solemnly recorded in its accounts, Palmali was entitled to apply the amounts which were the subject of those liabilities as it saw fit, and that the liabilities in question would never fall to be discharged.

For these reasons, I have concluded that Palmali has no realistic prospect at trial of establishing an entitlement to claim damages calculated on a basis which does not reflect the liabilities which the undertaking of additional voyages under the COA would have generated in favour of the owning companies. To the extent that Palmali would have come under a liability to pay freight or hire to Dolphin, the same issue is likely to arise. As I have stated, the terms in which the consequences of my determination should be recorded in an order can be considered with any other matters arising consequential on this judgment.

Once again the applicable principles were not in dispute and are summarised by Carr J in Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), [38]. A particular point on which Mr Béar QC laid emphasis was the requirement that a claim for damages be set out in sufficient detail for the other party to meet it, rather than simply asserted in the abstract. He relied in this connection on the judgment of StuartSmith J in Pedro Arroyo v Equion Energia Ltd [2013] EWHC 3150 (TCC), [14]-[15]:

“14.

… In my judgment, the level of precision that is required when pleading an issue or case, including a particular head of damages, should be determined by the need to provide a fair and sufficient indication to the Court and the opposing party of the case that is being brought and that the opposing party has to meet. Although I am not aware of specific authority on the point, modern pleading practice should not be and is not constrained by whether the label “general” or “special” damages is given to a particular item of claim. Take, for example, a claim for damages to compensate for physical damage to land. It is (correctly) common ground that the normal approach to assessment of such a claim is either by reference to diminution in value or by reference to costs of reinstatement. Describing such claims as claims for general damages should not and does not determine the level of particularisation that is required. If a claim for damage to land based on diminution in value were to be advanced, the opposing party needs certain information if it is to be able to meet the claim on an equal

footing: as a minimum it needs to know what sum is claimed and the nature of the case in support of that claimed sum. In some cases the diminution in value claim may be advanced by reference to comparables; alternatively it may be by reference to a reduction in the income stream which the land had generated but which can no longer be maintained; or it may be by reference to costs of reinstatement. If any of these are the nature of the case that is being advanced, they should be pleaded so that the opposing party can address the propositions on which the claim is based and either accept or refute them. If the claim is advanced on the basis of costs of reinstatement, the opposing party must be entitled to know what those costs are said to be and how they are computed calculated or otherwise made up. If that information is not provided, there can be no equality of arms and the opposing party is unfairly disadvantaged.

15.

It follows from these observations that the mere fact that a party says that it claims damages because damage has been caused to land is not sufficient to alert the opposing party to the nature of the case that is being advanced, since claims arising out of damage to land may be many and varied.”

Mindful of that guidance, I will now consider the amendments for which Palmali seeks permission.

If it is determined that Palmali’s claim for loss of profits must give credit for the amounts which would have become payable to the owning companies in respect of cargos lifted with their vessels, Palmali seeks to amend its Particulars of Claim to recover the losses suffered by those companies under the transferred loss principle.

That principle, of uncertain scope, was first referred to in the House of Lords decision in Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85, [114115], a case in which the developer of residential property was held entitled to recover damages from the contractor for the defective performance of the building contract which had caused loss to the owners and occupiers of the properties. The principle has been formulated on both a narrow and broad basis:

Mr Russell QC accepts that the narrower formulation of the transferred loss principle cannot assist Palmali, but he suggests that the broader formulation can. I accept that it would not be appropriate in the context of an amendment application to seek to

The boundaries of the broader approach to the principle of transferred loss were considered by the Supreme Court in Swynson Ltd v Lowick Rose LLP [2017] UKSC 32. Lord Sumption JSC (at [16]) restricted its application to cases where recognition of the contracting party’s right to recover the third party’s loss was necessary “to give effect to the object of the transaction and to avoid a ‘legal black hole’”. He suggested that the rule would only apply where the “known object” of the transaction was to benefit a third party or class of persons to whom the third party belonged, and the anticipated effects of the breach of contract would be to cause loss to that third party ([14]). Lord Mance JSC referred to proponents of the broad principle as recognising that in some cases a contracting party may have a performance interest in the performance by its counterparty of an obligation to confer a benefit on or avoid a loss to a third party, but did not otherwise elaborate on the principle which he said could not conceivably be engaged on the facts of the case ([53-54]). Lord Neuberger PSC defined the principle of transferred loss as one applicable to transferred property ([102]). He referred to Lord Griffiths’ wider formulation, which he said it was not necessary to address on the facts of the case ([106]).

In BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596, the Court of Appeal considered the transferred loss principle again.

Coulson LJ at [75] held that the broader ground was limited to “known object” cases:

“I have no hesitation in concluding that, as a matter of law, for a successful claim for transferred loss that seeks to rely on the so-called broader ground, as explained in Linden Gardens and Panatown, the claimant must show that, at the time the underlying contract was made, there was a common intention and/or a known object to benefit the third party or a class of persons to which the third party belonged”.

Despite Mr Russell QC’s valiant attempts to argue the contrary, I have concluded that Palmali cannot realistically argue that the common intention or “known object” of the COA was to benefit such of the owning companies as Palmali might contract with for the purposes of performing its obligation to lift cargos under the COA (any more than its known object was to benefit any owners of “third party vessels” in the same way). Mr Russell QC referred to the example given by Lord Griffiths in Linden Gardens at pp.164-165 of building works which a husband contracted for on his wife’s house, or on a house which he later transferred to his wife, which he suggested illustrated the potential flexibility of the “known object” requirement. However, even if that example remains a valid illustration of the scope of the transferred loss principle some 26 years on, it involves a contract to do work on property, to the obvious benefit or detriment of its owner from time to time.

Here, the object of the contract was for Palmali to benefit from the financial obligations assumed by Litasco, it being a matter for Palmali how it went about putting itself in a position to perform its reciprocal obligations and thereby realise those benefits. Such benefit as other companies in the same ultimate ownership as Palmali might derive from voyages performed under the COA would not be conferred

Mr Russell QC rightly did not argue that Palmali could recover any “transferred losses” suffered by third party owners whose vessels might otherwise have been used to lift COA cargos. However, there is no material difference between the position of those vessel owners and those of the owning companies. To the extent that Palmali relies on the fact that the owning companies were in the same ultimate beneficial ownership as Palmali, the following comments by Coulson LJ’s judgment in Rembrandt are apposite:

“76.

During the course of his oral submissions, Mr Morpuss suggested that it was a relevant factor that both NIVE and Henningsen were companies within the same group and were owned by the same family. In support of this contention, he referred to Lord Clyde’s speech in Panatown [2001] 1AC 518, when he said, at p 535H–536A, that the problem that arose in that case ‘is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies’.

77.

But, certainly on the facts of this case, I do not consider that it makes any difference that NIVE and Henningsen are owned by members of the same family. First, as Mr Kealey pointed out, the evidence was that, not only were these companies separate legal entities, but they traded with each other on commercial terms. Secondly, it was obviously in the interests of the family members who owned these companies to use their separate legal entities for their own purposes. They cannot rely on the separate nature of those companies when it suits them, and then seek to break down the barriers when it creates difficulties. That comes uncomfortably close to what Mr Hunt was trying to do in Swynson [2018] AC 313”.

On Coulson LJ’s statement of the law in Rembrandt, therefore, (which is binding on me), Palmali’s “transferred loss” case cannot succeed. However, even if there is a “wider still and wider” formulation of the transferred loss principle, which protects the performance interest of a contracting party in the conferring of a benefit on or avoidance of loss to a third party even where that was not the known object or common purpose of the contract, I do not see how Palmali can bring itself within such a principle.

Palmali was contracting for its own benefit, as the sole recipient of payments under the COA. Palmali is able to sue for the loss of those benefits, but must give credit for

The fact that the transferred loss in question is the loss of profits which the owning companies would have made under contracts which they would have entered into with Palmali further militates against the claim which Palmali seeks to advance. This is not a case in which the loss transferred arises from interference with or diminution in the value of a legally protected interest on the part of the third party such as a right of property or to possession (such as the owner of a home in Lenesta or cargo in TheAlbazero) or even a contractual right (an interest at best precariously protected in private law against interference by anyone other than the contractual counterparty), but at best from the loss of the opportunity to conclude a contract. There is no case which suggests that the principle of transferred loss is capable of extending so far.

Finally, Mr Russell QC submitted that, as the transferred loss principle was a developing area of law, the appropriate course is to give permission to amend, thereby offering Palmali the opportunity to take the issue of law to the Supreme Court, if necessary, on the basis of the facts as found at trial.

I do not accept that, in the light of the very clear statement of law in the Rembrandt case, that would be a legitimate approach. That is particularly the case in circumstances in which:

As I have stated, HHJ Pelling QC concluded that although Palmali had pleaded a claim for breach of the Minimum Quantity Obligation, it had not pleaded a claim for damages for that breach. That ruling is under appeal, but it represents “the law of the case” before me.

In those circumstances, Palmali seek permission to amend to bring such a claim now. The application is made in circumstances in which Litasco has long understood that Palmali intended to seek such damages. For example, Litasco (in Mr Lloyd’s first witness statement of 21 December 2017) stated:

“Palmali claims damages of US$1.9 billion (plus interest and costs) for alleged breaches by Litasco of its obligations since 2010:

i.

To provide minimum quantities of cargo to Palmali;

ii.

To do so exclusively; and

iii.

To provide cargo for transhipment...”

Later in the same witness statement, Mr Lloyd explained the issue of construction which arose as to the operation of clause 2 (the Minimum Cargo Obligation) which, if decided in Litasco’s favour, “has the practical effect of nearly halving Palmali’s claim for damages”.

Mr Béar QC very fairly accepted before me that the List of Issues includes issues which suggest that the damages issues in play include those arising from the breach of the Minimum Quantity Obligation. However, Litasco resists the amendment because it says Palmali is not in a position to plead a coherent, complete and adequate methodology for quantifying such a claim at this time. There is something in this complaint, but not as much as Litasco has suggested:

However that is subject to two caveats.

First, the issues raised in relation to Litasco’s summary judgment application impact on this claim. In short, the figure for expenses which is used to calculate Palmali’s average profitability per mt carried suffers from the deficiencies which Palmali acknowledges in relation to the claim for damages for breach of the Exclusivity

Second, an additional issue might arise in relation to the Minimum Quantity

If the minimum performance doctrine does not apply, there are a number of ways in which it might be possible to determine the freight rates applicable. The approach which Mr Russell QC has confirmed Palmali is adopting – and the draft pleading should expressly record this in its final iteration – is to assume that there would be the same distribution of voyages as those which did take place under the COA, and that this distribution is sufficiently captured in the average revenue calculation which Palmali has pleaded. That proxy might be capable of being attacked at trial, but it cannot be said to be incoherent or to leave Litasco in the dark as to how Palmali intends to approach this issue.

In these circumstances, I concluded that it is appropriate to give Palmali permission to amend to bring a claim for damages for breach of the Minimum Quantity Obligation on the basis set out in paragraph 19 of the draft pleading. It follows that permission is given to effect the amendment to the penultimate sentence of paragraph 18, and the opening sentence of paragraph 19.

However, it will be necessary for Palmali to make a further application for permission to amend, and to substitute a new Annex A, both to reflect my ruling on the summary judgment application and any changes necessary to reflect the position of vessels in the Rostov Fleet. That application will fall to be determined on conventional permission to amend principles, including as to whether the additional matters pleaded are sufficiently arguable and adequately pleaded, and as to whether there is time to address that case having regard to such issues as it might raise. It seems unlikely that this last factor will loom large, in circumstances in which the February 2021 trial date is to be vacated.

The amendments which Palmali seeks permission to effect in relation to the Exclusivity Obligation compromise:

I agree with Mr Béar QC that these are not helpful amendments, and I do not give permission to make them. What is required is for Palmali, as soon as it can, to do the following:

It might be possible for these two requirements to be met sequentially. In each case, an amendment will be required on the basis set out in paragraph 66 above.

As I have noted, both parties agree that the trial date in February 2021 is no longer viable, and in those circumstances I will order that that fixture is vacated. At that point, the common ground ends. Litasco has reserved its right to argue that the court should refuse to re-list the case on the basis that a fair trial is no longer possible, in reliance on the principles referred to in cases such as Arrow Nominees Inc vBlackledge [2000] 2 BCLC 167.

In these circumstances, a further hearing should be fixed on this case (with a provisional estimate of one day), before the end of this term, to consider the future progress of the action. It would clearly be desirable, if possible, for there to be clarity in relation to the further disclosure to be provided by Palmali (whether in relation to the position of the Rostov Fleet or pursuant to the orders I made at this hearing), and