South Caribbean Trading Ltd v Trafigura Beheer BV

Where linked contracts contemplate that a finished product will be made from specified components, that common assumption does not itself impose a contractual restriction. The restriction must appear expressly or arise by implication from the contract’s terms or business efficacy. A pricing mechanism tied to the quantities and prices of specified components may make performance with substituted products contractually impossible.

A contractual variation may be supported by mutual promises where the promisee undertakes a commercially valuable future performance. A promise merely to perform an existing obligation will generally not suffice, subject to the limited approach recognised in Williams v. Roffey Bros & Nicholls (Contractors) Ltd. A repudiation may be accepted even where the notice refers to an invalid ground, if a valid repudiatory breach existed and the communication unequivocally treats the contract as terminated.

The claimant agreed to sell the defendant fuel oil under Contract 5536. The parties also entered linked contracts concerning the sale, repurchase and blending of wet fuel oil blendstock and cutter. The claimant later proposed delivery of bought-in fuel oil and sought an extension of the contractual delivery date.

The preliminary issues concerned whether Contract 5536 required the finished product to be derived from the linked components, whether the delivery date had been extended or was subject to estoppel, and whether the defendant had repudiated the contract and that repudiation had been accepted.

1. Source of the fuel oil. The court held that Contract 5536 required delivery of fuel oil produced by blending the components supplied under Contract 5508-2. The parties’ mutual assumption about performance was insufficient by itself. The obligation arose from the contract’s structure, especially clause 8. Its pricing formula depended on the quantities actually delivered under Contract 5508-2 and the applicable cutter price. Applying that formula to bought-in fuel oil would price the delivered product by reference to components which were not its constituents. SCT could introduce other components only with Trafigura’s consent.
2. Extension of time. The court found that Trafigura’s assent on 14 March 2001 to extend the letter of credit and permit delivery by the end of June constituted an effective variation of Contract 5536. The variation was supported by mutual promises: Trafigura promised to accept delivery at the later date at the fixed price, while SCT promised to complete the delayed blending operation. The subsequent email satisfied the contract’s requirement for written modification. The court also considered that promissory estoppel would not ordinarily assist a party whose reliance consisted of moving from an unjustified threat to breach an existing contract to performance of that contract.
3. Consideration. A promise to perform an existing contractual obligation ordinarily lacks consideration under Stilk v. Myrick and the related authorities. The judge expressed reservations about Williams v. Roffey Bros & Nicholls (Contractors) Ltd, but applied its approach sufficiently to conclude that SCT’s threatened non-performance could not itself generate a practical benefit on which SCT could rely. The variation nevertheless stood on the independent basis of mutual promises.
4. Repudiation. On the agreed assumption that SCT could otherwise have delivered conforming product within the extended period, Trafigura’s refusal to accept the contractual delivery and its refusal unconditionally to extend time amounted to repudiatory conduct. Under Vitol SA v. Norelf Ltd, acceptance required no particular form but had to communicate unequivocally that the contract was being treated as at an end. SCT’s message of 23 March 2001 met that test, notwithstanding that it referred also to delivery of bought-in fuel oil. Following Glencore Grain Rotterdam NV v. Lebanese Organisation for International Commerce, the termination could be justified by the valid repudiatory breach even though the notice also relied on an invalid ground.