Contigroup Companies Inc v Glencore AG

Where goods are sold for resale and late delivery causes a sub-buyer to suffer loss, the original seller may be liable for a reasonable settlement paid by the buyer to compensate that loss. This applies where the parties contemplated the resale, the downstream breach was a foreseeable consequence of late delivery, and no available market existed for obtaining substitute goods. The ordinary market-difference measure may be artificial in such circumstances. The settlement must be referable to the breach and reasonable by reference to what would probably have occurred had the downstream dispute been litigated. An intermediate associated company does not prevent recovery where the contractual arrangements pass the loss back to the original buyer.

Contichem sold a cargo of butane to Glencore for delivery by 10 June 2002. Glencore resold the cargo through its associated company, Glencore International, to Petrochina, for delivery by 12 June 2002. The cargo arrived at Wenzhou on 15 June.

Glencore International settled Petrochina’s claims by allowing a reduction of US$172,899.67 from the sub-sale price. Glencore withheld that amount from the balance due to Contichem, claiming it as damages. The issues were whether a relevant available market existed, whether the settlement represented loss caused by delay, whether it was reasonable, and whether the loss was recoverable under the sale contract.

1. The claim was subject to a valid set-off. Contichem was in breach by delivering the butane late, and Glencore was entitled to recover US$172,899.67 in damages.

2. There was no relevant available market. The evidence did not establish that a suitable substitute cargo could have been purchased or exchanged and delivered to Wenzhou before the Sunway arrived. It was fanciful to suppose that substitute butane could have been obtained during the relevant period.

3. The usual market-difference measure would have been artificial. The downstream loss resulted from Petrochina being short of butane and losing profits, rather than from a change in the value of the cargo.

4. Contichem knew that Glencore was a trader and was likely to resell the cargo. The parties must therefore have contemplated that late delivery could place Glencore in breach of a sub-sale and require compensation for the sub-buyer’s resulting loss. The interposition of Glencore International made no difference because the sales were back to back and the loss was passed through.

5. The settlement was wholly referable to Petrochina’s lost-profit claim arising from delay. Although it also covered claims concerning the absence of propane and customs duty, no separate sum was paid for those matters. The settlement was reasonable because Petrochina would probably have recovered at least the settlement amount had it pursued arbitration. The court applied the approach in Biggins & Co. Ld. v. Permanite Ld. [1951] 2 KB 314.