Ineos Vinyls Ltd.& Ors v Huntsman Petrochemicals (UK) Ltd

A contractual range for raw-material purchases may define separate purchase obligations for each raw material. Where the agreement expressly permits each raw material to be purchased separately within the range, it does not require purchases in fixed proportions calculated by reference to projected production.

Words stating that supplies are primarily intended for a particular site express an intention rather than an enforceable allocation of supplies where the agreement contains no sufficiently certain obligation.

For breach of a take-or-pay-style ordering obligation, loss must be calculated after reasonable mitigation. Excess quantities drawn by associated purchasers may therefore be set against shortfalls, including across different months, subject to price adjustments and proof of actual loss.

The claimants operated VCM plants in the United Kingdom and Germany and purchased ethylene and other raw materials from Huntsman and associated suppliers under amended long-term supply agreements.

The dispute concerned the construction of articles 3.2(A) and 3.11(A) of the Amended Raw Materials Agreement. The court also considered claims concerning undrawn ordered ethylene, storage charges, information and ordering obligations, and alleged infringements of articles 81 and 82 of the EC Treaty and the Competition Act 1988.

The central questions were whether the claimants had to purchase ethylene in proportion to their nominated VCM production, whether ramp-down supplies had to be directed primarily to the United Kingdom plant, and whether the contractual prices or access arrangements infringed competition law.

1. Article 3.2(A). The claimants were obliged to purchase raw materials within the applicable contractual range, but were not required to purchase ethylene and chlorine in the deemed proportions of 0.472 and 0.601 tonnes for each tonne of VCM. Articles 3.2(C), 3.2(D) and 3.3 confirmed that the purchasing subsidiaries could elect the quantity of each raw material, provided that the relevant purchase obligation remained within the range. Huntsman’s contrary construction gave no effective meaning to the third sentence of article 3.2(A). Its counterclaim for the alleged ethylene shortfall therefore did not arise and was dismissed.
2. Article 3.11(A). The statement that raw materials were primarily intended to be supplied to VC3 was an expression of intention. It did not impose an enforceable obligation to supply all, or a specified proportion, of the ramp-down quantity to VC3. The wording was comparable to article 4.6(A), which also expressed an intention concerning the predominant destination of supplies.
3. Invoices and storage. A firm order created a binding obligation to take and pay for the ordered tonnage. However, Huntsman had to mitigate loss. It therefore had to set off excess quantities drawn by EVC and Ineos Chlor against shortfalls, both within a month and, where the shortfall remained available, between successive months. Adjustments were required for different monthly prices. Huntsman could recover a reasonable storage charge for ethylene actually retained and available for collection, but the charge and any loss remained matters for assessment.
4. Information obligations. Huntsman was entitled to insist on compliance with the annual, quarterly and monthly notification and ordering provisions. A mandatory order was unnecessary because the claimants accepted the obligation and intended to comply.
5. Competition law. The claimants failed to prove that the ethylene prices were unfair or excessive. The assessment required consideration of costs, the resulting margin and comparison with competing products or a comparable competitive market. They also failed to establish that the delivery charge for third-party ethylene was unfair. The service included the flexibility, buffering and operational management of the wider pipeline system, not merely the short physical segment between the valves. The foreclosure complaint did not arise because the court rejected Huntsman’s construction of articles 3.2(A) and 3.11(A). The alternative competition arguments would in any event have failed for insufficient evidence, including evidence of dominance and an appreciable effect on trade.
6. The court further observed that a party raising competition issues should disclose to the court any approach to a competition authority, and any indication that the authority may investigate, so that a stay or other appropriate case-management step can be considered.