ERG Raffinerie Mediterranee Spa v Chevron USA Inc (t/a Chevron Texaco Global Trading)

In an FOB sale, a contractual laycan ordinarily identifies the period within which the buyer must present the vessel and give notice of readiness. It does not, without clearer wording, impose an obligation on the seller to complete loading within that period. Where the contract provides laytime and demurrage, failure to load within laytime does not itself entitle the buyer to terminate. Termination requires repudiation, final refusal to perform, or commercial frustration by delay. A separate obligation to load within a reasonable time will not be implied where the contract fixes the relevant loading period. A claim for general delay damages requires a breach additional to the failure to load within laytime and is not available where the demurrage clause governs the breach.

ERG agreed orally to sell Chevron gasoline on FOB terms, with loading at Priolo during a period later narrowed to a two-day laycan. The written wording included a clause describing the delivery period, narrowing it to a two-day laycan, and stating that the laycan was an essential term. It also provided for 36 hours’ laytime plus six hours and a demurrage clause.

The vessel arrived before the narrowed laycan, but technical problems prevented loading. Chevron terminated the contract on 3 June 2004, after the laycan had expired and before loading had begun. The court determined whether the contract required delivery or loading by the end of the laycan, whether delay within or beyond laytime entitled Chevron to terminate, and whether Chevron could claim general damages for delay.

1. Construction of the contract. Clause 7 was to be construed objectively in its commercial context. The written wording accurately recorded the parties’ agreement, including the third paragraph, which had been incorporated from the previous contract.
2. Meaning of laycan. The clause provided for a laycan and no more. The reference to narrowing the first period to a laycan, the uncertainty in the word delivery, the inconsistency with the separate laytime provisions, and the commercial consequences of treating laycan as a completion deadline all pointed against Chevron’s construction. The buyer’s vessel had arrived and given notice within the relevant period. ERG’s obligation was to load within the laytime provided by clause 9.
3. Effect of delay. Failure to complete loading within laytime did not itself give Chevron a right to terminate. The contractual remedy was demurrage unless the delay amounted to repudiation or final refusal to perform, or caused commercial frustration of the adventure. There was no separate obligation to deliver within a reasonable time. Section 29(3) of the Sale of Goods Act 1979 did not assist Chevron because the contract fixed the relevant time for loading, and any implied reasonable-time term would be inconsistent with the concept of a frustrating period.
4. Damages. Chevron could not recover general damages for delay. The demurrage clause was an ordinary demurrage clause and limited the remedy for the failure to load within laytime. No separate breach had been established.
5. Disposition. Chevron was liable for wrongful termination. The amount of ERG’s liability claim was left for agreement or later determination. Chevron was entitled to demurrage under clause 10, but not to general damages for delay.