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

An FOB sale contract containing a laycan must be construed as a whole. If the buyer may present its vessel until the final moment of the laycan, the delivery period is not a condition requiring completion by that moment. The seller must load within the contractual laytime when the vessel is ready. Delay is a breach, but it is not immediately repudiatory. Termination becomes available only after a frustrating time has elapsed. A contractual demurrage rate ordinarily covers loss caused by delay, so general damages for delay are not recoverable in addition.

The buyers appealed from Langley J’s decision in the Commercial Court, reported at [2006] EWHC 1322 (Comm). The parties had made an FOB sale contract for gasoline. The delivery period was to be narrowed by the buyers to a two-day laycan. The buyers nominated a vessel, which arrived and tendered notice of readiness within the laycan, but the sellers could not load because of technical problems at the refinery.

The buyers terminated the contract after the end of the contractual delivery period. The judge held that the sellers’ obligation was to load within the contractual laytime, that the breach was not immediately repudiatory, and that the buyers’ recovery was limited to demurrage. The central issue was whether the delivery period remained a condition of the FOB contract despite the laycan provision.

Appeal dismissed. Longmore LJ delivered the judgment, with Buxton LJ and Sir Martin Nourse agreeing.

1. The contract had to be construed as a whole. Although time of shipment is ordinarily of the essence in a traditional FOB contract, the laycan provision materially altered that structure. Since the buyers could present the vessel at any time up to the end of the laycan, it would be commercially absurd to require loading to be completed by that same final moment. The contract was therefore a non-traditional FOB contract in which delivery time was not a condition. The traditional approach reflected in Yelo v Machado [1952] 1 Lloyds Rep 183 and Tradax Exports v Italgrani [1986] 1 Lloyds Rep 112 did not govern the contract as a whole.
2. The laycan gave the sellers a right to cancel if the vessel did not arrive in time, and gave the buyers the corresponding right to present the vessel until the end of the period. The sellers were bound to load when the vessel was ready within the laycan and within the contractual laytime. Failure to do so was a breach, but not immediately repudiatory. The proposed distinction based on the actual time of notice of readiness was rejected: the obligation could not be a condition in one factual situation and not in another.
3. Failure to load within laydays is not ordinarily repudiatory in shipping or FOB contracts. Termination becomes available only after a frustrating time has elapsed. The period up to the buyers’ termination was not such a period.
4. The contractual demurrage figure was intended to cover loss caused by delay. General damages for delay could not be awarded in addition, although liability to shipowners for demurrage could constitute recoverable loss.

The judgment below was upheld.

• Court of Appeal (Civil Division) — Appeal dismissed and the judgment below upheld: [2007] EWCA Civ 494.
• High Court (Commercial Court) — Langley J held that the sellers’ obligation was to load within the contractual laytime, that the buyers were not entitled to terminate immediately, and that the buyers’ damages were limited to demurrage: [2006] EWHC 1322 (Comm).