Vitol SA v Conoil Plc

Standard contractual terms may be incorporated into an oral agreement through prior dealings, documentary confirmation and part performance. A requirement to provide a letter of credit will not ordinarily be a condition precedent to contract formation where the contract instead provides remedies for failure to provide it. The conventional loss-of-bargain measure is the difference between the contract price and the market price when the seller is entitled to resell. Express delay penalties may be enforced where they represent a genuine pre-estimate of loss. A seller may recover losses caused by a buyer’s prior breach, including vessel demurrage and storage costs, despite related contractual clauses, where those clauses preserve the seller’s other rights. An exclusive English jurisdiction clause may support a permanent anti-suit injunction.

The claimant, an oil trading company, supplied petroleum products to the defendant under four agreements made between July and September 2008. The defendant lifted only part of the cargo, failed to provide letters of credit and nominate daughter vessels for the remaining cargo, and did not take up further contractual quantities. The claimant accepted the defendant’s conduct as repudiatory breach on 31 October 2008.

The defendant did not defend the English proceedings and instead pursued proceedings in Nigeria despite an interim anti-suit injunction. The claimant proceeded to trial to establish its contractual claims and sought damages for loss of bargain, delay penalties, vessel demurrage, storage and related expenses, together with a permanent injunction.

1. Contracts. The four agreements were binding. The standard terms were incorporated through the parties’ prior course of dealing. The first agreement was also partly performed, and the parties’ correspondence and subsequent agreement recognised the earlier contracts.
2. Letters of credit. The contractual requirement for a fully operative letter of credit secured payment and entitled the seller to withhold discharge or terminate and claim damages if the letter of credit was not operational by the specified date. It did not make issuance of the letter of credit a condition precedent to contract formation.
3. Breach. The defendant’s failure to lift the contracted cargo, provide the required letters of credit and nominate daughter vessels constituted repudiatory breaches. The claimant was entitled to damages.
4. Loss of bargain. The appropriate measure was the difference between the contract price and the market price on 31 October 2008, when the claimant was free to sell the cargo on the open market. The contractual premium under the later agreement was separately recoverable by reference to the agreed pricing formula.
5. Delay penalties and demurrage. The delay penalty was enforceable because it represented a genuine pre-estimate of the claimant’s financing losses. The claimant could also recover mother-vessel demurrage caused by the defendant’s prior failures to provide a letter of credit and nominate a daughter vessel. The demurrage clause and delay penalty clause did not exclude that claim because the contractual terms preserved the seller’s other rights and expressly addressed liability for resulting expenses.
6. Storage and injunction. Reasonable storage, vessel hire and bunkering costs caused by the breaches were recoverable. The interim anti-suit injunction was made permanent because the contracts conferred exclusive jurisdiction on the English court. Judgment was entered for the claimant, subject to credit for the security deposit and interest at US prime plus 1%.