Glencore Energy UK Ltd v Transworld Oil Ltd

Parties to an f.o.b. sale contract may mutually affirm and keep the contract alive after the contractual delivery period has passed, provided their objective agreement shows that intention. The court determines that issue from what the parties said and did. Future delivery dates may be left to be fixed later where the parties have agreed a workable basis for doing so.

A contractual time bar referring to the latest published edition of incorporated terms applies only to an edition available to the parties when they contracted. A repudiatory-breach claim arising on acceptance of the breach is not an existing claim at the time of the early termination for the purposes of a clause framed in those terms.

Where there is no available market, damages are assessed by the best available evidence of value at the due delivery date. Hedging transactions forming an integral part of the buyer’s business must be taken into account where closing them out reasonably mitigates the loss.

Glencore bought 285,000 barrels, subject to contractual tolerances, of Nigerian Ukpokiti crude from Transworld on f.o.b. terms. The nominated tanker departed after a kidnapping incident prevented the intended loading. The parties subsequently discussed rescheduling the lifting, and Glencore maintained that the existing contract, including its declared March pricing period, remained in force.

Transworld later refused to honour that pricing basis and declined to make the shipment. Glencore accepted the refusal as repudiatory breach and claimed damages. The issues were whether the original contract had expired or been affirmed, whether the claim was barred by article 33 of the incorporated Nigerian National Petroleum Corporation terms, and how damages should be assessed, including the effect of Glencore’s hedging transactions.

1. The claim succeeded. The f.o.b. contract would ordinarily have expired unperformed when the nominated vessel sailed without loading. The parties were nevertheless entitled to keep it alive by agreement. That question depended on their objective intentions, assessed from what they said and did.

2. The telephone conversation of 8 April 2008, read with the contemporaneous email of 9 April and the parties’ subsequent conduct, amounted to mutual affirmation of the existing contract. It preserved the March pricing declaration, while leaving the shipment to be rescheduled. The parties were not merely negotiating a new future transaction.

3. There was no legal obstacle to the parties agreeing to be bound while leaving important matters, including a later shipment date, to be agreed on a workable basis. The later events showed that the parties did agree new shipment dates. Transworld’s refusal to ship at the declared price was therefore repudiatory breach, accepted by Glencore on 22 May 2008.

4. The 2008 Nigerian National Petroleum Corporation terms were not incorporated. The contractual reference to the latest edition meant the latest edition published and available to the parties when they contracted. Article 33 could not therefore bar the claim. In any event, a claim based on acceptance of repudiatory breach was not an existing claim on the early termination within the natural meaning of that article. The communications already sent to Transworld also supplied sufficient notice and supporting material.

5. Under sections 51(2) and 51(3) of the Sale of Goods Act 1979, there was no available market, so the best evidence of value had to be used. The relevant date was the contractual delivery date, not the date of repudiation. The applicable premium was assessed at US$3.40 per barrel.

6. Glencore was required to mitigate by closing out its hedges. Hedging was an integral part of the transaction and the close-out reduced the recoverable loss. Judgment was entered for US$8,665,496.