Proton Energy Group SA v Lietuva

Contract formation depends objectively on the parties’ words and conduct and on the terms they regarded, or the law regarded, as essential. Parties may become bound immediately while leaving further terms for later agreement, provided the resulting contract remains workable and sufficiently certain. In a spot transaction, commercial urgency and subsequent performance may support that conclusion. An implied term requires necessity, not mere reasonableness or usefulness. A contractual specification concerned with quality does not necessarily constitute a sale by description. Where there is no available market price, loss caused by defective quality or short delivery may be assessed using reliable evidence of the buyer’s actual commercial loss. A limitation clause should not ordinarily be construed to exclude all recovery for ordinary and foreseeable contractual loss.

Proton, a Swiss oil trader, claimed damages from Orlen, a Lithuanian petroleum refiner, alleging that their email dealings on 14 June 2012 created a contract for the sale and delivery of crude oil blend. Orlen later withdrew from negotiations, did not open the documentary letter of credit and did not accept delivery.

Following an unsuccessful summary judgment application, the matter proceeded to trial. The issues were whether a contract had been formed, whether an implied condition concerning origin and tax status arose, whether Proton repudiated the contract by proposing a reduced quantity, whether Orlen could have rejected the cargo for misdescription or misrepresentation, and how damages should be assessed.

1. Contract formation. A contract was formed on 14 June 2012. Applying the objective approach in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co. [2010] 1 WLR 753, the court considered the correspondence as a whole. The firm offer, confirmation, commercial context and parties’ conduct showed an immediate commitment to the main terms. Further terms could be negotiated later because their absence did not make the transaction unworkable or void for uncertainty. The transaction was a classic spot deal in which the market required prompt commitment.
2. Implied term. No term was implied that Orlen would be bound only if reasonably satisfied about the product’s origin and tax status. The correspondence contained no sufficient basis for such a condition. Necessity, rather than reasonableness or usefulness, was required, applying The Reborn [2009] 2 Lloyd’s Rep. 639 and the approach discussed in Attorney General of Belize v Belize Telecom Ltd [2009] 1 W.L.R. 1988 and Liverpool City Council v Irwin [1977] AC 239.
3. Repudiation and variation. Proton’s email proposing a quantity of 20,000 to 25,000 metric tonnes did not repudiate or vary the contract. In its factual and linguistic context, it was not a unilateral imposition of new terms. Orlen’s silence did not amount to agreement.
4. Description and quality. The product specification concerned quality, whereas the contractual description was Oil Blend CN2710. The specification was therefore not part of a sale by description under the Sale of Goods Act 1979. Orlen could not rely on the specification as an implied condition entitling it to reject the cargo.
5. Damages. The prima facie statutory measures under sections 51 and 53 did not require market evidence where the blend had no market price. The refinery model provided a just and accurate measure of loss. The contractual exclusion of loss of profit was construed as excluding special, indirect or consequential loss, not ordinary and foreseeable loss arising from defective quality or short delivery.
6. Disposition. Orlen had repudiated the contract. The claim succeeded, with damages to be assessed or agreed, and CHF 5,000 was awarded for the Lithuanian proceedings issue.

The judgment records that Proton had previously failed to obtain summary judgment before Mr Gavin Kealey QC. The claim then proceeded to trial before the High Court (Commercial Court), which found that a contract existed and had been repudiated.