OMV Petrom SA v Glencore International AG

A principal may claim in deceit where its commission agent contracts as principal with the representor, but acts as the principal’s agent in receiving and relying on representations. A representation in shipping documents is not spent when made to the contracting agent where the representor knows that it will be passed on to, and relied on by, the principal and financing banks. A fraudster cannot rely on the victim’s agent’s alleged knowledge of the fraud where the principal and its bank independently relied on the false representations. Damages for deceit require full reparation for loss directly flowing from the fraud. The usual credit is the actual value of what was supplied, not a lower loss calculated by reference to the victim’s subsequent use of the goods.

The claimant, successor in title to Romanian state oil companies, claimed damages from the defendant oil trader for a long-running fraud. The defendant supplied bespoke blends of crude oil while falsely describing them as Iranian Heavy or Gulf of Suez Mix in bills of lading, certificates, invoices and letters of indemnity. The claimant alleged deceit and conspiracy.

The defendant contended that the commission agent knew and accepted the blends, that representations made to the agent could not be relied upon by its principal, and that the claimant’s loss should be measured by reduced refining yields. The principal issues were whether the elements of deceit were established under English and Romanian law and, if so, the proper measure of damages.

1. Liability in deceit. The court found that the defendant knowingly made false representations that the cargoes were Iranian Heavy or Gulf of Suez Mix. The representations were intended to be relied on by the commission agent, its principal and the banks paying under letters of credit. The agent and principal were not aware of the fraud.
2. Reliance and representee status. The agent checked the shipping documents as the principal’s agent. The principal therefore relied on the documents through its agent. The representations were also repeated to the banks and the principal in commercial invoices, letters of indemnity and original shipping documents. They were not spent when first made to the agent. Gross v Lewis Hillman [1970] Ch 445 did not establish a general rule preventing a principal from relying on representations made to its agent. The reasoning in Standard Chartered Bank v Pakistan National Shipping Corporation [2000] 1 Lloyd's Rep 218 and Niru Battery Manufacturing Co v Milestone Trading Limited [2002] EWHC 1425 (Comm) supported liability where banks relied on false shipping documents.
3. Applicable law. For the first 29 cargoes, the claimant had to establish deceit under English law and an actionable wrong under Romanian law. For the final three cargoes, Romanian law applied. The court preferred the claimant’s expert evidence and held that Articles 998 and 999 of the Romanian Civil Code permitted a delict claim. Article 406(2) of the Romanian Commercial Code concerned contractual claims and did not exclude delict liability.
4. Inducement. The presumption of inducement applied. The defendant did not rebut it. The claimant would have rejected the cargoes or negotiated a lower price had the truth been disclosed.
5. Damages. Applying Smith New Court Securities v Citibank NA [1997] AC 254, the proper measure was the full price paid less the actual value of the bespoke blends, including a discount for their uncertainties. The court rejected a GPW-based measure reflecting refining yields. Damages were assessed at US$40,071,913. The alternative conspiracy claim was unnecessary, the account of profits was not pursued, and exemplary damages were refused.