OMV Petrom SA v Glencore International AG (Rev 1)

Damages for deceit in the purchase of property are generally the price paid less the property’s market value when acquired, together with any recoverable consequential loss. Market value must reflect the information, risks and uncertainties existing at that date. Later events ordinarily cannot remove a discount which a willing buyer would then have required merely because the relevant risks did not materialise.

The valuation date may be adjusted where necessary to compensate the victim fully. It should not be adjusted to relieve the fraudster from compensating an overpayment induced by the fraud. A comparative assessment of the property’s subsequent productive performance is inappropriate where it fails to measure the loss crystallising upon acquisition.

Glencore sold 32 cargoes represented by false documents to be recognised grades of Iranian Heavy or Gulf of Suez Mix crude oil. The cargoes were bespoke blends of cheaper and sometimes obscure components. Rafirom, a predecessor of OMV Petrom SA, paid the prices of the represented grades and used the blends in Romanian refineries without discovering the fraud.

Flaux J held that Petrom could recover in deceit and valued its loss as the price paid less the blends’ market value on the relevant bill of lading dates. That value was calculated from the CIF value of the components, subject to a discount of US$1 per barrel for the risks and uncertainties of purchasing unknown blends. Damages were US$40,071,913: [2015] EWHC 666 (Comm).

Glencore appealed, contending that subsequent refining showed that the risks had not materialised and that damages should instead reflect the blends’ reduced comparative yield.

1. Appeal dismissed. Christopher Clarke LJ, with whom Kitchin LJ and Black LJ agreed, held that the judge had adopted the correct measure of damages and was entitled to apply a discount of US$1 per barrel.
2. The basic measure of damages for deceit inducing a purchase is the price paid less the benefits received, ordinarily including the property’s market value at acquisition. The valuation date is flexible where a later date is needed to compensate the victim fully. There was no justification for using that flexibility to relieve the fraudster from compensating an overpayment induced by its deceit.
3. The loss crystallised on the bill of lading dates. At those dates a willing buyer would have discounted the cargoes because they were unique, untried blends with uncertain composition and refining performance. The later failure of those risks to materialise did not retrospectively increase their market value. Otherwise Glencore would retain a price which honesty could not have secured.
4. Market value depended on the information available at the valuation date. The hypothetical buyer was properly assumed to know the composition information in Table B, but not to possess complete assays, performance data or hindsight about the refining outcome. Where the seller had supplied false information, the court was not required to assume that it would have supplied more information than was needed to remove the deception.
5. The comparative-yield approach was inappropriate. It did not measure Petrom’s loss from overpaying when the cargoes were acquired. Gross Product Worth was not market value and did not account for all risks affecting the price. Petrom was not itself the refiner, and no obligation to supply particular cargoes to the refineries or liability for their reduced yield had been established.
6. A defendant alleging that post-breach events reduced the recoverable loss must plead and prove that contention. Glencore had neither pleaded mitigation through refining nor proved what occurred in the refineries. It also bore the burden of proving the value of the benefit for which Petrom had to give credit, yet its experts had not valued the cargoes at the relevant dates.
7. The appropriate discount was a factual valuation within the judge’s permissible range. The blends lacked an established market or observable prices, some components were obscure or unfamiliar, and the available information did not eliminate refining risks. No error of law or sufficient basis for appellate interference was shown.

1. Court of Appeal (Civil Division): The court unanimously dismissed Glencore’s appeal and affirmed the damages assessment: [2016] EWCA Civ 778.
2. High Court, Commercial Court: Flaux J held Glencore liable in deceit and assessed damages at US$40,071,913 by deducting the blends’ discounted market value from the price paid: [2015] EWHC 666 (Comm).