Mena Energy DMCC v Hascol Petroleum Ltd

In commercial dealings conducted by telephone, a binding contract may be concluded orally where the parties intend a later deal recap to record, rather than constitute, the agreement. Contractual machinery for determining quality governs the contractual description of the goods where the two cannot practically be separated. A ship’s tanks composite sample may therefore determine compliance without an additional requirement of homogeneity unless the contract so provides.

Where a contract gives the supplier a right to request re-sampling, the initial certificate may cease to be final and binding when that right is exercised, even though re-sampling does not occur. An obligation to open a letter of credit is not dependent on the continued existence of a charterparty. Once the contractual deadline passes, failure to open the credit constitutes an actual breach, and opening the credit is a condition precedent to the seller’s obligation to supply.

Mena Energy DMCC sold petroleum products to Hascol Petroleum Ltd under a fuel oil contract involving two shipments and a disputed oral contract for gasoil. The first fuel oil cargo was initially certified off specification at Karachi. The parties then agreed that the vessel would return to Fujairah for further blending and reloading before returning to Karachi.

The principal disputes concerned the terms of that agreement, the contractual effect of sampling and re-sampling provisions, Hascol’s failure to open a letter of credit for the second fuel oil shipment, and whether a binding gasoil contract had been concluded. Hascol also counterclaimed for delay and short delivery. The trial concerned liability only.

1. First fuel oil shipment. The 21 November 2014 telephone agreement was a final settlement of the existing claims and counterclaims. Mena undertook to use best endeavours to return the vessel by 26 November, the original bills of lading were to remain applicable for pricing, and Hascol agreed to contribute up to US$150,000 through a US$0.50 per barrel increase under the gasoil contract. Hascol’s counterclaim relating to the shipment therefore failed.
2. Quality and sampling. Clause 12 required compliance to be determined by a ship’s tanks composite sample taken at the discharge port. The agreed mechanism determined viscosity for both quality and description. Following Toepfer v Continental Grain Co [1974] 1 Lloyd’s Rep 11, quality and description could not be separated in this context. The contract imposed no separate homogeneity requirement. The court also treated the internationally accepted sampling procedure, with reference to Veba Oil Supply & Trading GmbH v Petrotrade Inc [2001] EWCA Civ 1832, [2002] 1 Lloyd’s Rep 295, as relevant to the contractual finality of the analysis.
3. Hascol was not obliged to obtain approvals for re-sampling, since the clause required only that necessary approvals be sought. Nevertheless, once Mena exercised its contractual right to request re-sampling, the initial HDIP certificate ceased to be final and binding. The more reliable running samples showed that the cargo complied with the specification on arrival.
4. Second fuel oil shipment. Mena’s notification reinstated the time for opening the credit, making 3 December 2014 the deadline. That obligation did not depend on the continued existence of the nominated charterparty. Hascol’s refusal became an actual breach when the deadline passed. In any event, under Kronos Worldwide Ltd v Sempra Oil Trading S.a.r.l. [2004] EWCA Civ 3, [2004] 1 Lloyd’s Rep 260, and clause 6, opening the credit was a condition precedent to Mena’s duty to supply.
5. Gasoil contract. The parties reached a binding oral agreement on the usual terms. The deal recap recorded that agreement. Hascol’s later request for a two-day credit period was a proposed variation, not evidence that no contract existed. Mena’s price of US$93.75 reflected the agreed compensation and did not amount to repudiation.
6. Hascol’s counterclaims were dismissed. Mena was entitled to judgment for damages to be assessed on its claims concerning the second fuel oil shipment and the gasoil contract.