Rhine Shipping DMCC v Vitol SA

An appellate court will usually refuse a new argument where its determination requires factual findings not made below or evidence which the opposing party might have adduced at trial. The court must be confident that no realistic possibility of material further evidence exists.

Internal accounting entries which transfer risk between portfolios of the same company do not reduce that company’s loss. By contrast, a gain from an external hedge taken in reasonable mitigation may reduce damages. An alleged avoided loss on a hypothetical external hedge must be proved. It cannot be quantified by treating an internal accounting entry as a proxy where the proposed hedge’s existence and terms are unknown.

Vitol voyage-chartered Rhine’s vessel to carry crude oil from West Africa to China. Rhine’s breach delayed loading and the issue of bills of lading by six days. Because the purchase price was linked to published Brent Dated prices following the bill of lading date, the delay increased Vitol’s purchase cost.

A deputy High Court judge awarded Vitol damages without deducting a notional gain recorded when Vitol rolled internal swaps between portfolios in its risk-management system. On appeal, Rhine abandoned the case advanced at trial. It sought to argue that, without the breach, Vitol would have incurred a loss by purchasing an external hedge against an oppositional risk elsewhere in its trading book.

The central issue was whether Rhine could advance that new, fact-dependent argument for the first time on appeal.

1. Appeal dismissed. Rhine was not permitted to advance its new argument for the first time on appeal. The argument required findings which the trial judge had not made and raised matters on which Vitol could have adduced evidence capable of affecting the result. Those defects arose in relation to the nature of the alleged oppositional pricing risk, whether Vitol would have externally hedged that risk, and the terms and financial effect of any hedge: paras [32]–[51].

2. An appellate court approaches a new point with caution. Permission will generally be refused where the point would require new evidence or would have caused the trial to be conducted differently. Even a pure point of law ordinarily requires adequate notice, absence of detrimental reliance and adequate costs protection. Fairness and the efficient use of court resources require parties to present the relevant cases they wish to advance at trial: paras [23]–[31].

3. The trial judge had correctly held that internal swaps merely transferred risk between Vitol’s own portfolios. They did not make good any loss suffered by Vitol as a single company. A company cannot contract with itself. Unconnected physical transactions elsewhere in Vitol’s ordinary trading book were not steps taken to mitigate Rhine’s breach and any benefits from them were collateral: paras [12]–[17].

4. An external rolling of swaps with a third party would have been materially different. A resulting gain would have been brought into account because the transaction would have been reasonable mitigation and its benefit a direct result of the breach. The same conclusion followed from the principle of avoided loss: para [12].

5. The new case depended on speculation. The evidence did not establish that Vitol’s system would have produced an exact oppositional risk, that Vitol invariably hedged its net risk, or that a hypothetical hedge would have generated the amount recorded on the internal swaps. Where the hedge’s nature and terms could not be identified, an internal accounting figure could not supply a reliable proxy for avoided loss: paras [33]–[51].

6. The court did not finally determine whether any hypothetical avoided hedge loss would have been a collateral benefit. Legal causation in this field is not confined to factual “but for” causation and is sensitive to the particular circumstances. The issue was unnecessary once the new argument was excluded: paras [56]–[59].

Asplin LJ and Underhill LJ agreed with Popplewell LJ.

1. Court of Appeal (Civil Division): The appeal was dismissed. Rhine was refused permission to advance its new, fact-dependent argument concerning an allegedly avoided external book hedge: [2024] EWCA Civ 580.

2. High Court, Commercial Court: A deputy judge held Rhine liable on Vitol’s counterclaim for loss caused by delayed loading. He declined to deduct the notional gain recorded by Vitol’s internal swaps. No neutral citation for that decision is stated in the judgment.