ABFA Commodities Trading Limited v Petraco Oil Company SA

Under Russian law, entering into a contract to purchase goods with knowledge that performance may interfere with another contract does not, without more, constitute an abuse of rights under Article 10 of the Russian Civil Code. The provision is narrow and applies incrementally, particularly where invalidity of a commercial transaction is sought. An unlawful purpose, such as an intention to harm another, is ordinarily required.

A third party seeking invalidation must show a legally protected interest which invalidation would restore. A party with only contractual rights to generic, non-specific goods does not ordinarily satisfy that requirement. Where an injunction wrongly prevents a party acquiring property, the undertaking in damages will ordinarily be enforced. However, the court may enforce it selectively where the respondent’s litigation misconduct makes that appropriate.

ABFA Commodities Trading Limited, formerly VTB Commodities Trading Limited, obtained interim injunctions requiring JSC Antipinsky Refinery to deliver a cargo of VGO and providing other protective relief. Petraco Oil Company SA intervened, claiming an interest in the cargo and damages under ABFA’s undertaking in damages.

ABFA alleged that Petraco, MachinoImport and Antipinsky had entered into transactions in bad faith under Articles 10 and 1064 of the Russian Civil Code, knowing that delivery to Petraco would interfere with ABFA’s contractual offtake rights. ABFA also challenged the validity of the transactions and Petraco’s title. Petraco claimed damages for the injunction, including the value of the cargo, demurrage and lost profit.

The central issues were whether the transactions were abusive or invalid under Russian law, whether Petraco would have acquired title to the disputed cargo, and whether, and to what extent, Petraco should recover under the undertaking.

1. Russian abuse of rights. Article 10 of the Russian Civil Code is a restriction on rights expressly granted or recognised by law and must be applied cautiously. The categories in Article 10(1) include conduct intended to harm another, evasion of law for an unlawful purpose, and conscious bad-faith exercise of rights. The third category is narrow and residual. Mere knowledge that a transaction may interfere with another contract, or awareness of a significant risk of such interference, is insufficient.
2. The transactions were entered into for ordinary commercial purposes: obtaining VGO, securing finance and making a trading profit. Neither Petraco nor MachinoImport acted with the predominant purpose of injuring ABFA or for another unlawful purpose. The transactions therefore did not constitute Article 10 abuses. ABFA’s claims under Article 1064 consequently failed.
3. The case was not a Russian-law double sale of an individually defined thing. ABFA’s offtake agreements principally concerned generic VGO and did not confer rights to identified cargoes enforceable by specific performance. The contractual consequence of non-delivery was ordinarily delayed delivery and a claim in damages.
4. ABFA lacked the legitimate interest required by Articles 166(3) and 168(2) to seek invalidation of contracts between other parties. Invalidation would not restore a right to the disputed cargo or enable specific performance. The earlier decision refusing continuation of the cargo injunction was the law of the case: VTB Commodities Trading DAC v JSC Antipinsky Refinery v Petraco Oil SA [2020] EWHC 72 (Comm).
5. MachinoImport had acquired title to sufficient VGO before the cargo injunction. The relevant specifications evidenced genuine sale contracts. Petraco would have acquired title to the disputed parcel in good faith but for the injunction.
6. Had the Article 10 claims succeeded, the court would have found sufficient causation and no bar arising from ABFA’s contractual claims against Antipinsky. ABFA’s contractual recovery was effectively irrecoverable, so there was no realistic prospect of double recovery.
7. The undertaking in damages is an equitable undertaking connected with the court’s injunctive jurisdiction. Where an injunction should not have been granted, the undertaking will ordinarily be enforced. Petraco’s commercial conduct was too remote from the grant of the injunction to justify refusing compensation for the value and profit associated with property it would have acquired. However, Petraco’s dishonest and misleading conduct in the litigation was sufficiently connected with enforcement of the undertaking to justify selective enforcement.
8. Petraco was entitled to recover the value of the disputed parcel, less the outstanding price, and its lost resale profit. It was not entitled to recover demurrage or the amounts paid in settlement of liability for failure to load. The court rejected an all-or-nothing approach to enforcement.
9. ABFA’s Part 20 damages claim failed. Petraco was entitled to enforce the undertaking only in respect of the value of the disputed parcel and the related loss of profit.

• High Court (Commercial Court): interim injunctions were granted on 29 April 2019. The disputed parcel was later ordered to be sold and the proceeds paid into court. The present judgment determined the parties’ substantive claims and the undertaking in damages.
• Court of Appeal: the cargo injunction was discharged by Phillips LJ on 20 January 2020, as recorded in [2020] EWHC 72 (Comm) and in the present judgment.