Socar Trading SA v City Trade and Investment SA

Commercial contracts must be construed by identifying the natural meaning of their language in the documentary, factual and commercial context. A buyer’s express option to take less than a stated quantity may define a minimum contractual commitment; it does not necessarily permit the buyer to take nothing. A rollover provision can apply to an initial trial delivery where it is included in the contract and its wording is capable of that application. Commercial common sense cannot be used retrospectively to relieve a party from an imprudent bargain. A term will not be implied where it conflicts with express terms or is neither obvious nor necessary for business efficacy.

Socar Trading SA sold ultra low sulphur diesel to City Trade and Investment SA under two email deal recaps: the Mersin Contract and the Samsun Contract. Each provided for a test delivery, a stated quantity subject to a 10% buyer’s option, specified delivery periods, variable pricing and a special rollover provision.

City accepted and paid for only part of the quantities. It did not attend the trial. Socar claimed market-loss damages for non-acceptance, contending that City remained contractually obliged to accept and pay for the minimum quantities and that any permitted rollover had expired. City’s pleaded case was that it had to pay only for product actually lifted, and alternatively that a term should be implied limiting its obligations to the trial periods. The issues were the proper construction of the contracts, whether City’s failures were repudiatory breaches, and the assessment of damages.

1. Construction. The court applied the principles in Wood v Capita Insurance Services Ltd [2017] UKSC 24, as summarised in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2. Interpretation is a unitary exercise involving an iterative check of the proposed meaning against the contract’s provisions, purpose and consequences.
2. The quantity and delivery-period clauses had to be given their full force and effect. The buyer’s option regulated the permitted variation from the stated quantity and established the minimum quantity City was obliged to accept and pay for. It did not support an unfettered right to take no product.
3. The special rollover provisions were included in both contracts and were capable of applying to the trial cargo. They permitted City to defer unaccepted quantities for one further delivery month, but did not eliminate its underlying obligation. City therefore breached the Mersin Contract by failing to accept and pay for 8,000kt by the end of February 2020, and the Samsun Contract by failing to accept and pay for 4,500kt by the end of March 2020. Both breaches were repudiatory because the acceptance obligations were conditions and time was of the essence.
4. The proposed implied term that City was not obliged to accept further deliveries after the trial month was rejected. Applying Marks & Spencer Plc v BNP Paribas [2015] UKSC 72, the term was neither obvious nor necessary for business efficacy and would conflict with the express contractual provisions.
5. For non-acceptance, damages were assessed under section 50 of the Sale of Goods Act 1979. The court accepted 23 March 2020 as the Mersin assessment date and 30 April 2020 as the Samsun assessment date, reflecting City’s limited later performance. Socar was awarded US$2,312,636 for the Mersin breach and US$712,558 for the Samsun breach, together with interest and assessed costs.