Glencore Energy UK v Cirrus Oil Services

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DMC/SandT/15/11

England

Glencore Energy UK Ltd v Cirrus Oil Services Ltd

English High Court (Commercial Court): Cooke J: [2014] EWHC 87 (Comm), [2014] 2 Lloyd’s Rep 1: 24 January 2014

Mr Robert Bright QC and Sandra Healy, instructed by Clyde & Co LLP for the claimant seller

Stephen Kenny QC, instructed by Osborne Clarke for the defendant buyer

CONTRACT FOR SALE OF OIL BLEND: WHETHER A BINDING CONTRACT EXISTED: FIRM OFFER WITH ESSENTIAL TERMS ACCEPTED: NAME OF SELLER INFERRED FROM PREVIOUS DEALINGS BETWEEN PARTIES: DAMAGES FOR NON-ACCEPTANCE UNDER SALE OF GOODS ACT 1979, SECTIONS 50(2) AND (3) NOT EXCLUDED BY CLAUSE 32.1 OF BP 2007 GENERAL TERMS AND CONDITIONS FOR CFR SALES

Summary

The Court held that a binding contract existed between the parties for the sale of crude oil. The defendant had accepted a “firm offer” by the claimant which set out all the main terms necessary for a contract. Although the full trading name of the buyer was not stated in the offer, this could be made clear by looking at the previous dealings between the parties. Further, the claimant’s claim for damages under ss.50(2) and (3) of the Sale of Goods Act 1979 was not one for lost profit, but to compensate the seller for the loss of the bargain. As such, it was not excluded by Clause 32.1 of BP 2007 General Terms and Conditions for CFR Sales.

This note has been contributed by Ken T.C. Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.

Background

Ebok was a young oil field in Nigeria with several different wells and reservoirs. Ebok crude oil was invariably produced and sold as a blend of oil from various wells or reservoirs within the Ebok field.

In February 2012, Mr Obiri, a consultant to Glencore Energy UK Ltd (Glencore), sent an email to Mr Stilmer, a crude oil trader of Glencore, stating that “Cirrus Oil Services” was looking for crude proposals for Tema Oil Refinery (TOR) with delivery in March. Negotiation then took place between Mr Stilmer and Mrs Owusu with the proposed sale naming “Glencore” as the seller and “Cirrus” as the buyer.

Mrs Owusu had been the chief executive officer of Cirrus Oil Services Ltd (Cirrus Oil) since 2010 and was a non-executive director of its holding company, Woodfields Energy Resources Ltd (Woodfields - previously known as Cirrus Energy Services Ltd until it changed its name in January 2011). Emails originating from her referred to her as chief executive officer of Cirrus Oil at a Cirrus Oil email address.

On 3 April 2012, Mr Stimler sent Mr Obiri an email under the heading “Ebok FIRM offer”, which was subsequently forwarded to Mrs Owusu. The said email stated that, “… we are willing to offer the following firm (until 6pm this evening) which should now be doable with TOR”, followed by the terms of selling “Ebok crude oil of normal export quality, Nigeria” at the price of “Dtd + $0.15/bbl (plus fifteen cents per bbl) CFR Tema”. The seller was stated to be Glencore and the buyer “Cirrus …… (Full trading name)”; BP CFR 2007 was also incorporated into the offer.

After an extension of the deadline of the offer, Ms Owusu sent an email to Mr Stilmer on 4 April saying “… Good news! TOR has agreed to the June cargo. Will revert on the fine tuning of the contract terms so that it’s back to back with ours which will be with TOR.”

Mr Stilmer then asked for the “full trading name” of her company but Ms Owusu indicated that her contract with TOR had to be back to back.

Subsequently, Glencore purchased the oil cargo for sale. However, it then became apparent that TOR would not accept a blend of Ebok crude oil, insisting that the cargo should comprise oil from a particular well in Ebok.

Glencore sued Cirrus Oil for repudiation of contract and claimed that a contract was formed on 4 April 2012 with Cirrus Oil for the sale of 630,000 barrels (plus or minus 5% at Glencore’s option) of Ebok crude oil when the “firm offer” made in the email dated 3 April 2012 was accepted by the “good news” email on 4 April 2012.

The main issues before the Court were: (1) whether there was a concluded contract between Glencore and Cirrus Oil on 3 or 4 April 2012; and (2) whether Clause 32.1 of the BP General Terms and Conditions for Sale and Purchases of Crude Oil operated to prevent recovery by Glencore of damages in the form of the difference between the contract and market value of the oil.

Clause 32.1 of the BP 2007 General Terms and Conditions for CFR Sales provided that:

“Except as specifically provided in the Special Provisions or in Section 12.4, in no event… shall either party be liable to the other, whether under the Agreement or otherwise in connection with it… in respect of any indirect or consequential losses or expenses including (without limitation) if and to the extent that they might otherwise not constitute indirect or consequential losses or expenses, loss of anticipated profits, plant shut-down or reduced production, loss of power generation, blackouts, or electrical shutdown or reduction, hedging or other derivative losses, goodwill, use, market reputation, business receipts or contracts or commercial opportunities, whether or not foreseeable.”

Judgment

Cooke J gave judgment in favour of Glencore and awarded damages in the sum of US$2,500,470, being the difference between the contract price and market value of the cargo under ss.50(2) and (3) of the Sale of Good Acts 1979. Section 50 of the Act provided:

“Damages for non-acceptance.

(1)Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.

(2)The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

(3)Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.”

In relation to Issue (1), the Court noted that whether a contract had been concluded between the parties and if so, upon what terms, depended not upon their subjective state of mind. Rather, the Court would consider what was communicated between them by words or conduct and whether that led objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law required as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties had not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement: see Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co [2010] 1 WLR 753.

Cooke J held that the “firm offer” email was clearly intended to be capable of acceptance with a binding contract thereby concluded. The email was expressed to be firm until 6pm on 3 April 2012. It set out all the main terms necessary for a contract to be concluded and incorporated the 2007 BP General Terms and Conditions for CFR sales.

Although the buyer was named as “Cirrus ……… (full trading name)”, this could not reasonably be read as a request to nominate a buyer, failing which the offer could not be accepted. It identified the buyer as a company which had “Cirrus” as the first word in its name, making it clear that the offer was being made to that company in its full trading name.

The Court noted that between June 2011 and January 2012, four contracts had been e concluded between Glencore and Cirrus Oil for the sale of gas oil and gasoline. The initial point of contact for this business was Mr Obiri. Further, all prior transactions in which Mr Obiri was involved with Mrs Owusu, were with Cirrus Oil. Mr Obiri had not heard of the term “Cirrus group” and did not know the exact relation of Cirrus Oil to Woodfields, save that they were affiliated. As at April 2012, the only company which he knew had the name Cirrus, was Cirrus Oil.

The “good news” email was a clear acceptance of the “firm offer”, as Mrs Owusu had responded by stating that TOR had agreed to the June cargo and that she would “revert on the fine tuning of the contract terms so that it was back-to-back” with the terms to be agreed with TOR. This was not making the acceptance subject to such agreement but giving notice of the likelihood that she would wish to negotiate about the detailed terms to be found in the BP General Terms and Conditions.

Therefore, the Court rejected Cirrus Oil’s contention that there was only an agreement of sale between the “Cirrus group” and the “Glencore group”. It held that there was a binding contract between the parties.

With respect to Issue (2), the Court noted that the words “in respect of any indirect or consequential losses or expenses” excluded only liability for all losses which fell within the second limb of Hadley v Baxendale (1854) 9 Ex Ch 341 (Fn.1) : see Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Lloyd’s Rep 55.

Cooke J rejected Cirrus Oil’s contention that a claim for damages for non-acceptance under ss.50(2) and (3) of the Sale of Goods Act 1979 was a claim for lost profit and thus excluded under Clause 32.1. The measure of damages constituted by ss.50(2) and (3) of the 1979 Act was designed to compensate the seller for the loss of the bargain with the buyer by computing how much worse off the seller would be, if at the time of the breach, he had sold the goods to a substitute buyer. This constituted both a ceiling and a floor to the loss claim, on the assumption that the seller had gone into the market and sold at the date of the breach. Movement in the market thereafter was then excluded from the calculation. Should Cirrus Oil’s interpretation be correct, it would mean that Glencore could recover nothing in respect of Cirrus Oil’s repudiation of the contract. This was an unlikely and uncommercial result which would require extremely clear words which were not found in this contract.

Fn.1 First Limb: “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself...”

Second Limb: “...or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”