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An exposure to hedging losses arises where:
1. There there is no physical cargo against which to offset the futures position as a result of non-delivery; and
2 Where there is an alteration of the pricing period for the physical cargo after hedging contracts have been entered into.
It followed that Glencore wished to maintain the declared pricing period under the affirmed contract for the purpose of making alternative arrangements for loading, because changing the pricing period, which is what Transworld wished to do, would have adversely impacted Glencore’s hedging arrangements.
The issues that broadly arose for decision were:
(i) Whether whether the claim was time barred under terms incorporated into the contract; and
(ii) The the correct measure of damages for breach of contract.
On the time bar issue, the court decided that the relevant set of terms incorporated into the contract did not time bar the claim, as a matter of incorporation or construction. This issue will not be dealt with in detail in this case note.
The issues on quantum covered two elements:
(i) The the correct approach to calculating damages under section 51(2) of the Sale of Goods Act 1979 in the circumstances of the case; and
(ii) Whether whether the reduced hedging loss made by Glencore in closing out early its position following Transworld’s repudiation was to be taken into account as mitigation of the loss for the purpose of assessing damages.
On calculation, Glencore claimed the difference between the contract price and the value of the oil on the date when it ought to have been delivered. For that purpose Glencore used the dated Brent futures price at the time of non-delivery. On this basis Glencore’s damages were US$11,112,626. Transworld submitted that damages should be assessed at the date when a contract for delivery of Ukpokiti oil would typically have been entered into, which on the evidence was between 15 and 45 days before the FOB delivery date. For that purpose Transworld used dated Brent swap prices as an average across the 15 to 45 day period before the date of non-delivery. That gave a figure for recoverable loss of US$7,562,797.
Time Bar
Although not covered in detail in this case note, one aspect of the time bar issue is of interest. The judge had held that the 2008 set of terms, which included the time bar, were not incorporated into the contract, whilst the earlier 2007 set of terms - which did not include a time bar - were incorporated, . The judge’s reason was that the 2008 set of terms, which were those of the national Nigerian oil company, had not been ‘published’, in the sense that the terms had not been publicly made available, so that parties could familiarise themselves with the terms, and the parties were otherwise unaware that those terms had come into effect and what the provisions of those new terms were. Further information can be found on this aspect by reading the law report on BAILII.
Quantum
