UK: Court Rules On Issues Of Contract Interpretation And Measures Of Damages In Contract For The Sale Of Fuel Oil

Galaxy Energy International Ltd v Murco Petroleum Ltd (M/V "Seacrown") [2013] EWHC 3720 (Comm).

The Claimant buyer claimed against the Defendant seller for alleged late delivery of a cargo of fuel oil. The contract stated that the cargo was to "be delivered ... in one lot ... during period 15/17 January 2012". It was common ground that the cargo was not delivered by 17 January 2012. However, the Defendant argued that the contract contained a term extending delivery, and alternatively contested the construction of the contract. The Defendant also, if found liable, disputed the damages claimed.

The terms of the contract

On 4 January 2012, representatives from the Claimant and Defendant spoke and agreed terms for the sale. Subsequently, the Defendant sent a confirmation email containing slightly different terms, including at the end of the delivery provision the words "plus such extension to that period as is required by the seller to effect or complete delivery". The Claimant said it would revert "in due time".

A week later, the Claimant sent a message deleting some of the terms, including the additional delivery wording. They required the Defendant to confirm their agreement, with silence to be taken as agreement. The Defendant recorded its agreement internally, but did not communicate anything to the Claimant, and proceeded with the deal.

The Claimant fixed a vessel, which tendered NOR at the loadport on 13 January. The vessel was delayed in berthing, and did not do so until 20 January. The Claimant claimed damages for late delivery of the cargo. In response, the Defendant argued that the Claimant had accepted delivery, so its rights were limited to a claim for demurrage, not damages for late delivery.

Issues

The Court considered the following issues:

1. whether the term as to extended delivery was incorporated into the contract;

2. whether the provision for delivery "during period 15/17 January 2012" was concerned only with the arrival of the nominated vessel, and so was a laytime provision, rather than providing the latest date for delivery; and

3. the correct measure of damages.

Judgment

The Court held as follows:

1. There was an "agreement if not a final concluded contract" made during the 4 January conversation. The extended delivery provision was not subsequently incorporated into the agreement between the parties. The Defendant knew that this had not been accepted, and at no point did the Claimant act in a way which could amount to acceptance by conduct.

2. On an interpretation of the contract as a whole, the provision for delivery was not a laytime provision. The position may have been different if the contract had provided for an extended delivery period in which a specific shorter laycan period needed to be mutually agreed.

3. Damages were to be assessed on the basis of market value, and the Court was required to determine the market value at the date of the seller's breach. The best approach to take was to base this determination on a spread of Platt's figures, rather than the quoted figure for the relevant day. Platt's is the best measure currently available of daily prices, and trades in the market are more likely to be based on a spread of Platt's figures than on the quoted figure for a particular day.

Comment

This case first highlights the potential issues where a contract is agreed in a combination of telephone calls and correspondence, as is often the case with shipping and trade contracts. Depending on when certain messages are sent, and when steps are taken to perform the contract, this can lead to disputes as to the precise terms.

The Court's approach to interpretation of the contract makes clear that clauses will not be interpreted in isolation. Rather, they will be considered in the context of the contract as a whole.

As regards the measure of damages, the Court took a commercial approach. It based the assessment on the values which would be used by the market, rather than a figure which although it may have been quoted on the day of the breach, may not in fact reflect the value of a trade agreed on that day.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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