VITOL SA V CONOIL PLC

[2009] EWHC 1144 (Comm),Queen’s Bench Division, Commercial Court, Mr Justice Teare, 22 May 2009

Contract – Sale of Goods – Whether issue of letter of credit a condition precedent to enforceability of sale contract – Damages – Loss of Bargain – Whether clause a penalty or a genuine pre-estimate of loss – Calculation of damages under sale contract based on demurrage clause

The claimant oil trading company had sold automotive gas oil to the defendant for a period of time. At issue in this action were four contracts made in July-September 2007. The defendants were unrepresented because they were pursuing proceedings in Nigeria, against which there had been an anti-suit injunction in the present proceedings. The claimants nevertheless requested a full hearing. They claimed damages for breach of contract, on the case that the defendant had failed to perform its obligations as buyers under four agreements of sale made by the claimant and defendant between July and September 2008 and that the agreements were in consequence terminated by the claimant on 31 October 2008. Defendants had argued in the Nigerian proceedings that until a confirmed irrevocable letter of credit had been issued, there could not be a contract between the parties. The letter of credit was the final binding document between the parties. Teare J gave judgment for the claimant. There was no support in the terms of the contracts for the suggestion that the issue of letter of credit was a condition precedent to the contract becoming enforceable. The seller was not obliged to discharge until the letter of credit had been issued and could terminate the contract if it had not been issued by a particular date, but there was no suggestion that there was no binding contract until a letter of credit had been issued. The four contracts had come about and the defendant had acted in breach of them by failing to lift the cargo in question under the first contract and under the further contracts. The defendant’s repudiatory breach entitled the claimant to damages. The first head of loss was loss of bargain. The appropriate measure was the difference between the contract price and the market price on 31 October when the claimant was free to sell the cargo on the open market. A clause entitled Delay Penalty Clause was not a penalty but a genuine pre-estimate of loss and thus enforceable. Further, the claimant claimed damages for failure to life the cargo on time. While the demurrage clause had not been triggered in the absence of a notice of readiness, the claimant was entitled to claim damages measured by the rate of demurrage. It was also entitled to its costs for storing the cargo after 31 October 2008 which ought to have been taken up by the defendant.