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Vitol SA v Beta Renowable SA

7th Jul 2017

On 7 July 2017 judgment was given by Mrs Justice Carr in the matter of Vitol SA v Beta Renowable SA, a claim for non-delivery of biofuels, in which Richard Sarll acted for the defendant supplier. 

The judgment contains an interpretation of interdependent obligations in the sale of goods (e.g. the need for the buyer to nominate a vessel before the seller delivers) which suggests that they do not have the status of conditions precedent when the counterparty is in renunciatory breach of contract.  The judgment also considers the recoverability of hedging losses, a matter upon which differing views have been expressed by English courts.

The decision arises out of one of only a handful of trials which have so far been heard under the Shorter Trials Scheme, a pilot scheme set up by Practice Direction 51. 

The scheme is available in all the courts in the Rolls Building, including the Commercial Court.  The impetus for the scheme came from the consultation which led to the new Financial List.  Respondents to the consultation expressed a wish for shorter and earlier trials, at a reasonable and proportionate cost.  These aims are achieved amongst other things through the case being managed by a docketed judge with a trial date fixed for not more than 8 months after the CMC and with judgment within six weeks thereafter.  The maximum length of trial is four days.  Costs budgeting is not applicable.  The ordinary disclosure order is for the production of documents upon which the parties rely.  To derive full advantage from the scheme, it is recommendable to commence proceedings under the scheme rather than to seek transfer at the CMC.

As for the facts of the case, Vitol, a major oil trader, claimed the sum of USD 651,240 or alternatively USD 351,830 from Beta, a manufacturer of biofuels, for the non-delivery of  a consignment of biofuels under a FOB contract.  The terms and conditions included a requirement that the buyer should nominate a vessel acceptable to the seller latest 3 working days prior to vessel arrival, and the lifting period was stated as 16 June to 30 June 2016.  Hence, Vitol was required to nominate a vessel latest by midnight on 27 June 2016.

Beta encountered difficulties in supplying the goods. It was conceded that, by emails sent in mid-June, Beta committed an anticipatory breach of contract which could have been accepted by Vitol as terminating the contract.

However, Vitol did not expressly accept the renunciation as terminating the contract before the deadline expired for the nomination of a vessel.  Nor was its conduct in not making the nomination held to be sufficiently clear and unequivocal as to communicate its acceptance.

It was nevertheless held to be unnecessary for Vitol to have nominated a vessel before it could complain of the non-delivery of the goods.  According to Carr, J. “where to both parties’ knowledge, the Contracts could not and would not be performed by Beta, the condition precedent contended for does not thus arise”.  The decision prompts one to reflect upon the applicability of the principles in The Simona, in which it was held by the House of Lords that, where a renunciation is not accepted as terminating the contract, the contract will continue to subsist for the benefit of both parties.

Whilst Beta was therefore unsuccessful in contesting liability, it nevertheless succeeded in reducing the amount of the claim from USD 651,240 to USD 351,830.  The higher figure represented the actual profit which Vitol alleged it lost from the failed transaction.  This was said to have consisted of the difference between the trade differential in the opening month of the trade and the trade differential in the closing month of the trade; the differentials being a comparison between the price on Vitol’s long position (the purchase price) and short position (its hedge in gasoil futures).

The judge agreed with Beta’s contention that Vitol’s claim as framed was essentially for (i) loss of profit firstly on a (hypothetical) sub-sale and (ii) on a hedge.  As for the former, the requirements for the award of loss of profit on a sub-sale as per Bence Graphics v Fasson were not satisfied.  As for the latter, the claim did not compare like for like, but involved unparticularised “roll-overs”.  Hence, Vitol was awarded only the ordinary market measure.

As noted by Carr J. in her introduction, proceedings were commenced on 5 September 2016. Judgment was handed down within 10 days of conclusion of the hearing on 7 July 2017.  Total costs of the action on Vitol’s side were said to be approximately £125,000 and on Beta’s side £63,000 (both figures excluding VAT). 

The decision therefore serves as an example of the possibilities for swift and efficient litigation under the Shorter Trials Scheme.

To view the judgment please click here.

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