News / 18-02-2022 / London

Addax Energy S.A. v. Petro Trade Inc. [2022] EWHC 237 (Comm) (link to judgment here)

In a dispute arising out of the supply of petroleum products, the English Court has dismissed a challenge to its jurisdiction, finding that the claimant supplier had a good arguable case that an English jurisdiction clause was incorporated into an alleged oral agreement by way of course of dealing. In doing so, the Court confirmed that the evidence required to establish a course of dealing need not be extensive or consistent to meet the relevant legal test.

The background facts

The claimant was a Swiss petroleum supplier and the defendant a Liberian petroleum importer who owned and operated gas stations across Liberia.

The parties entered into a secured distribution agreement ("SDA") on 1 December 2015, whereby the claimant would deliver petroleum products into third-party tanks in Liberia, from which the defendant would discharge the petroleum. The arrangement was structured such that the claimant retained ownership of the petroleum whilst in the tanks, with the result that separate “spot” sales agreements were required for each discharge.

The spot agreements were agreed orally over the phone with only the key commercial terms (price, delivery, etc.) being discussed. The manner in which the parties recorded these agreements in writing following such calls was inconsistent: sometimes the claimant would send a “recap” email containing the agreed terms, to which the defendant often, but not always, responded. The matter of jurisdiction was not raised either in the oral agreements, or in recap emails. In about one third of spot agreements, the claimant sent documents referred to as “Spot Contracts”, which contained more complete terms, including an English jurisdiction clause.

On 3 January 2018, the parties orally entered into a long-term supply agreement for 100,000 MT +/- 10% of gas oil and mogas (“the Term Agreement”). As with the majority of the spot agreements, the Term Agreement was not immediately committed to writing. There was evidence that a draft Spot Contract was sent by the claimant, however this was never taken forward and the defendant failed to respond to the draft.

The parties continued to trade as they had done previously, but no further Spot Contracts were produced and no further reference was made to the Term Agreement. In January 2021, and following a dispute over missing product from the tanks in Liberia, the claimant sued the defendant in England on the basis that the Term Agreement contained an English jurisdiction clause. The defendant argued that there was no concluded contract and even if there was, it did not incorporate a jurisdiction clause.

The Commercial Court decision

The claimant had to demonstrate a good arguable case that a contract incorporating a jurisdiction clause had been formed. The defendant contended that the claimant could not show that either a written or an oral contract was entered into on 3 January 2018 (whether containing a jurisdiction clause or not).

The claimant submitted that a course of dealing had been established between the parties, and that the terms of the written Spot Contracts (which contained an English jurisdiction clause) had become the standard terms on which the parties traded.

The Court found in the claimant’s favour. Although the conduct between the parties was not consistent or unequivocal, there was a sufficiently plausible evidential basis to find a course of dealing between the parties. The appropriate test was whether there was sufficientconsistency of conduct between the parties. The Court relied on authority to the effect that there might be incorporation of terms by a course of dealing between the parties where each party had led the other reasonably to believe that they intended that their rights and liabilities should be ascertained by reference to the terms of a document which had been consistently used by them in previous transactions.

The Court emphasised the importance of the facts in each case; examining the type of relationship and the context in which the transaction was being concluded. In this case, the Court noted that it was common place in the petroleum industry for the parties to agree the commercial terms of contracts informally, often over the phone, with written confirmations sent via email.

Furthermore, whilst the production of Spot Contracts was inconsistent, the terms were not, and no other terms were introduced throughout the relationship between the parties. As no further Spot Contracts were sent after the apparent conclusion of the Term Agreement, that would indicate that the parties intended to contract on the terms of the previous Spot Contracts.

Comment

This decision highlights the importance of reducing agreements to writing in the commodities sector, and indeed generally, to avoid disputes of this nature. Otherwise, there is the possibility that, if there is insufficient definition to what was/was not agreed, the Court then has to resort to having to make findings of fact from potentially disputed telephone calls, combined with any contemporary documents/prior dealings to arrive at its conclusion. The more open ended those features are, the more unpredictable the result.