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Where’s my crude oil? Court upholds claim for return of monies paid under FOB contract

Insights / / London

BP Oil International Limited v. (1) Vega Petroleum Limited & (2) Dover Investments Limited [2021] EWHC 1364 (Comm)

The Court has held that what was stated expressly and clearly to be a FOB sale contract for crude oil was just such a contract and that the Buyer was entitled to its money back when it did not receive the contractual goods. In doing so, it rejected the Sellers’ arguments that the payments made were unconditional and that the Buyer did not have to be reimbursed.

The background facts

BP Oil International Ltd (“BP”) entered into a series of contracts which provided for the purchase of 211,387 barrels of Gulf of Suez Mix crude oil (“GOSM”) “FOB Ras ShukehirTerminal”, located in Egypt.

Pursuant to those contracts, BP paid Vega Petroleum Limited and Dover Investments Limited (the “Defendants”) a total of US$ 17,235,448, but BP did not receive the GOSM and claimed unjust enrichment for the return of the sums it had paid over for the GOSM on the basis that it had received no consideration.

The Court considered whether the payments made by BP entitled it to delivery of the GOSM and then, if that GOSM was not delivered, whether BP was entitled to its money back. Alternatively whether, as the Defendants contended, the BP payments were made to acquire a right to lift quantities of GOSM and were, therefore, unconditional payments meaning BP had no recourse against the Defendants if BP chose never to lift the quantity of GOSM it was entitled to lift.

The contractual set-up between the parties was both complex and lengthy, but a detailed review of that set-up is not required.

The Commercial Court decision  

It was common ground that the contracts had been terminated (either by BP or the Defendants) and the question was what consequences flowed from the termination.

The Court considered the following principal issues:

Construction of the contracts

The Court had to decide whether, on their true construction, the contracts were:

  • (i) as alleged by BP, contracts for the sale and purchase FOB of crude oil; or
  • (ii) as alleged by the Defendants, modern commercial contracts with both a substantial duration and detailed provisions which were inconsistent with BP having a right to demand its money back at any time. 

The Court found in BP’s favour. There was no evidence to support the Defendants’ case and their interpretation of the contracts was both convoluted and uncommercial. On the other hand, the existence of a delivery obligation tended to demonstrate that the parties understood that the Defendants had real delivery obligations i.e. to do something or consent to something happening to effect delivery. There was also nothing in the factual matrix to alter this view.

Claim for unjust enrichment

The Defendants did not deliver the GOSM, nor had they repaid any sums to BP. BP sought restitution of the sums it had paid over to the Defendants to purchase the GOSM on the basis that: (i) it had received no consideration whatsoever; and (ii) the Defendants had, therefore, been unjustly enriched by those sums.

S.54 of the Sale of Goods Act 1979 provides:

“Nothing in this Act affects the right of the buyer….to recover money paid where the consideration for the payment of it has failed”.

Accordingly, BP had to establish that: (i) it had not received any consideration (delivery) for the payment it had made; and (ii) the contracts had been terminated. Again, the Court ruled in BP’s favour.

The Court held that there had been a total failure of consideration. Despite paying the Defendants US$ 17 million under the contracts for delivery of GOSM, none of it had been delivered. The Court rejected that the right to delivery amounted to good consideration as a right to delivery that could never be realised was worthless.

On the issue of  termination, there was a breach by the Defendants but it remained unacted upon and indeed acquiesced to by BP for some time. The letter that BP sent to the Defendants did not refer to an alleged breach of the contracts nor a failure by the Defendants to discharge their delivery obligations, instead focussing purely on reimbursement. The breach was, therefore, the commencement of proceedings by BP (wrongly) asserting a termination, which breach was then accepted by the Defendants as terminating the contract. However, this did not affect BP’s unjust enrichment claim because a party which repudiates a sale contract by refusing to accept goods may nonetheless recover the price paid in unjust enrichment.

The Court did, however, dismiss BP’s alternative argument based on an  implied term in the contract that entitled them to repayment of the purchase monies. Such an implied term was not justified and would not have satisfied the strict requirements for implying terms into English law contracts.

Potential defences

The Court dismissed the Defendants’ estoppel defence that it considered “doomed to failure”.

It also dismissed their time bar argument based on BP’s GTCs. The Court concluded that the relevant clause, s.32.2, focussed on two things: (i) delivery; and (ii) the due date for delivery in the case of a total loss. In this case, neither was in issue. As delivery had never been made, there was no date two years from the date upon which the GOSCM crude oil was delivered and there was also no total loss. Furthermore, if the time-bar provision was ambiguous, then any ambiguity should be resolved against the party relying on it and in such a way as not to prevent an otherwise legitimate claim. BP’s claim, therefore, succeeded in full.

Comment

The judgment demonstrates the importance of contractual wording in defining a party’s rights and obligations. Where the words are unambiguous, the Court will apply them. It also highlights the risk of not clearly accepting the other party’s contractual breach or termination and subsequently finding oneself accused of wrongful termination.

Rory Macfarlane

Rory Macfarlane Partner

James Rose

James Rose Managing Associate

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