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Late delivery of petroleum product and determination of market value for purpose of assessment of damages

News / / Late delivery of petroleum product and determination of market value for purpose of assessment of damages

Galaxy Energy International Limited v. Murco Petroleum Limited (MV Seacrown) [2013] EWHC 3720

This was a dispute relating to the sale and purchase of a cargo of low sulphur fuel oil, where the Buyers claimed damages from the Sellers for breach of contract in delivering the fuel oil late. The Sellers denied that there had been late delivery of the cargo, arguing that the parties had agreed an extension of the delivery period. They also disputed the Buyers’ basis for calculating their damages.

The Court upheld the Buyers’ claim for breach of contract and awarded them damages for late delivery of the fuel oil. In determining the market value of the oil for the purposes of assessing damages, the Court relied on Platt’s prices for a spread of dates around the date of the Sellers’ breach rather than on the single Platt’s price for the day on which the breach occurred. In the Court’s view, this would more accurately reflect the  market value of the fuel oil at the date of breach.

The background facts

On 3 and 4 January 2012, Murco’s broker negotiated the basic terms of the sale over the phone with a trader from Galaxy. The cargo was to be 35,000 MTs of low sulphur fuel on FOB Milford Haven terms to “be delivered… in one lot … during period 15/17 January 2012” and was to be “as previous deal”. When Murco circulated an email recap later on 4 January, however, it contained somewhat different terms to those negotiated on the phone, including an amendment to the delivery provision that added the following sentence “Plus such extension to that period as is required by the seller to effect or complete delivery”. This additional delivery wording had been repeatedly rejected by Galaxy in their previous dealings with Murco, who regularly sought to introduce it into deals. 

Galaxy responded that it would revert with its comments, considered the amendments internally and, on 11 January, proposed some deletions from the email recap, including the deletion of the additional wording introduced into the delivery provision.

The vessel was nominated for the lifting by Galaxy on 6 January and accepted on 9 January. The vessel arrived at Milford Haven on 13 January 2012 and tendered NOR, but could not berth until 20 January 2012. In the meantime, Galaxy had put Murco on notice that they would hold Murco responsible for any costs and consequences resulting from the delay, including any claim by the end receivers. In the event, the vessel completed loading on 21 January and Galaxy sought to claim damages from Murco based on the difference between the market price on the last contractual date for delivery and the market price on the actual date of delivery.

The Commercial Court decision

Liability

The Judge rejected Murco’s arguments that the agreement between the parties was concluded on the basis of their 4 January email or that Galaxy accepted their proposed amendment entitling them to extend the delivery dates. 

The Judge was also unimpressed by Murco’s argument, based on the incorporation of their GT&Cs, that the period set out in the delivery provision was, in fact, a laycan rather than a delivery (or shipment) period. If that were so, then Galaxy could only claim demurrage, rather than damages, if the cargo was not loaded within the laytime. 

Quantum

Under English law, damages for late delivery of goods under a sale contract will be assessed on the basis of the difference between the market value of the goods on the (last) date when the goods should have been delivered and the date when they were actually delivered. The Judge agreed with Galaxy that this was the appropriate measure of damages in the present case. 

There was, however, some difference of opinion between the parties on how to establish market value. The parties’ experts agreed on the “split weekend rule” – i.e. a cargo loading on a Saturday is valued at the market price of the previous day, and a cargo loading on a Sunday is valued at the market price of the following day. They did not, however, agree on whether market value was to be determined by reference to the Platts’ price on a given day, or a spread of days, i.e. some combination of prior and/or future quotations. 

The Judge concluded that the correct method for assessing the market value in this case was to take a spread of days of Platt’s prices. It was common, indeed usual, for prices in oil deals to be based on a spread of Platt’s days (something on which the experts agreed). Furthermore, Platt’s was not a market or exchange of itself. It was not a literal market price but rather, it provided a market reference for contract pricing. In the Judge’s view, trades in the market on the relevant day would be much more likely to be priced on a spread of Platt’s than on the quoted figure for that day. That spread of prices would be closer to the market value for real deals on the day than the single day’s Platt’s figure which is not the quoted price on an exchange. 

Comment

The Court’s clarification in relation to how to assess the market value of a cargo of fuel oil on the relevant date is also helpful. This is particularly so as there appeared to be no previous case specifically on point, although the Court did make reference to previous decisions in which judges approached similar issues, albeit in somewhat different circumstances. The judgment confirms that market value (where there is an available market) is the benchmark for assessing damages under English law because it provides certainty, although it may not always be a straightforward exercise to determine the market value in any particular situation.

Ince & Co acted for the successful Buyers.

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