In this dispute relating to the non-payment for a consignment of gasoline by the buyer, the Court granted the seller’s application for summary judgment in the buyer’s absence. Given that the buyer was held to have made a voluntary decision not to attend the hearing nor to be represented, the Court decided it was appropriate to proceed in the buyer’s absence.
The Court found that the seller was entitled to recover its loss on the resale of the gasoline. It had made commercial sense to resell the gasoline locally in Sudan and to the sole viable alternative local buyer. The buyer had been given ample opportunity to fulfil its contractual obligations and to take delivery of the gasoline but had failed to do so.
The background facts
The contract
Trafigura Pte Ltd (Trafigura) is a Singapore-based commodity trading company, with a branch office in Geneva, Switzerland. El Soobat Energy Co Ltd (Soobat) is a petrochemical company registered in Sudan and located in Khartoum.
Pursuant to a contract dated 17 January 2020, Trafigura agreed to sell Soobat 40,000 metric tonnes of gasoline +/-10% in Trafigura’s option CFR/ex-tank (the Product). The Product was to be delivered at one safe port in Sudan with an initial estimated arrival time of 15-20 February 2020 (the Contract).
The Contract was governed by English law and provided for the exclusive jurisdiction of the English High Court.
Clause 9 of the Contract required Soobat to make advance payment in Arab Emirates Dirham (AED) of the full cargo within three Dubai banking days of receiving Trafigura’s commercial invoice for the Product.
Clause 13(A) provided for Soobat to pay discharge port demurrage to Trafigura at the performing charterparty rate, and, if the performing charterparty was a time charter, the applicable rate would be the daily hire plus bunker costs.
Clause 30 was an events of default/termination provision. Pursuant to this provision, a failure by Soobat to make payment under the Contract constituted an event of default.
The dispute
Trafigura presented its commercial invoice for the Product in the amount of AED 80,709,667.50 on 17 February 2020. In the meantime, the performing vessel, MT Alpine Marina had arrived at Port Sudan and tendered NOR at 20:30 on 18 February 2020.
Soobat failed to make payment within three banking days as required under clause 9 because it was having some problems transferring funds from Sudan to Trafigura’s Dubai bank account.
The delay persisted and, in order to limit demurrage liabilities, the parties agreed that Trafigura would discharge the Product into tank storage, which Trafigura leased from the Sudan Petroleum Company (SPC) at the Port of Sudan and then deliver it ex-tank to Soobat once payment had been made.
Between 12 March and 26 March 2020, Soobat made a number of partial payments but there remained an outstanding balance of AED 66,761,612.76.
The total amount of demurrage that Trafigura incurred, as a result of the Vessel waiting off Port of Sudan from 18 February 2020 to 3 April 2020, was US$ 750,809.28.
Trafigura served a Notice of Demand on Soobat on 19 March 2020, with two further notices on 13 May 2020 and 08 June 2020. Soobat subsequently indicated that it would not be able to perform the Contract, so Trafigura terminated the Contract and sent a notice to that effect on 3 July 2020.
Resale
Trafigura attempted to sell the Product to other local customers in Sudan, but the only alternative local buyer was SPC. This was because of the heavy restriction placed on the sale of gasoline by the Sudanese Government and the difficulty in finding buyers outside of Sudan that would want the specific grade of the Product, which had been tailored for sale in the Sudanese market. Additionally, there were concerns that SPC would expropriate the Product if Trafigura attempted to export it from Sudan.
Accordingly, Trafigura decided to sell the Product to SPC. However, SPC had no available funds to pay for the Product. Both parties agreed to enter into swap agreements to exchange gasoil owned by SPC with Trafigura’s Product, as the gasoil had a greater likelihood of being resold by Trafigura in Sudan than gasoline did, due to less stringent regulations.
Trafigura concluded a total of five such swap agreements with SPC between 6 August 2020 and 25 September 2020. By the time of the swap agreements, the market price of gasoline had fallen, meaning that the value obtained for the Product was less than the Contract price that would have been paid by Soobat.
The claim
Trafigura claimed damages and/or an indemnity under clause 13 of the Contract in the amount of US$2,118,534.91 for its losses, plus interest. The principal figure was based on:
• losses on the physical transaction in the sum of US$ 4,825,860 calculated as the difference between the sale price to Soobat (US$ 553.55 pmt) and the weighted average sale price achieved on resale to SPC pursuant to the swap agreements (US$ 429.81 pmt), plus
• demurrage liabilities in the sum of US$750,809.28, minus
• pre-payments made by Soobat amounting to the equivalent of US$3,458,134.79.
Trafigura applied for summary judgment under CPR 24.3 on the basis that Soobat had no real prospect of successfully defending the claims for damages for breach of contract and for demurrage liabilities under the terms of the Contract.
Notwithstanding that Soobat had been duly served with the proceedings, it failed to appear and was not represented at the hearing. Nonetheless, the Court concluded that it was appropriate to proceed with the hearing (pursuant to CPR 23.11) in Soobat’s absence because it had voluntarily waived its right to attend or to be represented and there was a public interest in the matter proceeding without delay. Counsel for Trafigura was requested to make the Court aware of any points that Soobat might reasonably have put forward in its defence.
The Commercial Court decision
The Court concluded that Soobat had no real prospect of successfully defending Trafigura’s claims. Soobat was in breach of clause 9 and/or its actions constituted an event of default under clause 30A of the Contract. Soobat’s breach led Trafigura to enter into swap arrangements with SPC and ultimately resell the Product at a loss.
The prima facie measure of loss under s.50(3) of the Sale of Goods Act 1979 (Act 1979) was the market measure. However, that measure applied only where there was an available market. In this case, on the evidence, Trafigura was faced with what was effectively a local monopoly in the form of SPC.
Trafigura had considered whether the Product could be sold to other potential customers in Sudan or the wider region. Having made enquiries, it concluded that there was no alternative local buyer other than SPC because of the governmental restrictions on the sale of gasoline, and because the Product was very grade-specific to the local market. Additionally, any sale outside of Sudan would have required Trafigura to incur the cost of chartering a vessel and re-loading the Product for transport to any new buyer.
Where s.50(3) did not apply because there was no available market then, pursuant to s.50(2) of the Act 1979, the seller might recover the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. Where, despite an absence of available market, the seller had in fact eventually been able to buy a substitute buyer, the resale price might be evidence to fix the seller’s loss, if the terms of the resale were substantially similar to those in the original sale.
The Court found that Trafigura’s sale of the gasoline to SPC, via and on the terms of the swap agreements, was the best and probably only realistic course open to Trafigura and was a reasonable step to take in mitigation. The prices thereby achieved were the best reasonably available to Trafigura. Accordingly, the difference set out above between the contract price and the prices achieved under the swap agreements represented the “estimated loss directly and naturally resulting, in the ordinary course of events” from Soobat’s breach of contract for the purposes of s.50(2) of the Act 1979 and provided the appropriate measure of damages.
Trafigura was also entitled to recover the outstanding amounts in respect of demurrage liabilities.
The Court granted Trafigura summary judgment on its claims including interest and costs.
Comment
The decision usefully sets out how the Court will assess the quantum of damages where there is deemed to be no available market but a seller nonetheless manages to resell goods to a substitute buyer.
For these purposes, it is important that the seller ensures that it has the best possible evidence of its attempts to mitigate its losses and best available commercial options for reselling and/or otherwise disposing of the goods.
Source: Hill Dickinson