Galaxy Energy International Ltd -v- Murco Petroleum Ltd [2013]

Following late delivery of a cargo of fuel oil, the claimant buyers and the defendant sellers were in dispute as to the contractual terms agreed, the appropriate sanction for late delivery (demurrage versus damages) and the correct assessment of the market value.

On 4 January, the broker acting for the sellers, Murco, communicated with the buyers, Galaxy, about a cargo of fuel oil being offered by Murco. In a telephone conversation of the same day, a FOB sale of 35,000 mt of fuel oil was agreed for ‘delivery fob milford 15-17 Jan ’ otherwise ‘as previous deal’.

In a subsequent confirmation email sent by the sellers direct to the buyers, the sellers added to the delivery provision: ‘Plus such extension to that period as is required by the seller to effect or complete delivery.’ The buyers responded that they would revert with comments ‘in due time’.

On 6 January the buyers nominated a vessel (the "SEACROWN") and took all the operational steps in order to perform the contract: attendance of agents at load-port, loading instructions to the vessel and documentary instructions to the sellers. Then, on 11 January, the buyers informed the sellers that the additional delivery wording was not accepted. On 13 January, however, the vessel arrived at load-port and tendered NOR. However, she berthed only on 20 January and she sailed on completion of loading on 21 January.

The buyers claimed from the sellers damages for late delivery. The sellers rejected that claim arguing that the contract had included a term extending delivery, alternatively that as matter of construction the buyers were only entitled to demurrage. The sellers also disputed the level of damages claimed.

The commercial court held that the buyers’ claim for damages succeeded. However, on the calculation of the damages, the sellers’ approach was preferred.

The contract formation

The sellers sought to argue that the buyers accepted by conduct (i.e. the buyers taking the operational steps to perform the contract) their offer for an extension of the delivery period made in the message of 4 January.

On the facts, the court rejected the sellers’ contention for three reasons:

  1. in previous dealings between the parties, the sellers had each time tried to include a reference to an extension of delivery period which was in turn rejected by the buyers;
  2. the buyers had made clear that they would revert with their comments on the sellers’ amendments; and
  3. it was revealed in disclosure that on 12 January the sellers had internally accepted the buyers’ rejection of the extension of delivery period, albeit that this was not communicated to the buyers.

The court therefore found that the parties reached agreement during the conversation with the broker on 4 January and that the buyers’ conduct was consistent with this agreement. The contract came into existence at that time, alternatively on 11 January, and it did not include the additional provision on extension of delivery.

Demurrage versus damages

The sellers then sought to argue that the provision for delivery operated as a laycan, not a shipment period, so that the only sanction for late delivery was demurrage rather than damages.

The court rejected these submissions. The sellers’ suggestion that the delivery period was a range within which the buyers had to present the vessel was not accepted. Further, the particular clause set out in the sellers’ general conditions, which clause would have applied in situations where a narrowing of the delivery period was required, was of no assistance to the sellers in the present situation.

The buyers were therefore entitled to claim damages, being the difference between the market price on the last contractual date for delivery and the market price on the actual date of delivery.

Damages: market value

The market value of fuel oil on the respective dates was heavily debated.

The parties, supported by their respective experts, agreed on relevant Platt’s quotation for this exercise. However, they adopted opposite views as to whether the market price on a given day was to be determined by reference to Platt’s quotation for that particular day (as argued by the buyers) or by reference to a spread of dates around the day (as maintained by the sellers).

The sellers’ view prevailed: the court concluded that a spread of prices is closer to the market value for real deals on the day than the single day’s Platt’s figure.

In reaching that decision, the court took into account various factors, notably that Platt’s is not in itself a market and that, as the experts agreed, it is usual for prices in oil deals to be based on a spread of Platt’s days.