LEGAL ISSUES IN COMMODITIES
relationship and were familiar with each other’s business. Over 3-4 January 2012, their brokers discussed a deal for the sale of fuel oil, agreeing a loading period of 15-17 January and otherwise on the same terms as their previous deals. However, Murco’s recap email on 4th
January contained
some slightly different terms, including a proposed ‘flexible delivery provision’. This provision sought to allow Murco, as seller, contractual flexibility on delivery time. After 4th
perform the contract. It was not until 11th
January, the parties took some steps to January
that Galaxy confirmed the flexible delivery provision should be deleted. As it transpired, Murco missed the delivery period due to a delay in berthing the vessel. Loading of the cargo did not commence until 20th
January. The vessel sailed on 21st
The Dispute Time is critical in the oil trade, especially when, as here, chain sales are involved. Before loading, Galaxy had already
The Court also dismissed Murco’s fallback
argument that the delivery provision was in fact a laytime provision concerned only with the arrival time of the vessel. The authority Murco relied upon (The “Luxmar”)1
could be distinguished primarily
because there was no need to narrow the time for delivery in this case. The parties clearly agreed to a three-day delivery period.
Quantum – Assessment of Damages One of the reasons that time is critical in oil
January.
trading is because the sale price is often based on a market index price at some future date linked to delivery. This commercial reliance on time is not only reflected by strict delivery obligations of the type seen above, but also in the method for assessment of damages for breach of those obligations.
One of the reasons that time is critical in oil trading is because the sale price is often based on a market index price at some future date linked to delivery
sold the oil on to a sub-buyer. In that sub-sale, there was also a term that the oil would be loaded by 17th January. Because of Murco’s late loading, Galaxy was put in breach of the sale contract with its sub- buyer. Galaxy brought a claim against Murco for breach of the delivery time obligation. There were two key contentious issues in the claim: liability – whether the ‘flexible
delivery
provision’ formed part of the contract; and quantum – should the market price be assessed on a single day or across a spread of days. Galaxy succeeded on liability and Murco succeeded on quantum.
Liability – Contract Terms Murco conceded that if the flexible delivery
provision was not part of the contract, they were in breach. Save for Murco’s email containing the flexible
delivery provision, there was nothing to suggest that an extension of the delivery period had been discussed between the parties. Further, both parties knew such a clause had been repeatedly rejected by Galaxy in negotiations on previous deals. Murco’s main argument was that Galaxy’s conduct after 4th
January amounted to an
acceptance of the flexible delivery provision. The Court decided against Murco, finding that the sale contract had been agreed in the discussions on 4th January. Galaxy’s conduct after 4th
January was
consistent with that contract and “a world away from accepting the new provision by conduct”. The Court said that Murco knew at once that the flexible delivery provision was not accepted and Murco’s internal notes did not support their position.
The measure of damages for breach of a sale
contract can be simply put as the difference between the contract value of the cargo and the market value of that cargo at the time of breach. At the heart of this dispute was a debate about how the Court should determine the market value for this deal. The contract referred to the market price index, Platts, which gives daily oil prices.
• Murco argued that the market price should be determined by taking the mean price across a
spread of Platts days. They argued that this is the method used by oil traders when pricing
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