Galtrade Limited v BP Oil International Limited  EWHC 1796 (Comm)
Oliver Caplin acted for BPOI in its successful defence of a claim for wasted expenditure arising out of a contract for the sale and purchase of straight run fuel oil.
The judgment will be of interest to those operating in various commodities sectors, including refined petroleum products. The case raised issues about the classification of contractual quality terms as either conditions or intermediate terms, reliance loss (wasted expenditure) claims, the proper measure of loss applicable to quality claims for both a seller and a buyer where there is no available market, and how to apply principles of causation to consecutive breach scenarios.
Galtrade claimed just over US$1m in wasted expenditure from BPOI. The claim arose out of a mini-term contract for straight run fuel oil. BPOI admitted breaching the contract by delivering the third parcel off specification for sulphur, vanadium and p-value. Galtrade rejected Parcel 3. BPOI argued it had no right to do so, but instead had simply a right to damages for the diminution in value of Parcel 3 caused by the breach. It argued therefore that any wasted expenditure came about not because of BPOI’s quality breach, but Galtrade’s wrongful rejection. BPOI counterclaimed for losses it suffered after the rejection in dealing with Parcel 3 – blending it and selling it into the US.
Galtrade’s claim failed. The court accepted BPOI’s submissions that the quality specification terms in the contract were not conditions, but rather intermediate terms. Various factors were important in that analysis, including the fact that straight run fuel oil is an intermediate product of the refining process, the particular terms of the contract, English law’s hostility to conditions (unless clearly agreed to), the nature of a term as to quality distinguished from one of description. Accordingly, Galtrade had no right to reject Parcel 3 for breach of condition.
The court heard substantial expert evidence from petrochemists and expert traders concerning the tradability and chemistry of straight fun fuel oils. The judge then decided that BPOI’s breaches of the contract were not sufficiently serious to go to the root of the contract / deprive Galtrade substantially of the whole benefit of the contract. As such, Galtrade had no right to terminate for breach of the intermediate term. Its rejection was therefore held to be wrongful.
It followed therefore that Galtrade’s wasted expenditure claim must fail, because as a matter of causation Galtrade’s later repudiatory breach (the wrongful rejection) was the effective cause of its losses, not BPOI’s earlier (non-repududiatory) breach.
BPOI ran some further defences, which it was not necessary for the court to determine given its decision on the earlier points, although it did indicate its views because they had been fully argued. They were (i) waiver of the right to reject (ii) no loss in any event caused by BPOI’s breach (ie. the transaction was always going to be loss-making for Galtrade) and (iii) an exclusion of liability for loss of profit claims under section 66.1 of the BP GTCs. The judge indicated the defences would not have succeeded had they been required. They are worth a review as they nonetheless raised interesting points of law and procedure.
BPOI advanced a counterclaim for the losses it claimed to have suffered as a result of Galtrade’s wrongful rejection, in the main part concerning a large hedging loss. The claim succeeded as a matter of liability, the judge dismissing an argument that BPOI’s losses were in fact costs incurred in BPOI mitigating Galtrade’s losses. However, the judge held on the evidence that BPOI had not suffered a loss despite Galtrade’s repudiatory breach, and so BPOI was awarded nominal damages only.
Oliver Caplin acted for BPOI instructed by Mark Aspinall and Anastasia Alexaki at Hill Dickinson LLP.