Anticipatory breach and sale of blended cargo.

A victory for IISTL Member, Simon Rainey QC, leading counsel for the seller in Mena Energy DMCC v Hascol Petroleum Ltd. [2017] EWHC 262 (Comm). Disputes arose out of two sales, one of fuel oil, the other of gasoil, to an importer in Pakistan. The first shipment was of fuel oil  with a maximum  viscosity of 125 centistokes. The shipment required blending on the voyage to reduce its viscosity. On arrival at Karachi import was not permitted following sampling of the vessel’s tanks which showed that the cargo had a viscosity of 192.92 centistokes. The parties then agreed by telephone that the vessel would return to Fujairah where the cargo would be reloaded following further blending and would then return to Karachi. The buyer claimed that no final settlement had been reached but that the parties had merely agreed that if the vessel returned to Karachi by 26 November the existing bills of lading would continue to be used for calculating the price, but if it did not return by then the parties would revert to their rights under the original contract. The vessel returned to Karachi on 30 November and the buyer claimed damages for delay. The court held that the telephone agreement constituted a final settlement of all claims and counterclaims up to that point and that the seller merely undertook to use its best endeavours to ensure the vessel’s return to Karachi by 26 November. Even if the buyers were correct, the evidence showed that the cargo was in fact on spec at the time of the initial arrival at Karachi. The spot samples were drawn before any recirculation of the cargo had taken place. Running samples were more accurate than spot samples and hatch samples more accurate than samples drawn through the vessel’s closed sampling system.

With the second shipment, the buyers were obliged to open a letter of credit by 3 December and had failed to so. The previous day the sellers, seeing that it was clear that the buyers would fail to open the credit on time, cancelled the charterparty they had concluded for shipment. The court held that the obligation to open the credit did not depend on the existence of a charterparty, and that after 3 December, the buyer’s anticipatory breach became an actual breach for which the sellers were entitled to claim damages. In any event, the opening of a credit was a condition precedent to the seller’s obligation to supply the goods and there could be no question of the seller being in breach for failing to deliver cargo in circumstances where no letter of credit had been opened.