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The High Court has handed down Judgment in Vitol SA v Beta Renowable SA [2017] EWHC 1734 (Comm) highlighting the importance of ensuring that communication and conduct for the purpose of accepting repudiatory breach is clear and unambiguous.

This concerned a contractual dispute between Vitol, a major oil trader, and Beta Renowable Group, a manufacturer of biofuel products. Vitol had agreed, in four contracts dated 20 July 2016, to buy, and Beta to sell, 4,500 metric tonnes of biofuel with the lifting period extending from 16 June 2016 to 30 June 2016. Each contract required that the buyer nominate a vessel at least three working days prior to the vessel’s arrival at the load port, and that the nominated vessel arrive by midnight on the last day of the lifting period. Vitol then hedged these contracts against the risk of price fluctuations by selling gasoil futures contracts.

Beta signalled in early to mid-June 2016 that it would be unable to provide the biofuel in accordance with the contracts’ terms. Vitol, in response, did not nominate a vessel to perform the contract by 27 June 2016 and sent notice of contractual termination via email on 7 July 2016.

Carr J considered three main issues:

  1. Vitol’s claim to have accepted the repudiatory/renunciatory breach by failing to nominate a vessel to perform the contract by 27 June 2016;
  2. Whether failure to nominate relieved Beta of its obligation to deliver under the contracts; and
  3. The quantum of damages.

Failure to nominate a vessel

Vitol claimed that its failure to nominate a vessel by midnight on 27 June constituted acceptance of Beta’s repudiatory breach. In the alternative, it stated that repudiatory breach was accepted by notice of termination via email on 7 July. Beta responded that the failure to nominate was ‘a mere oversight’ and did not constitute clear and unequivocal conduct.

Carr J followed Vitol SA v Norelf Ltd., holding that for repudiation or renunciation of a contract to be accepted, communication or conduct had to clearly and unequivocally convey to the repudiating party that the aggrieved party was treating the contract as terminated. In Vitol’s case, acceptance could only take place by conduct (the non-nomination of a vessel), which was not sufficiently clear and unequivocal to amount to acceptance of Beta’s repudiatory breach. In reaching this conclusion, it was of fundamental importance that Vitol’s non-nomination was not an omission in response to an immediately prior communication or act. Instead it was viewed in the context of Vitol’s email to the Beta on 27 June 2016 which was inconsistent with an intention on the part of Vitol to terminate the contracts in the immediate future by non-nomination. This communication was also viewed against past extensions to the contracts and correspondence chasing Beta for updates.

Beta’s obligation to deliver

Beta argued that the requirement for Vitol to nominate a vessel was a condition precedent to Beta’s obligation to supply the gasoil under the contracts.

Carr J found in favour of Vitol, as its non-nomination was not an express condition precedent and at no point did the defendant argue that it was an implied term. Therefore non-nomination did not relieve Beta of its obligation to deliver. Furthermore, as both parties had already accepted that contractual performance was impossible, any obligation to nominate was stripped of its purpose.

Quantum

Vitol’s primary claim for hedging losses sought to compare the price at which they sold gasoil futures with the average price for gasoil in July 2016, amounting to US$651,240. However the futures transaction had matured in March 2016 and was closed out. Therefore the claim did not represent a fair or proper basis of comparison.

However, the comparator market price was deemed fair, entitling Vitol to damages in the sum of £351,830.

Comment

The decision reinforces the importance of any communication or conduct intended to accept a repudiatory breach clearly conveying that the contract is treated as being at an end. It is vital to provide clear notice of that acceptance to the repudiating party. It also highlights that where a contractual obligation is seen as impossible to perform, there is no rationale for the continued existence of a condition precedent.