Liars’ poker and the oil trade

“O what a tangled web we weave When first we practise to deceive”

Sir Walter Scott, Marmion, vi.17.

 

We don’t often run commodity trade cases in the blog, but OMV SA v Glencore AG [2016] EWCA Civ 778 is worth a look.  The facts, once the irrelevancies are removed, were simple. Glencore (staid corporate successor to the colourful Marc Rich AG) agreed repeatedly to ship particular grades of Iranian Heavy and GOSM crude oil to the Romanian government for refining. In fact they deliberately shipped an assortment of blends of other oils obtained in Israel which had much the same characteristics as what had been ordered, and seemed to perform about as well when refined, but were worth a good deal less on the open market. They arranged for the forgery of shipping documents referring to Iranian Heavy or GOSM, as the case might be, presented them to the buyer’s bank, and used them to obtain payment under the corresponding letters of credit.

Following a tip-off, the buyers sued Glencore for deceit, claiming some $40 million, being the difference between what they had paid and the market value of what was provided, plus a further discount they said they would have been able to insist on had they realised the truth at the moment of acceptance. With an amusing degree of chutzpah, Glencore argued that the buyers had suffered little or no loss and therefore had little to complain about. The oil had been bought for sale to refiners and sold to them; it behaved in much the same way as what they had promised to supply; in these circumstances it should be up to the buyers to prove loss of refined yield if they could.

Flaux J, deciding in favour of the buyers, was having none of it. Even if it might be open to the victim of deceit to increase his recovery by taking account of events subsequent to reliance, this choice was not available to the deceiver to reduce it. Furthermore, even if in breach of contract cases like Bence v Fasson [1998] QB 87 a seller might be allowed to say that the unsatisfactory article he had supplied had actually worked just as well, this once again could not be prayed in aid  by a liar. The Court of Appeal yesterday briefly dismissed the appeal.

Two morals to this tale. First, as we know, the tort of deceit has its own rules of damages and what counts as loss, and they are not indulgent to the defendant. Second, it is surprisingly easy to transform what looks like a simple breach of contract – albeit a deliberate one – into a deceit case, with all that involves as regards the measure of damages, the unavailability of a plea of remoteness, and so on. We are getting close to a situation where, if the price of goods sold is payable on right delivery, any knowing delivery of non-conforming or defective goods now amounts potentially to the tort of deceit. Sellers, watch out!

 

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