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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> OMV Petrom SA v Glencore International AG (Rev 1) [2016] EWCA Civ 778 (21 July 2016) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2016/778.html Cite as: [2016] EWCA Civ 778 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Flaux J
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE KITCHIN
and
LORD JUSTICE CHRISTOPHER CLARKE
____________________
OMV PETROM SA |
Claimant/ Respondent |
|
- and - |
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GLENCORE INTERNATIONAL AG |
Defendant/ Appellant |
____________________
Mr Duncan Matthews QC and Mr Andrew Fulton (instructed by Withers LLP) for the Respondent
Hearing dates : 11 and 12 May 2016
____________________
Crown Copyright ©
Lord Justice Christopher Clarke :
The parties
The facts
"first, persons to whom the representation is directly made and their principals; secondly, persons to whom the representor intended or expected the representation to be passed on; and, thirdly, members of a class at which the representation was directed".
Damages
1. | Full price |
$ 434,433,302 |
2. | CIF figure for the components of the blend |
$ 420,568,562 |
3. | Difference between 1 and 2 |
$ 13,864,740 |
4. | Discount at an average of $1 per barrel | $ 6,207,172 |
On this approach ("the valuation approach") the
damages were $ 13,864,740 + $ 26,207,172 = $ 40,071,913
"204.... some of the claim cargoes contained components the precise nature of which remains obscure. Thus, cargo 19 contains some 15,000 metric tons of oil stated to be "N" which the experts understood to be a reference to "Nile Blend". However, that cannot have been Nile Blend because that crude did not exist outside Sudan at the relevant time in 1995. Cargo 21 contained some 20,000 metric tons of crude oil stated to be "DH". None of the experts could explain what that was. In closing submissions, Mr Southern QC submitted that in the arbitration ten years ago the suggestion was that this was a blend of three Kazakh crudes. Whether that is right or not, the precise provenance of DH remains obscure. Cargo 30 contained just short of 1,700 metric tons of something described as "Fuel Oil Mix ????" As Mr Matthews QC rightly submitted, the question marks indicate that there was uncertainty as to what it was, save that it was not crude oil.
205 As a general observation, whilst some of the crude oils used in the blends were well known crudes at the time such as Belayim, Ras Budran and Ras Gharib, others were not well known at the time, such as Geisum (used in cargo 26), Zafarana (used in cargoes 22, 26, 27 and 31) and OSO Condensate (a Nigerian crude used in cargoes 26, 27 and 28). This was the evidence of Mr Roffey in the arbitration and he accepted it in cross-examination before me."
Glencore's submissions
The comparative yield approach
Smith New Court
"In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property:
1. The defendant is bound to make reparation for all the damage directly flowing from the transaction;
2. Although such damage need not have been foreseeable, it must have been directly caused by the transaction;
3. In assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction;
4. As a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered;
5. Although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property;
6. In addition, the plaintiff is entitled to recover consequential losses caused by the transaction;
7. The plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud."
Glencore's criticism of the assessment on the valuation approach
Taking account of events after the date of acquisition
Ageas
35 The Bwllfa approach, as applied in The Golden Victory, supports the proposition that when assessing damages for breach of contract by reference to the value of a company or other property at the date of breach, whose value depends upon a future contingency, account can be taken of what is subsequently known about the outcome of the contingency as a result of events subsequent to the valuation date where that is necessary in order to give effect to the compensatory principle. In an appropriate case, the valuation can be made with the benefit of hindsight, taking account of what is known of the outcome of the contingency at the time that the assessment falls to be made by the court. This is so not merely as a cross check against the reasonableness of prospective forecasting, as Staughton J regarded as permissible in Buckingham. It is so whatever view might prospectively be taken at the breach date of the outcome of the contingency.
36. This seems to me consistent with principle and justice. In the course of argument I posited an example of the sale of a racehorse, which the seller warranted to be free from disease; its value at the date of sale was to be measured by reference to an assessment of the races it might win and its consequent stud value; at the date of sale it had a latent disease which increased the risk of it suffering a career ending lameness at some stage; if the parties had known the true position at the date of sale the horse would have been valued at half the price because of this increased risk of lameness; by the time damages came to be assessed, however, the horse's racing days were over and it was known that there had been no incidence of career ending lameness despite the increased risk. Would the buyer still be able to claim half the price of the horse on the basis that its value without the benefit of hindsight was half what he paid? I am inclined to think not. By the time damages come to be assessed, it is known that the buyer received a horse which was every bit as valuable at the date of sale as the horse as warranted; with the benefit of hindsight it is known that the horse was as capable of winning the same number of races over its racing career as a horse without the latent disease. To award the buyer half the price of the horse would offend the compensatory principle and provide the buyer with a windfall.
37. I would, however, sound a note of caution. There are, in my view, two qualifications to the adoption of such an approach. The first is that it can only be justified where it is necessary to give effect to the overriding compensatory principle. The prima facie rule, from which departure must be justified, is that damages are to be assessed at the date of breach and that only events which have occurred at that date can be taken into account.
38. Secondly, it is important to keep firmly in mind any contractual allocation of risk made by the parties. Party autonomy dictates that an award of damages should not confound the allocation of risk inherent in the parties' bargain. It is not therefore sufficient merely that there is a future contingency which plays a part in the assessment. It is necessary to examine whether the eventuation of that contingency represents a risk which has been allocated by the parties as one which should fall on one or other of them. If the benefit or detriment of the contingency eventuating is a risk which has been allocated to the buyer, it is not appropriate to deprive him of any benefit which in fact ensues: it is inherent in the bargain that the buyer should receive such benefit. In The Golden Victory the contractual allocation of risk, in relation to the period of the charter, formed no impediment to the majority's approach to assessment of damages. The contingency was the outbreak of war, which the parties had provided for by the right to cancel conferred by clause 33. The risk of that happening had been foreseen and had been agreed to be one which if it eventuated would entitle the other party to terminate the charter. The owners had contractually undertaken the risk of such an event allowing the charterers to terminate the charterparty. Adopting an approach to the assessment of damages which took into account the eventuation of the contingency to reduce the owners' damages did not cut across the contractual allocation of risk." [Bold added]
Horses
"It is not necessary in an action for deceit for the judge, after he had ascertained the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred.
Bacciottini
Van Dycks
The comparative yield approach
The discount and its amount
The amount of the discount
Conclusion
Lord Justice Kitchin :
Lady Justice Black :
Note 1 “Tell it not in Gath, publish it not in the streets of Ashkelon, lest the daughters of the Philistines rejoice, lest the daughters of the uncircumcised triumph”. [Back] Note 2 The freight was taken as the freight from the place where each component was typically shipped by its producer. [Back]