Neutral Citation No: [2003] EWCA Civ 1031
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
OKTA CRUDE OIL REFINERY A.D. VS
MAMIDOIL-JETOIL GREEK PETROLEUM
This is an appeal from two judgments of Aikens J whose.
There were two actions which were tried together and which took place against the background of a long–standing quarrel between two branches of a Greek family.
They concerned contracts relating to the supply and “manipulation” (ie. handling) of crude oil.
The defendants (“Okta”) are the owners of a refinery in Macedonia.
The first Claimant (“Jetoil”) is a Greek company. Jetoil entered into a contract with Okta in 1993 (“the 1993 contract”), which gave Jetoil the exclusive right of manipulation.
That contract also gave Jetoil a right of “first refusal” to supply crude oil to Okta.
Jetoil’s claim was made under two heads:
- Okta failed to permit Jetoil to manipulate, all the nonheated crude oil,
- breach by Okta of the obligation to give Jetoil the right of first refusal to supply crude oil to Okta.
Okta accepted the 2 claims, however he said that the FYROM government sent letters to Okta dated 16th and 26th November 1999 and then again on 30th May 2001. Okta submitted that the letters were a request that Okta should not perform the 1993 contract within the meaning of a “force majeure” clause in an annex to the 1993 contract which stated that neither party would be responsible for damage caused by failure to perform the contract if that failure was attributable to “acts or compliance with requests of any governmental authority. . . . . . . . beyond the control of the party affected”.
Jetoil denied that Okta’s failure to perform the 1993 contract was attributable to a request by the government of FYROM and submitted that, from July 1999 at the latest, Okta had decided to deal instead with another Greek oil company, Hellenic Petroleum SA (“Hellenic”). because, by July 1999 Hellenic, had obtained a significant shareholding interest in Okta as a result of the privatisation in early 1999 of what had been a corporation wholly owned by FYROM.
Hellenic wished both to supply and handle the non–heated crude oil that Okta needed to purchase.
Thus Okta decided that it would break its contract with Jetoil and would deal only with Hellenic.
An injunction was granted preventing Okta from allowing anyone other than Jetoil to manipulate crude oil. Thereafter the Fyrom government issued a “request” on 16th and 26th November 1999 not to perform the 1993 contract.
The court of appeal held that the contract continued until March 2003. FYROM then issued the request of 30th May 2001 in relation to which similar arguments are made as in relation to the November letters.
The Claimant in the second action (“Moil–Coal”), is a Cypriot company. In this second action Moil-Coal claim damages for breach of the oil supply contract. Okta argue that the contract terms are too vague to be enforceable and that, although Okta accepted and paid for about 290,000 metric tons pursuant to the supposed contract, they are not liable for refusing to accept the balance.
The 1993 Contract:
The full force majeure clause is contained in clause 4:
Neither party shall be responsible for damage caused by delay or failure to perform in whole or in part the stipulations of the present Agreement, when such delay or failure is attributable to earthquakes, acts of God, strikes, riots, rebellion, hostilities, fire, flood, acts or compliance with requests of any governmental or EC authority, war conditions or other causes beyond the control of the party affected.
The judgment:
He held, however, that the failure to perform the contract was not attributable to such request because, in relation to the November letters, (1) the requests could not be characterised as governmental and (2) the failure to perform was not attributable to such requests.
Construction of the clause:
The essential issue is whether, if it is the case that Okta instigated or initiated the requests contained in the November and May letters, they can rely on the letters as constituting “requests . . . . beyond their control”. Once the question is posed in that form, it is clear that they cannot.
But if authority is needed, it can be found in Channel Island Ferries Ltd v Sealink UK Ltd [1998]
Sealink had to provide 2 vessels, and they didn’t because of to industrial actions from the crews including sit-ins on the vessels. Sealing relied on Force Majeure clause: “event of … strikes or incident of any nature beyond the control of the relevant party”.
It was held that they had to show that there were no reasonable steps they could have taken to avoid or mitigate the stike and its consequences. Sealink was able to take such steps by increasing the crew’s wages, the court of appeal upheld that decision:
“a party must not only bring himself within the clause but must show that he has taken all reasonable steps to avoid its operation or mitigate its results.”
The Judge’s Findings of Fact:
It was found that the director of Okta told the President of Okta who is also the Secretary general of FYROM (servant of Macedonian government) that the injunction presented Okta with 2 problems:
- Okta had made 2 contracts with Hellenic for supply and handling of crude oil but the injunction required Jetoil to handle the cargoes supplied,
- The injunction required Okta to use Jetoil for the supply and handling of all oil bought by Okta.
As a result of these discussions Okta’s lawyers sent a draft letter to be sent by the government of FYROM to Okta:
“We are a competent Governmental authority of the Republic of Macedonia for matters relating to the supply of energy and a supervisory authority of the refinery operated by your company…
Regardless of the binding nature of the contract to which reference is made, in view of the significance of the supply of crude oil for the Republic of Macedonia and of the extremely serious adverse interference with such supply we hereby instruct you to give no effect, as of today, to any of the provisions of that document. We understand that under the terms of that document you are expected to comply with our instructions which are deemed to be force majeure. The Minister.”
The judge then addressed the interpretation of the letters and concluded, contrary to Jetoil’s submission, that the letters did constitute a “request” by the Minister of Trade to Okta not to continue to perform the 1993 contract. That conclusion is not now challenged.
He then concluded that Okta’s failure to perform was not attributable to the request of a governmental authority because, in the first place, the request was not governmental and because, secondly, Okta’s failure to perform was not attributable to the request even in part.
Mr Karalis convened a meeting to discuss the Court of Appeal decision; that was attended by Mr Kotev, Professor Galev, Mr Potamitis, Mr Asserson and Okta’s in-house counsel Miss Maslarkova.
The meeting agreed that a further “force majeure letter” would be produced and that this letter would be sent to Jetoil with the original (as yet unsent) force majeure letter.
Again, the judge concluded that he was not satisfied that the letter of 30th May was made independently of Okta:- “the letter was instigated by Okta and its lawyers, was drafted by them and was then presented to the government to sign. There was no evidence before me that the government gave any independent consideration to the issue at all.”
Result of the Judge’s Findings
“The ‘request of the governmental authority must be one that is made independently of the party that is requested.” The request must be governmental in nature.
Prompt Notice:
Jetoil argued that even if the November 1999 letter did justify non-performance, in theory, it could not do so in fact, because notice had not been given until June 2001.
As Mr Eder QC said, in seeking to uphold the judge’s decision, there is no obligation to serve a notice, it is just that until such notice is given, force majeure cannot be relied on.
The 1998 contract:
For each type of crude oil will be applied the pricing which will be more or less the common practice at the time of nomination. E.g. the average of the means of 3 or 5 quotations after B/L date. Buyer has the right not to accept the proposed pricing and suggest an alternative.”
Okta’s argument was that this clause was too vague to be enforceable, that there was, therefore, no contractual mechanism for fixing the price and the whole contract was, therefore, unenforceable.
The first time Okta said that there was no contract was a few weeks before trial.
Thanks so much!