The Court may not always prevent a party from benefiting from its own breach.

05/06/2009

The Commercial Court has held that where a party has acted in breach of contract, there is not always an implied term that the party in breach may not entitled to benefit from that breach.

The case involved a contract for supply between a supplier, Petroplus Marketing AG (Petro) and a buyer, Shell Trading International Limited (Shell). The supply was for sulphur fuel oil and light cycle oil and the pricing provision in the contract allowed for the price to be calculated by reference to the date of the bill of lading handed over at the time the supplies were loaded on to the designated ship. The contract also stipulated that the invoiced price, calculated as such, would be paid without deduction, offset or counterclaim.

The supplies were loaded on to the designated ship later than agreed and as a result, the price was higher as a result of the later date of the lading bill.

Shell made a reduced payment on the basis of the delay and Petro applied for summary judgment for the full amount of the invoice issued.

The contract terms were agreed by an e-mail following negotiations for a contract. However, the pricing formula did not reflect what had been verbally agreed between the parties and used a different method to calculate the price. Shell, however, accepted the different pricing formula and requested other amendments to the contract. Petro alleged it had made a mistake in confirming the incorrect formula, sending the correct pricing provision to Shell. Shell did not accept the corrected provision and Petro subsequently suspended loading of the supplies. This delay caused the increased invoice price and the reduced payment from Shell.

Shell argued that there was an agreement to vary the pricing provision to the later formula and Petro was estopped from denying this. Shell also argued that Petro could not take advantage of its breach in delaying supply of the goods to claim a higher invoice price.

The Court held that there had been no agreement to vary the pricing provision. The requested changes Shell had sought in addition to accepting the different pricing formula had not been answered and this showed that the terms of the contract had not been properly agreed and finalised. The Court was of the view that the parties would not have intended to conclude the contract without the terms being certain and therefore had not evinced an intention to agree to vary the pricing provision. The pricing provision therefore remained to be calculated by reference to the date of the lading bill.

The Court also held that a term preventing Petro from benefitting from its breach of contract, ie. late shipment, could not be implied. The parties had agreed that payment would be made without deduction and to imply such a term would frustrate the intention of the parties in agreeing that Petro would be paid its invoice amount notwithstanding any set-off or counterclaim.

Accordingly, the Court granted Petro's application.

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