Okta Refinery v. Mamidoil-Jetoil

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Okta Crude Oil Refinery AD v Mamidoil-Jetoil; Greek Petroleum Co. SA v. Moil-Coal Trading Co. Ltd.
English Court of Appeal: Vice-Chancellor, Lady Justice Arden, Lord Justice Longmore: [2003] EWCA Civ 1031: 17 July 2003
Sir Sydney Kentridge QC and Daniel Lightman, instructed by Morgan Lewis & Bockius, for the appellant/defendant (Okta).
Bernard Eder QC and Luke Parsons QC, instructed by Stephenson Harwood, for the respondents/claimants (Mamidoil-Jetoil; Moil-Coal)
breach of oil handling contract: defence of force majeure: whether ministerial letters were "requests of any governmental authority": whether "beyond the control" of the defendant

The court upheld a ruling by Aikens J that Okta’s breach of a ten-year agreement for the handling and supply of crude oil at Okta’s Skopje refinery was not due to force majeure in the form of written requests by government ministers that Okta should disregard the Jetoil contract and deal with a different company. The Court of Appeal unanimously held that while the timing of the breach was not significant, the fact that Okta and its controlling company, Hellenic Petroleum, had initiated the letters meant the requests were not "beyond Okta’s control". Even if they were arguably "requests of any governmental authority", they did not justify a breach of the agreement under the terms of its force majeure clause.

Category - Confirmed

Case note contributed by Ann Moore, Law Correspondent for Fairplay International Shipping Weekly and contributor to this website

These two actions were heard together. In the first Mamidoil-Jetoil (Jetoil) sued Okta, a refinery in Macedonia, for breach of a ten year contract, the details of which are set out below. In the second, a Cyprus firm, Moil-Coal claimed damages for Okta’s breach of a one-year contract under which Moil-Coil was to supply Okta with crude oil.

In 1993 Jetoil, a Greek oil trading company with a refinery and facilities at Thessaloniki, contracted with Okta to handle Okta’s crude oil imports brought in tanker vessels to the Jetoil facilities in the port of Salonika in north eastern Greece and to put the cargo into rail wagons for onward carriage to Okta’s refinery in Skopje. Jetoil had also a right of first refusal to supply Okta with crude oil. The agreement was to end in March 2003, and was subject to English law.

Jetoil claimed £9.4m damages plus interest for the breach of this contract in 1999. Okta admitted the breach, but claimed it was due to forces beyond its control, namely compliance with written requests by the new government of the Former Yugoslav Republic of Macedonia (FYROM), made to Okta in November 1999 and May 2001. A force majeure clause (4) in the 1993 Agreement provided that "Neither party shall be responsible for ...failure to perform [the Agreement] in whole or in part ... when such ... failure is attributable to ... compliance with requests of any governmental authority."

In 1999 Okta was privatised. In July the state-owned Greek oil company, Hellenic Petroleum SA, acquired control of Okta through a joint venture company, Elpet. Fearing competition from its rival, Hellenic, Jetoil had issued an injunction to prevent Okta from parting with any assets, unless the transferee would honour the1993 contract. By July 1999, Okta had decided to abandon the Jetoil agreement and contract with Hellenic to supply and handle the crude oil. In November, Jetoil obtained a further injunction, ordering Okta to comply with the 1993 agreement. According to the trial judge this created "severe short and long term financial difficulties" for Okta. His findings of fact were that Okta, Elpet and their legal advisers had agreed that unless FYROM produced "force majeure letters", Okta would be "unable to resist a claim for substantial damages by Jetoil," and that they had drafted the letters to that effect for the relevant ministers to sign.

In the Commercial Court, Aikens J held the breach occurred before any government request was received, and Okta had subsequently encouraged the Macedonian government to write urging the refinery to ignore the Jetoil agreement and deal with a different company. Okta’s breach was not attributable to the request of a ‘governmental authority’ under cl.4 of the contract because (i) the request was not governmental, as it was not made "independently" of Okta, and (ii) the failure to perform was not "even in part" due to the request.

In the Moil-Coal action, the judge ordered Okta to pay US$1m (damages and interest). He rejected Okta’s argument that the contract terms as to pricing were "too vague to be enforceable". He said the parties had agreed a mechanism for determining the price, and the contract was valid.

Lord Justice Longmore gave a judgment with which his colleagues concurred.

Adopting the judge’s account of events, he said it was only after the November injunction that FYROM’s Minister of Trade wrote that it was contrary to the Republic’s economic interests for Okta to pay Jetoil’s price for handling oil at a "substantially higher" price than that offered by "another company" (presumably Hellenic) - a statement later shown to be erroneous. Okta was instructed "to accept supplies of crude oil for your company, manipulated through an instruction of a partner which you will evaluate that it is most suitable for you and your company". The Minister for Economic Affairs later wrote in similar terms.

Longmore LJ decided the critical question was not so much the timing of the breach, but rather whether Okta had instigated the requests, as Jetoil alleged. He accepted the judge’s finding that in November 1999 Okta, Elpet and their advisers agreed that FYROM should supply "force majeure letters" to protect Okta’s commercial position. They had then drafted letters for government approval, which though slightly modified in tone, were signed and dispatched in substantially the form proposed by the Okta interests.

He cited Aikens J’s conclusion in relation to the May 2001 letter, that "it was Okta and Elpet, as advised by their lawyers" who decided the Macedonian government should provide "a new force majeure letter". "All the early drafts were produced by Okta’s lawyers", because Jetoil would otherwise have a "cast iron case" against the refinery. It was instigated by Okta and its lawyers, and "there was no evidence that the government gave any independent consideration to it at all."

Longmore LJ approved the judge’s construction of cl.4 that "the request of ‘governmental authority’ must be one that is made independently of the party that is requested". The clause contemplated that "each of the potential force majeure events will be something which is beyond the control of the party affected." He said that, in relation to both the May 2001 and the November 1999 letters, he came to the same conclusion as the judge, that the request was not beyond Okta’s control, and for that reason the appeal should be dismissed.

Among other matters, Longmore LJ acknowledged there was some force in the appellant’s submission that the judge was wrong to say the request was not "governmental" because it was made for commercial reasons rather than the public interest, but this did not help Okta’s case as "the force majeure event, if it is to be effective, still has to be beyond the control of the party affected."

The court also unanimously upheld Aikens J’s judgment on the Moil-Coal action. Both appeals were dismissed with costs, and permission to appeal to the House of Lords was refused.

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