Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery AD, Court of Appeal - Civil Division, March 22, 2001, [2001] EWCA Civ 406,[2001] 2 All ER (Comm) 193,[2001] 2 LLR 76,[2001] 2 Lloyds Rep 76,[2001] 2 Lloyd's Rep 76

Issuing Organization:Civil Division
Actores:Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery AD
Resolution Date:March 22, 2001
 
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Case No: A3/2000/3337

Neutral Citation Number: [2001] EWCA Civ 406

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM QUEEN'S BENCH DIVISION

COMMERCIAL COURT

(Mr Justice Thomas)

Royal Courts of Justice

Strand, London, WC2A 2LL

Thursday 22nd March 2001

B e f o r e :

LORD JUSTICE SCHIEMANN

LORD JUSTICE RIX

and

SIR RONALD WATERHOUSE

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(Transcript of the Handed Down Judgment of

Smith Bernal Reporting Limited, 190 Fleet Street

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Michael Howard QC and Luke Parsons (instructed by Messrs Stephenson Harwood for the Appellant)

Michael Briggs QC and Daniel Lightman (instructed by Messrs Bird & Bird for the Respondent/Cross-Appellant)

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Judgment

Lord Justice Rix:

There are before the court an appeal and a cross-appeal from the judgment of Thomas J reported at [2000] 1 Lloyd's Rep 554. Each of these appeals raises respectively a point of construction on the wording of a contract dated 5 March 1993. Under this contract, the claimant (Mamidoil-Jetoil Greek Petroleum SA or ``Jetoil'') contracted with the defendant (Okta Crude Oil Refinery AD or ``the Refinery'') concerning the ``manipulation'' (which I shall call the ``handling'') of crude oil brought in tankers to Jetoil's facilities at Salonica in north eastern Greece and put on rail for carriage to the Refinery at Skopje in Macedonia. The 1993 contract was operated successfully by its parties down to the end of 1999. There was then disagreement, engendered by the fact that in 1999 the Refinery came under the control of a consortium headed by the group, Hellenic Petroleum, which owned Jetoil's commercial rivals at Salonica, George Mamidakis & Co (``GM''). Hellenic Petroleum, and thus the Refinery, wished to switch their custom for crude oil handling at Salonica from Jetoil to GM.

The 1993 contract

The contract, which for reasons which will become apparent I shall call the ``1993 contract'', provided as follows:

``Today 5.03.1993 in Athens between Skopje Refinery...referred to as ``Refinery'' and Mamidoil-Jetoil...referred to as Jetoil, have agreed the following:

1. The Refinery wants and Jetoil accepts to manipulate via its Salonica Installations the quantities of not heated crude oil that the Refinery will buy and process for its own account in Skopje Refinery.

2. Manipulation under this agreement means receiving the Crude Oil from the vessel, storing in tanks and loading on Rail wagons supplied by the Refinery with destination Skopje Refinery.

3. The manipulation fee is fixed to U.S. $4.00 per MT for the period 1.11.1992 until 31.12.1994. If, however, in a particular calendar year i.e. 1993 or 1994 the min quantity of 500,000 MT stipulated in the ``Three Parties'' contract is covered, then for any quantity over the 500,000 MT manipulated through this agreement a discount of USD 0.50 per MT will be granted.

Jetoil will invoice Refinery on the basis of Customs Protocol Quantity...

5. Both parties agree to elaborate all technical and other details and include them in an Annex which will constitute an integral part of this agreement...

6. Jetoil wishes and Refinery agrees to give to Jetoil first refusal for the purchases of the Crude Oil that the Refinery will make for its own account ...

7. This agreement is valid for 10 years starting from the date of the Signature.''

The Annex referred to in clause 5 contained the following material provisions:

``1. The ten years initial contract term can be amended by mutual agreement for another ten years or for an indefinite period...

5. Any dispute arising under or in connection with this agreement and which cannot be amicably solved shall be referred to arbitration in London, English law will apply.''

The two issues

The issue raised by the appeal (Jetoil's appeal) is as to the length of the 1993 contract. Thomas J held that the ten year term referred to in clause 7 was not binding. It was only a maximum period, and continued existence of the contract beyond 31 December 1994 (see clause 3) was dependent upon further agreement as to the handling fee for future years (at 561). Jetoil submits, on the contrary, that the contract has a fixed ten year term and that the handling fee for the period beyond 31 December 1994, in the absence of agreement, would have to be fixed as a reasonable fee by the Court. The Refinery submits that the Judge was right.

The issue raised by the cross-appeal (the Refinery's cross-appeal) is as to the quantities of crude oil which the Refinery was obliged to permit Jetoil to handle. This issue arises under clause 1 of the 1993 contract. The Refinery submits that the effect of clause 1 is that Jetoil agrees to handle as much or as little crude oil as the Refinery is prepared to allow it to handle. In other words the Refinery has an option to put oil into the Jetoil facility at Sarajevo, but not an obligation. Jetoil submits that on the contrary the Refinery is obliged to allow Jetoil to handle all the crude oil that the Refinery buys and processes for its own account, in other words that Jetoil has an exclusive contract for the handling at Sarajevo of the Refinery's entire own account crude oil purchases. On this issue Thomas J held in favour of Jetoil (at 560).

In the light of the new association in 1999 between the Refinery and GM, the importance of these two issues for the parties is obvious. If it legitimately can, the Refinery wishes to put an end to its relationship with Jetoil and to transfer its business at Salonica to its associated company, GM. If the 1993 contract is binding only for any period for which the parties to it have agreed a manipulation fee, then the contract ceased to bind as of end 1999. Moreover, if the contract gives the Refinery an option to place crude oil with Jetoil, but imposes no obligation upon it to do so, then again it ceases to bind the Refinery for the future.

In themselves these two issues are, or appear to be, relatively short points of construction. There is, however, something of a background to the relationships between the parties and it is necessary to say something about that.

The background

The relationship between the Refinery and Jetoil went back to 1979. In that year, at a time when Yugoslavia was still a united country under a Communist regime, the Refinery entered into two parallel contracts with both Jetoil and GM for the handling of crude oil at their respective installations at Salonica. I shall call these the 1979 Jetoil contract and the 1979 GM contract. The Refinery at that time was called OHIS, a state enterprise of the federal republic of Yugoslavia. The importation of the crude oil was done by Jugopetrol, another Yugoslav state enterprise. The 1979 contracts were therefore tripartite agreements between Jetoil (or GM), the Refinery and Jugopetrol. The first stage of the contracts provided for a five year term during which a minimum quantity of 4 million tonnes would be handled, averaging to 0.8 million tonnes per year per contract. The contracts referred to the crude oil as being the Refinery's property (article 1), but Thomas J found on the evidence that that was not so, and that the oil in fact belonged to the state. Jugopetrol was named in the contracts as the importer (article 28). The handling fee was agreed at $1.75 per tonne; but if the 4 million tonnes minimum was not met, a default fee of $1.22 per tonne would be paid for each tonne below the minimum. The 1979 contracts, although initially for five years, also provided (by article 2) that their validity was to be prolonged automatically until a proposed pipeline was constructed and put into operation.

The initial five year terms of these contracts commenced with the first oil shipments handled at Salonica in September 1982. At that time, internal reorganisation within Yugoslavia meant that Jugopetrol was replaced in the contracts by Makpetrol, ie the regional oil company.

The 1979 contracts were subsequently amended. The amendments to the 1979 GM contract are not before the court, but they probably followed a similar pattern to the amendments to the 1979 Jetoil contract. At any rate on 6 June 1984 addendum no1 to the 1979 Jetoil contract stated that Jetoil's invoices would be paid by ``the Refinery Skopje i.e. Makpetrol'', an ambiguous provision, but in practice the invoices were paid by Makpetrol, not the Refinery. Thomas J referred to evidence before him that the fee had always been paid by first Jugopetrol and then by Makpetrol. He said (at 556):

``I accept that evidence as it is consistent with the invoices and also with other evidence to the effect that Jugopetrol and then Makpetrol were the state enterprises who made the importation.''

On 13 July 1984, addendum no 2 to the 1979 Jetoil contract extended the intitial five year term for a further two years down to September 1989. It was this addendum which formally novated the contract so as to replace Jugopetrol with Makpetrol. The handling fee was raised to $1.88 per tonne (as from 1 July 1984); the minimum throughput of oil was altered to an annual quantity of 600,000 tonnes, and the default fee rose to $1.32 per tonne.

On 4 March 1988, addendum no 3 provided that as from 1 January 1988 the handling fee was $2 per tonne; the default fee remained unchanged.

On 5 May 1990, after the after the initial seven year period had expired on 4 September 1989, the handling fee was raised by addendum no 4 as from 1 April 1990 to $2.35 per tonne. The new fee of $2.35 per tonne was said to be valid until 31 October 1992. The annual minimum of 600,000 tonnes per year appears to have been replaced by a new provision which stated that above a quantity of 600,000 tonnes per year a fee of only $1.52 per tonne was to be applied. No mention is made of any default fee, which is consistent with the absence...

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