Calum and Luke discuss the recent High Court decision in FinCo International AG v Integra Petrochemicals Europe AG, which considers the impact of a post-contractual agreement to change delivery terms under a contract governed by the BP Oil General Terms and Conditions (“BP GTCs”) from DES Incoterms to CIF.

The Judgment provides an interesting and accessible snapshot of the risks of post-contractual amendments to commodities sale and purchase contracts which, against the current uncertain geopolitical backdrop, should give commercial counterparties pause to consider the unforeseen impacts of “on the fly” adjustments to contractual arrangements.

The dispute concerned a c.US$3 million claim by FinCo for damages and restitution arising out of a contract for the sale of MTBE (a petrochemical) concluded on the BP Oil General Terms and Conditions (the “BP GTCs”) and the Incoterms 2010.

The contract terms as initially agreed included “Delivery dates: 10 – 24 November 2023” and provided for a DES Delivery in the ARA (Amsterdam, Rotterdam, Antwerp) range. On 6 October 2023 the delivery term was amended by agreement so as to provide for CIF ARA delivery terms. However, crucially this subsequent agreement made no amendment to the fixed window of delivery dates agreed under the original contract.

On 5 October 2023, Integra sent notice by email nominating the M/T Aramon as the performing vessel under the contract. FinCo responded to that notice in terms indicating a concern that the vessel would not ‘fit’ at the jetties at the discharge terminal that FinCo (or rather its onward customer) wished to use. Integra responded by agreeing to check whether a smaller vessel was available but on 9 October 2023 confirmed that that was not the case. The dispute between the parties arose as to whether FinCo’s responses to the nomination of the Aramon amounted to a valid rejection of the nomination.

One of the key questions before the Court was, in circumstances where time is usually of the essence under a sale contract, whether the fixed delivery window agreed in the context of the original DES sale was altered from absolute to indicative as a result of the Parties’ subsequent agreement to change the Incoterms from DES to CIF (as it would otherwise have been if the Parties had originally agreed CIF Incoterms).

In a ruling that may be surprising to some, finding for the Seller / Defendant, the Court held that, even though the Parties agreed at the time of Contract formation to a firm and binding delivery window, the subsequent agreement to change the Incoterms to CIF was enough to supervene the original agreement, such that the previously binding DES delivery window was to be interpreted as being indicative “delivery dates” following the amendment to CIF terms as a result of other (newly) applicable terms in the BP GTCs, regardless of what the intentions of the Parties might have been in actuality.

The Judgment exposes the risks of tension arising between what Parties realistically are likely to have intended to agreed and the logical reading of the actual agreement that has been reached, especially in circumstances where the basis of the underlying agreement incorporates standard terms and conditions that incorporate competing regimes which are identified by reference to relevant terms (in these case, the election of specific INCOTERMS).

The Judgment also considers the proper construction of vessel nomination obligations in the BP GTCs, in particular under section 14 (within the CIF terms section). The judgment provides that under the section 14 regime, a buyer is obliged to give notice accepting or rejecting the nomination of a vessel within 1 business day of receipt. If it does not, the buyer is assumed to have accepted the vessel.

The case raises interesting commentary as to the respective weights given by the Court to likely contractual intention versus the objective reading and effect of clearly agreed amendments to contracts, especially in circumstances where standard form terms and conditions and conditions form part of such contract.