[2004] EWHC 66 (Comm) Case No: 1998 Folio 1588

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 23rd January 2004

Before:

THE HONOURABLE MR JUSTICE MOORE-BICK

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GLENCORE INTERNATIONAL A.G. Claimant

- and -
ALPINA INSURANCE COMPANY LIMITED Defendants
and others

AND in the following actions: 1998 Folio No.219, 1998 Folio No.248, 1998 Folio 273, 1998 Folio No.513,
1998 Folio No.1091, 1998 Folio No.1598;
AND in the interpleader actions set out in the Schedule to the Order of Rix J. dated 16th November 1999;
AND also in action 1998 Folio No. 654.

THE METRO LITIGATION PHASE 5

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Mr. Jonathan Sumption Q.C., Mr. Alistair Schaff Q.C., Mr. Richard Southern and Miss
Caroline Laband (instructed by Clyde & Co) for the claimant.

Mr. Dominic Kendrick Q.C., Mr. Simon Rainey Q.C., Miss Siobn Healy and Mr. John
Bignall (instructed by DLA) for the defendants
JUDGMENT Mr Justice Moore-Bick:
1.Following the delivery of my judgment in this phase of the litigation on
th
20 November 2003 it became apparent that it would be useful to determine two further
issues in order to assist those who are currently preparing for the trial on quantum. One
concerns the insurance of the three Cheleken crude cargoes referred to in paragraphs
236-258 of my first judgment; the other concerns diverted cargoes which are discussed
in paragraphs 193-203.
1. Cover on the Cheleken crude cargoes
2.The Cheleken crude cargoes had been shipped into Fujairah between September and
November 1997 and had been declared to the cover in accordance with the practice
established between the parties. In each case a declaration had been made for both
transit cover and storage cover by means of the designation FOB-STORE in the
declaration bordereaux but without specifying the period for which storage cover was
required. No further declaration was made at any time.
3.By 7th February 1998 it was apparent to Glencore that the three cargoes were missing,
but it was not, and is still not, known exactly when they were misappropriated. Insofar
as that occurred within 30 days of discharge at Fujairah it is common ground that
Glencore was insured in respect of the loss, but Mr. Rainey Q.C. submitted that none of
the cargoes was insured in storage for more than 30 days and that insofar as any of
them was misappropriated after that time Glencore was not covered.
4.The way in which these cargoes were declared to the cover did not differ in any way
from that in which the majority of cargoes shipped into Fujairah under the
arrangements between Glencore and MTI were declared. In each case the bordereaux
simply identified them as cargoes in transit to Fujairah for storage. It is accepted that
that was sufficient to amount to a request for cover while in store; the question is
whether it should be construed as a request for 30 days cover only and whether a
further request, whether by way of declaration or otherwise, was needed in order to
extend the period. It is common ground that there was no further declaration or request
of any kind.
5.Condition 1.18 does not expressly deal with this question. It simply makes storage
cover available to Glencore, both on goods that have previously been insured in transit
and those that have not. The premium payable for such cover is expressed to be
0.01125% each 30 days or pro rata in excess of first 30 days if
transit covered hereunder, otherwise, 0.01125% each 15 days or
part thereof.
6.Mr.Schaff Q.C. submitted that the periods in respect of which premium are calculated
have nothing to do with the attachment of cover or the period for which it continues. In
my view that is correct. It leaves open, however, how one is to construe a request for
cover contained in declarations bordereaux of the kind that one sees in this case. Is it, as
Mr. Rainey submitted, to be understood as a request for 30 days cover, or, as Mr.
Schaff submitted, a request for cover for an indefinite period?
7.Mr. Raineys submission was based primarily on the fact that under condition 1.18
Glencore was entitled to 30 days cover at no additional premium if the goods had been
insured in transit and on the fact that when Glencore declared goods in store that had
not been declared as transit risks it did so a month at a time. Declarations of goods in
storage as well as goods in transit were routinely made some months in arrears and one
therefore finds in the section of the bordereaux covering storage risks references to
parcels of oil that were in store during the calendar month ending three months or more
earlier. One cannot tell from the bordereaux how long the goods have since remained in
store or for how much longer they are likely to do so.
8.I agree with Mr. Schaff that condition 1.18 does not limit the period for which cover is
initially available to 30 or 15 days, as the case may be, and does not require successive
declarations to be made in order to maintain continuous cover beyond those periods. I
see no reason, therefore, why Glencore should not have requested cover for any period
it chose, whether more or less than 30 days or indefinitely. In any of these cases cover
would attach and run continuously until the period expired, the goods ceased to be on
risk or Glencore notified Alpina that cover was no longer required. One comes back,
therefore, to the construction to be placed on the declarations by which cover was
requested for these cargoes.
9.Inmy view an important factor to be taken into account when answering this question
is the fact that condition 1.18 forms part of an open cover and is of a
facultative/obligatory nature. The essential purpose of a contract of this kind is to
ensure that cover is continuously available in respect of goods bought and sold in the
course of trading and is available when, and for as long as, it may be required. The
nature of commodity trading is such that it will often be difficult to tell how long goods
placed in store are likely to remain there, so it is likely to be of advantage to the insured
to be able to obtain cover for an indefinite rather than a fixed period and no doubt
insurers are aware of that.
10. Against that background I can see no reason to construe the declarations in
this case as requests for 30 days cover only, nor can I see any reason why Alpina
should have understood them in that way. The fact that cover was free for the first 30
days is relevant only to the calculation of premium; I do not think that it provides any
basis for inferring that Glencore was seeking cover for a limited period. The fact that
goods in store appeared in declarations bordereaux month by month does not in my
view provide any assistance. The primary purpose of the bordereaux was to notify
Alpina of the risks that had attached and the premiums that had become due in respect
of them. In the case of transit risks premium was payable as a percentage of the value
of the cargo; in the case of storage risks premium was payable by reference to the
duration of cover. In those circumstances it is not surprising that successive bordereaux
contained details of goods in store month by month since that was sufficient in the light
of the way in which the parties administered the contract to enable a calculation of
premium to be made. The fact that the bordereaux were drawn in that way does not
justify the conclusion that Glencore was making separate requests for cover from
month to month.
11. Mr. Rainey submitted that to construe the declarations of the Cheleken crude
cargoes as involving a request for indefinite cover would be uncommercial because the
insurers would never know the extent to which they were on risk at any time. I do not
find that a very persuasive argument. In the first place, both parties were content to
work on the basis that declarations would be made three months in arrears, so the
information available to Alpina about its current exposure was always out of date and
both parties accepted that. Apart from that, the nature of the contract was such that
Alpina had no control over the number and volume of storage risks declared to the
cover. It can have made little difference to Alpina whether any particular parcel of oil at
a particular location was insured for successive periods of 30 days or for an indefinite
period, any more than it mattered whether one parcel came off risk and another became
attached to the cover. In these circumstances I am satisfied that a request for cover in
the form of a declaration to which no specific time limit was attached is to be construed
as a request for continuous cover until the goods ceased to be on risk or Alpina was
notified that cover was no longer required.
12. Mr. Rainey submitted that if Glencore intended that the Cheleken crude
cargoes were to be insured beyond the first 30 days after discharge they ought to have
been declared as cargoes in storage in subsequent bordereaux. Strictly speaking, I think
that is right, but the question is not whether they ought to have been declared and
premium paid, but whether the failure to declare them is to be treated as notification
that cover was no longer required in respect of them. A failure to include those cargoes
in subsequent bordereaux could be explained in a variety of ways and in my view is not
consistent only with an intention to terminate cover. In my view clear and unambiguous
notification would be required to achieve that while the goods remained at risk.
Accordingly, I do not think that the failure to make such declarations can be taken as
notification that cover was no longer required.
13. It follows that in my view the Cheleken crude cargoes were insured at the
time of loss, whenever that occurred. One result of this conclusion may be that
Glencore has not paid the whole of the premium due in respect of these cargoes, but
that is a matter than can only be determined once the dates of loss are known.
2. Diverted cargoes
14. One question that arose for consideration in connection with diverted cargoes
was whether a loss had occurred in cases where MTI, having used part of an incoming
cargo to meet its own commitments, credited Glencore with receipt of the full amount
of the cargo at a time when it held enough oil of the relevant grade in store for its own
account to cover the quantity diverted. I concluded that in those circumstances it might
be possible to infer that MTI had intended to transfer to Glencore an amount of oil from
its own stock equivalent to that which had been diverted and that by giving MTI full
operational control over the facility and the handling of incoming cargoes Glencore had
impliedly assented to any transfers of title necessary to reflect operational movements
of that kind. If so, there would be no loss. However, I thought it likely that the answer
would depend on the particular circumstances of the case and I therefore left the matter
open for decision at a later date.
15. Although I doubted whether it would be possible to determine this issue in
advance of the hearing on quantum, the parties invited me to deal with it at this stage
because they were both satisfied that no specific arrangements were made between
Glencore and MTI in relation to the handling of any of the diverted cargoes. It was
common ground, therefore, that in none of these cases had Glencore been asked by
MTI to agree that a quantity of oil coming into Fujairah should not be discharged into
the facility but should be immediately shipped out for the account of MTI on the basis
that MTI would transfer an equivalent quantity of the same grade from its own stock to
Glencore. It was also common ground that it is impossible to say at this stage whether
MTI was holding an equivalent quantity of the same grade in stock for its own account
at the time when it diverted part of an incoming cargo for its own purposes. If it did not,
the diversion of oil necessarily involved a misappropriation by MTI and gave rise to a
loss under the policy. Only in those cases in which MTI did have sufficient stock to
substitute for the diverted parcel might it be said that no loss had occurred.
16. Mr. Rainey submitted that if at the time of a diversion MTI had sufficient
stock to enable it to transfer a substitute parcel to Glencore and effectively did so, any
loss was made good, whether Glencore had agreed to it or not. Thus, although attention
had previously been directed primarily to whether there was agreement between the
parties to handle matters in that way, that was not an essential element in his argument.
If one accepts the premises on which this argument is based, I think Mr. Raineys
submission is correct. Even if the diversion was unauthorised and resulted in a loss of
its property, Glencore would not be entitled to recover under the policy if the loss had
already been made good. The most obvious example is where goods are stolen from the
insured and subsequently returned in undamaged condition before any claim is made. In
the present case there could be no return of the specific goods, but where one is dealing
with a fungible commodity the return of the same amount of goods of the same quality
ought to lead to the same result.
17. However, the position in the present case is not quite as straightforward as
that. In the first place, it is necessary to establish that MTI did in fact intend to transfer
property in an equivalent quantity of oil to Glencore. Mr. Schaff submitted that there is
no evidence of MTIs intentions in this respect other than that which is to be found in
the records relating to the operation of the facility. I think that is right, but most of those
records reflect the position as it should have been rather than as it actually was. For
example, the spreadsheet kept by Miss Gene showed large quantities of oil held in stock
for Glencore that by February 1998 were not physically present within the facility. The
documents that come closest to providing reliable records of MTIs view of interests in
physical stocks are the manuscript ledgers mentioned in paragraph 137 of the Phase 2
judgment and the daily reports described in paragraph 138. The ledgers record oil
entering MTIs inventory on the ITT date and leaving it as and when parcels were
drawn for MTIs account, but I am not aware of any case in which they record an in-
tank transfer from MTI to Glencore to balance the shipment out of a diverted cargo.
Similarly, I do not think that any of the daily reports reflect a transfer of stock between
MTI and Glencore of that kind.
18. It is important to bear in mind in this context that an intention to make a
transfer by way of substitution cannot safely be inferred simply from the existence of
sufficient stock with which to make it. In my judgment in Phase 1 I considered the case
of James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch. 62 which is authority for the
proposition that an intention to transfer title cannot be inferred simply from the fact that
a wrongdoer has added to a commingled bulk a quantity of his own goods (or in that
case money) sufficient to reverse the effect of previous wrongful withdrawals. In my
view the same applies in the case of the wrongful diversion of cargoes in this case. The
mere fact that MTI may have had enough oil in stock to make good losses caused by
diverting oil belonging to Glencore does not by itself justify the conclusion that it
intended to make the necessary transfer to Glencore in order to do so. It is just as likely
(if not more so) that Mr. Kilakos intended to use the oil and pay for it at a later date
when an ITT contract was issued in respect of it. The fact that this is not by any means
a far-fetched possibility is demonstrated by the fact that one issue between the parties
was whether an insured loss has occurred in those cases where MTI withdrew parcels
of oil from stock before later buying them from Glencore under ITT contracts: see
paragraphs 204-224 of my first judgment. It is for this same reason that one gets no
help from the fact that Glencore was credited in MTIs records with the diverted parcels
which were subsequently sold to MTI under ITT contracts: it is simply not reliable
evidence that MTI intended to transfer title to Glencore in a corresponding quantity of
oil at the time of the diversion. If it were possible to identify in MTIs records a transfer
from MTI to Glencore that matched a diverted cargo, that would be evidence of the
necessary intention, but the fact is that there are no such entries.
19. I adhere to the view I expressed in paragraph 202 of my first judgment,
namely, that by giving MTI full operational control over the facility and the handling of
incoming cargoes Glencore consented to any transfers of title necessary to reflect
operational movements, but it does not follow that all diversions of cargo can be
regarded as purely operational matters. In order for them to be treated in that way it
would be necessary to show (at least) that MTI did have stock that was available to
cover its export and that it intended to replace the diverted cargo with oil from its own
stock as from the moment of the diversion. This means that the substance of the enquiry
is the same.
20. The parties invited me to decide the issue in relation to diverted cargoes on the
basis of the evidence before me which they both accepted was representative of the
evidence available in all cases in which cargo had been diverted. For the reasons given
above I am not satisfied that MTI did intend to transfer a corresponding parcel of oil to
Glencore in any of those cases, even when it had sufficient stock available to do so. It
follows that in my view a loss occurred under the policy each time a parcel of oil was
diverted. This makes it unnecessary to consider Mr. Schaffs further submission that
even if MTI had intended to transfer title in a corresponding part of the bulk to
Glencore, it failed to do so effectively under the law of Fujairah.