The Commercial Court’s decision in Mercuria Energy Trading Sa v Onex DMCC [2026] EWHC 130 (Comm) offers a particular reminder to crude oil contracting parties of the need to include specific terms to reflect the parties’ requirements in a sale contract, writes Senior Associate Alex Ferrigno.
Background
This claim arises out of the contamination of cargo of Iraqi SOMO (State Oil Marketing Organisation) Basrah Pipeline High Sulphur Straight-Run Fuel Oil ("SRFO"). The Cargo was tainted with a higher-than-normal quantity of Organic Chlorides. The Cargo was sold by Onex DMCC ("Onex") to Mercuria Energy Trading SA ("Mercuria") pursuant to a sale contract.
Two types of chlorides exist in crude oil – inorganic chlorides and organic chlorides. The latter are generally deleterious to refinery processes, depending on their actual level.
The "RELIABLE WARRIOR" ("the Vessel") loaded Cargo in stages between 11 July 2022 and 6 August 2022. Loading was completed on 6 August 2022. It was common ground that the high Organic Chlorides in the Cargo originated from the parcel loaded from an STS vessel, MT "GOOD NEWS", at Kaz.
The load samples showed high levels of Organic Chlorides. On 13 September 2022, the Cargo was rejected by Valero due to high Organic Chloride content. Onex encouraged Mercuria to heat and purge the cargo to reduce the Organic Chloride levels.
Mercuria investigated reselling part of the Cargo but struggled to do so. Eventually, it was decided to move the Cargo to storage at Borco. On 13 November 2022, the Vessel completed discharge of the Cargo into shore tanks at Borco.
By the end of January/early February 2023, however, the decision was made to downgrade the Cargo and sell it "as is" into the cracked/bunker fuel oil market. Mercuria accordingly resold the downgraded cargo to four buyers.
It was common ground in the proceedings that the only suitable method for accurately determining the Organic Chloride content was the EN 14077 test method, which had not been used to test the Cargo at the time. When samples from the Cargo were tested according to the EN 14077 method, they showed the level of Organic Chlorides averaged 16ppm.
The Sale Contract
The sale contract terms in its recap defined the “product” as “SOMO BASRAH PIPELINE HIGH-SULPHUR STRAIGHT-RUN FUEL OIL IN LINE WITH THE FOLLOWING TYPICALS”, followed by a table of test results where Organic Chloride carried a result of 4.10ppm against a “Min-Max” of “5 Max”.
The recap included a further provision stating “AND MEETING THE FOLLOWING GUARANTEES:” followed by a table of guaranteed specifications, which did not make reference to Organic Chlorides.
There were also Additional Terms concerning the quantity and quality of the cargo, where the wording “in line with typicals” had been included, and a cargo description stating “SOMO High-Sulphur Straight-Run Fuel Oil”.
The sale contract also incorporated the BP Oil International Limited General Terms and Conditions for Sale and Purchases of Crude Oil and Petroleum Products 2015, version 1.2 (“the BP GTCs”), which included the following key sections: -
57.1.61 "typical" means a quality or characteristic often attributable to … Product from a particular source, given without guarantee and not amounting to a representation or warranty that such typical quality or attribute will be present in the … Product supplied …
59.1.1 Unless otherwise stated in the Special Provisions, the quality of …[the] Product delivered hereunder shall not be inferior to the specification (if any) set out in the Special Provisions. Whether set out in these General Terms and Conditions or in the Special Provisions neither typicals nor any stipulation as to time of delivery shall form part of the … Product's description, quality or fitness for purpose. This sub-section constitutes the whole of the Seller's obligations with respect to the description, quality and fitness for purpose of the … Product and (save to the extent that exclusion thereof is not permitted or is ineffective by operation of law) all statutory or other conditions or warranties, express or implied, with respect to the description or satisfactory quality of the … Product or its fitness for any particular purpose or otherwise are hereby excluded …
The Commercial Court’s Decision
Mercuria based their claim for damages on two grounds:-
- Onex were in breach of their obligation to deliver cargo "in line with" a typical Organic Chloride content of 4.1ppm.
- Alternatively, Onex were in breach of the contract terms for failing to provide a product that was “100% SOMO IRAQI HSSR” and be not inferior to its specification as “SOMO BASRAH PIPELINE HIGH-SUPHUR STRAIGHT-RUN FUEL OIL”.
Mercuria submitted that the words “in line with” amounted to a warranty. Since the BP GTC’s terms were inconsistent with that wording (as found in the Recap and Additional Terms), it should be ignored when construing the contract.
Onex contended that the definition of “typicals” had to be construed against the BP GTC’s, where “typicals” were product qualities given without guarantee and did not form part of the product description. Onex argued there was no inconsistency between the BP GTC’s and the Recap / Additional Terms, and it was wrong to say that the BP GTC terms should be ignored.
The Court agreed with Onex and held that the sale contract should be construed as a whole. The special conditions in the Recap / Additional Terms and the printed BP GTC terms were part of the same contract. Following the guidance in “The Nounou[1]”, the clauses could be read together fairly and sensibly so as to give effect to both. Therefore, as the contract could be construed in whole, and there was a clear distinction between guaranteed specifications and typicals, the use of the words “in line with” did not upgrade “typicals” to a warranty since “typicals” was defined in the BP GTC terms.
The sale contract was clear on which product characteristics were guaranteed specifications and which were non-binding typicals. In order for Onex to have been in breach, Mercuria should have included a guarantee that the Organic Chloride content of the SRFO would not exceed 5ppm.
As to Mercuria’s alternative head of claim that Onex was in breach of a guarantee that the Cargo was not "100% Somo Iraqi Hssr”, the Court held that the contractual requirement concerned the origin of the cargo, not its quality. There was accordingly no breach by Onex.
As to Mercuria’s further alternative submission that the level of Organic Chlorides was such that the Cargo no longer complied with its specification and/or that it was inferior to that specification in breach of section 59.1.1 of the BP GTCs, the Court considered that the key question was whether the cargo had lost its commercial identity. The Court considered that it had not. It was not sufficient that the Cargo’s value had been impacted by contamination; there needed to be a change of description. The guaranteed specification in the BP GTC was a statement as to the quality of the Cargo, but it was not part of the Cargo’s description. Accordingly, there was no breach of description, since the Cargo has been described as Iraqi SRFO in the on-sales.
Although Mercuria’s claim was unsuccessful, the Court held that it would have awarded Mercuria the amount claimed on the basis that Mercuria’s mitigation attempts had been reasonable. Furthermore, the Court disagreed with Onex’s submission that, under s.53 of the Sale of Goods Act 1979, the difference in value must be assessed by taking both the sound value of the Cargo and its resale value as at the date of the resale. The rule was a prima facie measure of loss only. The Court considered it realistic and fair that, in this case, the measure of Mercuria's loss was the value of the Cargo at the time of breach with its value as at the date it was later sold.
Comment
The Court’s decision is a reminder about the importance of contract drafting and provides a useful overview of authorities on construction and mitigation in English law.
It is clear that contracting parties should ensure to include specific terms to reflect the parties’ requirements in a sale contract. Particularly in the context of crude oil contracts, the parties will need to be mindful that printed terms such as the BP GTC’s will be construed alongside any special clauses agreed by the parties. It should not be assumed that any additional clauses or wording agreed between the parties will automatically override the provisions in the printed terms where there is no obvious inconsistency.