B e f o r e :
THE HONOURABLE MR JUSTICE FLAUX
|| OMV Petrom SA
||- and -
||Glencore International AG
Mr Duncan Matthews QC, Mr Andrew Fulton & Mr Luke Pearce (instructed by Withers LLP) for the Claimant
Mr Richard Southern QC & Mr Fionn Pilbrow (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 20-22, 26-29 January, 2-4 and 10-12 February 2015
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Honourable Mr Justice Flaux:
Introduction and background
- This case concerns a fraud committed many years ago by the defendant, formerly known as Marc Rich & Co AG (which became Glencore International AG in 1994 and to which I will refer as "Glencore" save where the context requires otherwise) upon the claimant (to which I will refer as "Petrom"). Petrom is a Romanian oil company which, following corporate reorganisations, is the successor in title of two other Romanian oil companies SC Rafirom SA ("Rafirom") and SC Compania Romana de Petrol SA ("CRP"). Rafirom and then CRP after merger in about 1996, was the state owned company with overall responsibility for the import and refining of crude oil and export of petrochemical products in Romania. In 2004, the merged company was privatised and became Petrom.
- Prior to 1999, the actual importation of crude oil was organised by another state owned company Petrolexportimport SA ("Petex"). Petex entered all contracts with third parties for the supply of crude oil as principal, but at all material times it was acting as a commission agent for Rafirom/CRP pursuant to a series of Foreign Trade Agreements. Payment for crude oil under contracts with third parties was made by Rafirom/CRP pursuant to letters of credit opened with Banco Romana de Comert Exterior SA ("Bancorex") or another Romanian bank. Although it was sometimes Petex (as opposed to Rafirom/CRP) which instructed the bank to open the letter of credit, Petex did so as agent for Rafirom/CRP and Petex was not entitled to open a letter of credit in respect of any contract without the permission of Rafirom/CRP. Contracts with third parties for the supply of crude oil were usually made on CIF Constantza terms and when, under the terms of those contracts, title and risk passed to Petex, pursuant to the Foreign Trade Agreements (for example Article V(2) of the 1992 Agreement), title and risk passed simultaneously to Rafirom/CRP. Also pursuant to the Foreign Trade Agreements, Petex's remuneration for acting as commission agent was 0.2% of the CIF value of the relevant cargo.
- In the period with which this case is concerned, 1993 to 1996, crude oil was being imported in accordance with the requirements of the refineries in Romania pursuant to programmes laid down by the Government, although it is fair to say that difficulties experienced by Romania in obtaining foreign currency from time to time in that period meant that the actual importation of crude oil was more haphazard than the programme might suggest. Again, on occasion, the needs of the refineries were such that Petex had to obtain cargoes of crude oil at short notice. Cargoes of crude oil were discharged at Constantza into the storage facilities of Oil Terminal Constantza, which had eight storage tanks of 50,000 cubic metres each. Imported crude oil was used by four of the ten Romanian refineries, Petromidia, Petrotel, Arpechim and Rafo. The Petrobrazi refinery also seems to have used some imported crude oil, but not any with which this case is concerned. It also had a processing plant for processing domestic crude oil. The other refineries were smaller and processed only domestic crude oil. The imported crude oil was sent to the four refineries through pipelines running from the oil terminal at Constantza to the refineries inland.
- During the relevant period, 1993 to 1996, the crude oil imported by Petex for use in the four refineries was principally (but not exclusively) of three grades or types, Iranian (mainly Iranian Heavy although sometimes Iranian Light), Gulf of Suez Mix ("GOSM") a recognised blend of various Egyptian crudes and Urals (Russian crude oil from the Urals also known as Soviet Export Blend) because these were medium heavy/medium sweet crudes which suited the technological profile of the refineries. During this period, Petex entered into supply contracts with a number of oil trading companies (and occasionally direct with the Iranian and Egyptian state oil companies, NIOC and EGPC respectively). About 25% of the crude oil it contracted for was supplied by Glencore. Petex had a long standing trading relationship with Glencore dating back to the foundation of the company by Marc Rich himself in the 1970s.
- In the years 1993 to 1996, Glencore made about 80 shipments to Petex of crude oil principally pursuant to contracts calling for the supply of Iranian Heavy, GOSM or Urals (sometimes the relevant contract was for supply of a specific grade, sometimes it gave Glencore the option as to which grade to supply). In addition, in 1995 and 1996, Glencore made over 60 shipments of some 3,500 tons each of Keimir crude oil from the Caspian Sea region which was brought in barges downriver to the Black Sea and then along the coast to Constantza. The court is not concerned with those cargoes, save to the extent that Petrom relies upon the price paid as demonstrating a discount payable for new grades of crude oil, a matter to which I return in more detail later. It will also be necessary to examine in more detail below, a contract for the supply of a cargo described as "Egyptian Blend" ex SEAWIND II, supplied to Petex in February 1993.
- Of the 80 or so other shipments made by Glencore to Petex, there were 32 where, although the supply contracts provided for the supply of Iranian Heavy (in the case of cargoes 1 to 14) or GOSM (in the case of cargoes 15 to 31), the crude oil supplied by Glencore was not in fact Iranian Heavy in the case of the first fourteen such cargoes (delivered at Constantza between August 1993 and September 1994) or GOSM in the case of cargoes 15 to 31 (delivered at Constantza between November 1994 and November 1996). Instead the crude oil supplied was in each case a blend of various crude oils blended on behalf of Glencore by the Eilat Ashkelon Pipeline Company ("EAPC") at its storage facility in Ashkelon, Israel. The crudes used in the blends were predominantly Egyptian but not always so and, in the case of the purported GOSM cargoes, contained substantial quantities of Marib, a Yemeni crude oil or Oso, a Nigerian crude oil. The blends were all bespoke and were never identical in terms of the constituent crude oils in the recipe or their quantities or proportions, but the object of the exercise was evidently to create crude oil which resembled Iranian Heavy or GOSM respectively. Although Glencore has not vouchsafed any evidence as to the actual costs of either the purchase of the various crude oil constituents or of the blending exercise, it is a fair inference that the cost overall was less in each case than the CIF Constantza price for Iranian Heavy and GOSM which Glencore charged Petex, so enabling Glencore to make a greater profit than it would otherwise have done.
- It is common ground in these proceedings that the actual composition of each of the cargoes was as set out in so-called Table B, at Annex 1 to the Amended Particulars of Claim, reproduced as an Appendix to this judgment. Presumably the information in the Table, which I was told was available in the arbitration between Petex and Glencore ten years ago (to which I refer in more detail below) came at some stage from EAPC, but there is no evidence about how readily available the information about what the recipe had been for any particular cargo would have been at the time the cargo was loaded or delivered at Constantza save in relation to some of the later cargoes (for example cargo 29) where EAPC wrote to Glencore providing the composition of the blends. That information was never passed to Petex at the time.
- All the cargoes were loaded at Ashkelon on board vessels chartered or operated by Glencore. In each case Glencore created or caused to be created a suite of false documents which were designed to give the impression (and did give the impression) to those in Romania who received and acted upon them that the cargo in question was in each case Iranian Heavy or GOSM. In particular, in the case of claim cargoes 1 to 14, bills of lading were issued at the behest of Glencore which falsely described the cargo as Iranian Heavy save in one case (claim cargo 4) where the bill of lading described the cargo as Iranian Heavy Blend. On some occasions the bill of lading originally issued described the cargo as "Iranian Heavy Blend", but Glencore stopped the vessel in the Bosphorus to substitute replacement bills which described the cargo falsely as Iranian Heavy and it was these replacement bills which arrived in copy with the vessel in Romania and the originals of which were in due course presented to the bank which had provided the letter of credit.
- In the case of the purported GOSM cargoes, the shipping documents (including the bills of lading) described the cargo as "Gulf of Suez Crude Oils Blend" but in the certificates of conformity and commercial invoices Glencore issued, it described the cargo as GOSM, as it did in the letters of indemnity provided to banks which had issued letters of credit where original shipping documents were not yet available. Accordingly, Glencore clearly intended that Petex, Rafirom and the banks should regard the descriptions "Gulf of Suez Crude Oils Blend" and "Gulf of Suez Mix" as interchangeable.
- However, as between Glencore and EAPC, "Gulf of Suez Crude Oils Blend" was clearly a term of art to distinguish GOSM from the blend created at Ashkelon. This can be seen from a fax from EAPC to Glencore of 22 December 1996 in relation to claim cargo 31, the very last of these claim cargoes: "The grade of cargo presently being loaded at Ashkelon on MT Santa Maria is GULF OF SUEZ CRUDE OILS BLEND and not as indicated in your above fax (you have no GOSM in our system)". There is no evidence that this distinction was ever explained to Petex. In any event, the use of the word "Blend" was not sufficient to alert Petex or Rafirom to the fact that what was being delivered was not Iranian Heavy or GOSM at all, not least because Iranian Heavy is often a blend of various Iranian crude oils and GOSM as its name suggests is a blend of various Egyptian crude oils. Also, the word for "Blend" in Romanian is the same word as for "Mix".
- In addition to the bills of lading, the following documents were typically produced in which Glencore or others acting on its instructions falsely described the cargo in question as Iranian Heavy or Gulf of Suez Crude Oils Blend /GOSM: (i) a certificate of insurance issued by Glencore pursuant to the Open Cover or continuous contract which Glencore or its English subsidiary had with Lloyd's underwriters; (ii) certificates of quality and of quantity issued by Mercur Superintending Company Ltd in Haifa; (iii) a commercial invoice issued by Glencore and (iv) a certificate of conformity issued by Glencore. Other documents which the bank might require such as the vessel's ullage reports or time sheets or the master's receipt for samples would describe the cargo in each case as either Iranian Heavy or GOSM.
- Copies of some of the documents, specifically the bill of lading, the certificate of quality and the certificate of quantity, accompanied the vessel and would be received by Petex within days of discharge. It was one of the duties of Petex as agent for Rafirom under the Foreign Trade Agreements to check the documentation which it received against the contract to ensure all was in order. It is clear that, if the documents in question had disclosed that the cargo in question was not Iranian Heavy or GOSM, but a bespoke blend created on behalf of Glencore to resemble Iranian Heavy or GOSM as the case may be, as they should have done if Glencore had been acting honestly, the employees of Petex whose job it was to check that the documents were in conformity with the contract would have appreciated that the cargo was not in conformity with the contract. In those circumstances, they would have reported the discrepancy to Rafirom.
- Although Glencore maintained throughout the trial, as it had done in an arbitration between Petex and Glencore heard ten years ago, that Petex was aware from the outset of the fraud that the crude oil being supplied was a blend rather than Iranian Heavy or GOSM and effectively connived at the deception of its own principals, I am quite satisfied, as were the arbitrators before me, for reasons I elaborate later in the judgment, that Petex was unaware of the fraud that was being perpetrated on it and its principals Rafirom, until it was informed of the fraud by a former trader from Glencore in about May 2002. In any event, whatever the state of knowledge of Petex, it has never been alleged by Glencore that Rafirom was aware at the time of the fraud that had been perpetrated or that it became aware of the fraud at any time before April 2006 when Petex informed it of the fraud.
- If, in relation to any given cargo, Glencore had disclosed the true position, Petex and/or Rafirom would have been able to reject the cargo and purchase the recognised grade elsewhere or, if inclined to accept a blend, to renegotiate the price downwards to reflect the lower value of the bespoke blend, a matter to which I return below in more detail in relation to the quantum of the claim. Obviously, if the truth had been disclosed or discovered early in the overall fraud, Glencore would not have managed to deceive Petex and Rafirom into paying the contract price for the claim cargoes on the basis that the cargoes in question were Iranian Heavy or GOSM when they were not. If Petex or Rafirom had been prepared to deal with Glencore at all in relation to any of the 32 cargoes, it would only have been on the basis that there should be a reduction in the price to reflect the lower value of the bespoke blend in each case.
- To the extent that Glencore sought to argue that the urgent necessity for crude oil in Romania was such that Rafirom and therefore Petex as its agent would still have entered the contracts on the same or similar terms even if they had known the true position, that argument was not only wrong on the facts, because, where Glencore was only supplying 25% of Rafirom's requirements, there is no evidence (and on this point the burden of proof must be on Glencore) that other traders could not have fulfilled Rafirom's requirements for Iranian Heavy or GOSM, but also misconceived as a matter of law, because it contravenes the principle that the fraudster cannot be heard to say that, notwithstanding the fraud, the victim would still have conducted itself in the same way: see my judgment in Parabola Investments v Browallia  EWHC 901 (Comm) at - , summarising Downs v Chappell  1 WLR 426: "Hobhouse LJ was in effect saying the fraudster cannot be heard to say, even if I had told you the truth, you would still have acted as you did".
- At the time of discharge, samples were taken from the vessel's tanks by Tomis Oil Maritime S.R.L. ("Tomis"), which was instructed jointly by Petex and Glencore, and tested in its laboratory to ensure that the results complied with the information on the bill of lading, a copy of which Tomis was also given upon discharge, particularly as regards API and sulphur content. In the spring of 1994, Tomis acquired new apparatus in its laboratory which enabled it to carry out distillation analyses on cargoes of oil arriving at Constantza using the standard ASTM D2892 test used in the industry to show the yields produced at varying distillation temperatures. Tomis carried out such distillation analyses at the request of Petex in order to assist Rafirom when dealing with issues of refinery productivity. This had nothing to do with specific Glencore cargoes, but seems to have come about because of concerns about the variable quality and yields of some of the Urals crude oil that was being purchased. All imported crude oil underwent this distillation analysis, which meant that from cargo 7 onwards, the cargoes supplied as Iranian Heavy and GOSM, but in fact consisting of the blends prepared by EAPC on behalf of Glencore, were subject to the distillation analysis. However, it was common ground between the petrochemical and refining experts in the case that from the testing and analysis which Tomis undertook, it could not have discovered that the 32 cargoes were bespoke blends.
- Under the contracts for all 32 cargoes, Glencore granted 90 days credit from the bill of lading date, but in the case of nearly all the claim cargoes, at the time when notification was being given to the bank issuing the relevant letter of credit of an intention to draw down on the letter of credit in due course, the original bills of lading and other shipping documents had not yet arrived at the bank. In such cases Glencore would provide to the bank in telex form its commercial invoice which represented in each case that the cargo was Iranian Heavy or GOSM and a letter of indemnity providing that in consideration of the bank and Petex releasing payment, Glencore warranted that it had title in the cargo which again it represented to be Iranian Heavy or GOSM and that it would use its utmost to produce the original documents as soon as possible. The letter of indemnity provided that it would become null and void upon presentation of the original documents to the bank. On the basis of those representations, in each case the bank paid under the letter of credit.
- In some cases, because of the difficulties of obtaining foreign currency, the letter of credit had not been opened at the time that the cargo was discharged in Constantza. This problem became particularly acute in late 1995 and in 1996. In such cases, the cargo would be discharged into the storage tanks at Constantza to be held by Oil Terminal Constantza to the order of Glencore until the letter of credit was opened, and not released to Petex. It appears that, particularly in the period from late 1995, this system of holding certificates was abused and, on the instructions of Petex and ultimately Rafirom, cargo was released to the refineries and processed before the letter of credit was issued or payment made. Such conduct was undoubtedly improper, but although Mr Richard Southern QC on behalf of Glencore sought to make something of this, it was of no relevance to the issues I had to decide.
- Whenever the original shipping documents were presented to the bank, in the normal course of banking practice, they would have been checked by the bank against the letter of credit to ensure that they were compliant, before any letter of indemnity was released. Equally, the unchallenged evidence of Lucia Olaru who was an economist in the finance/accounting department of Rafirom at the material time was that the shipping documents were checked by that department. It is quite clear that if the shipping documents then presented to the bank or to Rafirom had disclosed, as they should have done if Glencore had been acting honestly, the true position, the bank would not have released the letter of indemnity provided by Glencore and would have alerted Rafirom (on whose behalf all the letters of credit were issued) to the true position. If Rafirom had become aware of the true position, whether from the bank or from its own checking of the shipping documents, it would not have repaid the bank pursuant to whatever cross-indemnities there were or, even if it was obliged to repay the bank, would have pursued Glencore for an indemnity at that stage. It would not have entered into any other contracts with Glencore which were in respect of these bespoke blends or at least would only have done so on terms that the price was negotiated downwards to reflect the lower value of the blend. Any suggestion that Petex and, thus, Rafirom, was "locked in" to dealing with Glencore on the same or similar terms to the contracts infected by fraud is wrong both as a matter of fact and as a matter of law for the reasons summarised at - above.
- As already set out above, neither Petex nor, in any event, its principal Rafirom, was aware of the fraud being being perpetrated by Glencore during the period of more than three years between August 1993 and November 1996. Petex did not become aware of the fraud until about May 2002 when it was approached out of the blue by a whistleblower, apparently a former Glencore trader who revealed that the 32 cargoes were not what they purported to be. An arrangement was subsequently made with the whistleblower for him and Petex to share any damages Petex recovered in arbitration against Glencore under the supply contracts (each of which contained a London arbitration clause) on a 50/50 basis and to share the costs of such arbitration proceedings on a 50/50 basis. Petex commenced arbitration in 2003 against Glencore under the 32 contracts, claiming damages for breach of contract and/or in deceit. It did not disclose the fraud or the existence of the arbitration to Petrom, which by that stage was the successor in title to Rafirom/CRP.
- Although Glencore sought to make much of the 50/50 arrangement with the whistleblower and the fact that Petex did not inform Rafirom about the arbitration, to suggest that Petex was aware all along that the claim cargoes were blends, that seems to me to be a complete non sequitur. I agree with Mr Matthews QC that it is inherently improbable that after more than ten years one fraudster would have sued another and that improbability is not diminished by the agreement to share proceeds and costs on a 50/50 basis with the whistleblower.
- By its Award issued on 16 January 2006, the tribunal (Mr Andrew Berkeley, Mr Michael Collins QC and Mr Mark Hamsher) decided that the delivery of the bespoke blends was in breach of the supply contracts between Petex and Glencore and that Petex had not been aware of or complicit in the fraud at the time, so that Glencore had deliberately concealed the true position from Petex with the consequence that, pursuant to section 32 of the Limitation Act 1980, the claims in contract were not time barred. The tribunal did not consider it necessary to consider the alternative claim in deceit, although it is implicit in the finding of deliberate concealment that, if the tribunal had found that Petex had suffered any loss and damage, it would have also concluded that there had been deceit. However, in the event, the tribunal found that Petex's claim for damages failed because it had not suffered a loss, since it had recovered its 0.2% commission under all the contracts and it was not bringing a claim on behalf of Petrom as its principal, (Petrom being unaware of the arbitration), although it was legally obligated to pass on any recovery to Petrom.
- Petex first informed Petrom of the fraud committed by Glencore in April 2006, shortly after the Award of the tribunal was published. Thereafter, pursuant to an assignment of Petex's rights under the supply contracts with Glencore, Petrom commenced its own arbitration proceedings against Glencore. At around the same time on 30 April 2008, Petrom commenced the present proceedings, not only against the current defendant but against Glencore UK Limited and the two individual employees said to have been particularly implicated in the fraud, Mr Henry Kraft and Mr Arie Silverberg. The proceedings were stayed pending the outcome of the second arbitration, pursuant to standstill agreements. However, the claim in the second arbitration failed, since, as assignee of Petex, Petrom's claim could not be pursued since it was res judicata by virtue of the first arbitration.
- The standstill came to an end in October 2011 and Particulars of Claim were served. Thereafter there were negotiations about letting out the two individual defendants and Glencore UK Limited on the basis that the current defendant would accept vicarious liability and this was agreed. Amended Particulars on Claim were served against Glencore alone in October 2012. In that pleading Petrom's claim is framed both in deceit and in conspiracy. The basis for the claim in deceit is that, by issuing or procuring the issue of false bills of lading, false certificates of conformity and false invoices, Mr Silverberg, Mr Kraft, Glencore and Glencore UK falsely represented that the cargoes were Iranian Heavy or GOSM when in fact they were not. Petrom contends that in reliance on and induced by those representations, which were repeated in telexes from Glencore and Glencore UK, Rafirom/CRP accepted and paid for each cargo in the belief that it comprised Iranian Heavy or GOSM.
- At trial, Mr Duncan Matthews QC, who represented Petrom, put his case on reliance and inducement in three ways:
(1) That there is a presumption of reliance and inducement and that it was for Glencore to prove otherwise, which it could not do: see Dadourian Group International Inc v Simms  EWCA Civ 169;  1 Lloyd's Rep 601 at - per Arden LJ.
(2) That after the discharge of the cargo in each case, Petex checked that the documents conformed with the contract and in doing so was acting as agent for Rafirom. Accordingly, Petex and through it Rafirom as its principal, were deceived into believing that the cargo conformed with the contract when in truth it did not. If the true position had emerged in relation to any given cargo, Petex would have informed Rafirom, which would have rejected the cargo or, if it was too late to do so, refused to pay the contract price for it.
(3) That the bank acting on behalf of Rafirom in each case paid under the letters of credit, on the basis that the shipping documents were genuine and, although in most cases the documents were not available when the letter of credit was called upon, commercial invoices and letters of indemnity were provided by Glencore which represented in each case that the cargo was Iranian Heavy or GOSM, in reliance on which the bank paid. If, when the original documents were subsequently presented, the true position had emerged, the letters of indemnity would not have been cancelled and would have been called on to procure the return of the funds. Further, if the true position had emerged from the original shipping documents, those in the financial/accounting department of Petrom responsible for checking those documents would have picked up the fact that the cargo was not what it purported to be and Petrom would not have paid the bank under whatever cross-indemnity arrangements they had in place.
- I was not impressed with the submission made by Mr Southern QC in closing that these ways of putting the case went beyond the pleading. The Re-Amended Reply in particular makes it clear that Rafirom both accepted and paid for the cargoes in reliance on the representations. It does not need to go further, since it is perfectly obvious that whenever the original documents were presented to Rafirom, if the true position had emerged, everything would have unravelled and Rafirom would either have not paid at all or insisted upon reimbursement. The Re-Amended Reply also makes it clear that it is Petrom's case that reliance by Petex as agent for Rafirom/CRP suffices to make Glencore liable in deceit.
- As part of its defence, Glencore contended that Romanian law was applicable to the claim and that, since the first 29 cargoes were delivered prior to the coming into force of the Private International Law (Miscellaneous Provisions) Act 1995, the common law principle of double actionability applies. In relation to the last three cargoes to which that Act applies, Glencore contends that the most significant elements of the events constituting the tort occurred in Romania, so that under section 11 of the Act, the applicable law is Romanian law. By the end of the trial Petrom accepted that, so far as the claim in deceit is concerned, Romanian law applies, so that in relation to the first 29 cargoes the double actionability rule applies and in relation to the last three cargoes, the applicable law was Romanian law.
- The difference between the parties is thus the narrow one as to whether the acts of Glencore were actionable in delict or as a civil wrong as a matter of Romanian law. It was to this issue that the expert evidence of Romanian law was directed. I consider that evidence in more detail below, but in summary the position is as follows. Glencore's expert Professor Sitaru contends that the deceit in the present case is a dol committed in connection with the contract not outside the contract, that as the principal of the commission agent Rafirom would have no claim under the contract by virtue of Article 406(2) of the Romanian Commercial Code and, accordingly has no claim in tort because the tort is in connection with and not outside the contract. On that basis, Glencore contends that Petrom cannot satisfy the double actionability rule and that under the 1995, there is no claim in tort under the applicable law.
- Petrom's expert Professor David considers that, on the basis that Glencore deceived Rafirom, Petrom as its successor in title has a perfectly good claim in tort against Glencore under the general law in Articles 998 and 999 of the Romanian Civil Code. Because Rafirom was not a party to any of the contracts between Petex and Glencore, Article 406 of the Commercial Code is irrelevant to the viability of that claim in tort which, as against Rafirom, was outside the contract, so there was no contractual derogation from the general law. Accordingly, Petrom contends that, whether the double actionability rule or the 1995 Act applies, it has a valid claim in tort as a matter of Romanian law.
- In so far as necessary, Petrom does maintain that in relation to the alternative claim in conspiracy, the decisive aspects of the conspiracy took place in England so that whether as a matter of common law or the application of sections 11 and 12 of the 1995 Act, the applicable law is English law.
- Apart from its Romanian law defence, the defences raised by Glencore as they stood at the end of the trial can be summarised as follows:
(1) That Petex was aware that the cargoes were not Iranian Heavy or GOSM but were bespoke blends, so that there was no deceit of Petex;
(2) That any representations made in the shipping documents or elsewhere were only made to Petex, which was not deceived, and not to Rafirom. Glencore relies upon the decision of the Court of Appeal in Gross v Lewis Hillman  Ch 445 to submit that objectively the representations made to the contracting party Petex, were not intended to be relied upon by Rafirom/CRP. Once the representation in question was made to Petex and Petex relied upon it, it was spent.
(3) Rafirom did not in fact rely upon representations in the bills of lading, certificates of conformity or commercial invoices. In so far as it relied on anything it acted in reliance on the recommendation of Petex and in any event, the actions of Rafirom took place long before it actually obtained those shipping documents.
(4) The claim in conspiracy adds nothing to the claim in deceit. The alleged conspiracy was a conspiracy to commit the deceit so that if the claim in deceit fails, so does the claim in conspiracy.
- So far as the quantum of Petrom's claim is concerned, Petrom relies on the principles laid down by Lord Browne-Wilkinson in Smith New Court Securities Limited v Citibank NA  AC 254 at 266-7 to submit that it is entitled to recover by way of damages for deceit the full price paid by Rafirom under the 32 contracts, whilst giving credit for the market or actual value of the crude oil blend delivered by Glencore as at the date of acquisition, which has been taken as the bill of lading date in each case. At the Case Management Conference on 21 February 2013, Popplewell J gave the parties permission to adduce expert evidence from petrochemical and oil trading experts on the difference (if any) between the price paid by Rafirom/CRP for the cargoes and the actual value, and, if different, market value of the blends CIF Constantza, having regard to any appropriate discount for delivery of a blend. The experts called by Petrom, Mr Peter Jones and Miss Catherine Jago, gave expert evidence on this issue. Miss Jago calculated the CIF Constantza value of the blends by taking the FOB price as at the bill of lading date of each of the constituents in the blend as per Table B and adding the freight cost for shipping to Constantza on board a vessel of the same size as carried the actual cargo of blend. She then applied a discount of U.S. $1.25 per barrel to take account of the fact that what was being supplied was a blend, with a view to arriving as best she could at the actual value of the particular cargo of crude oil as at the bill of lading date. On this basis, the damages claimed as adjusted at the end of the trial were U.S. $46,623,706, consisting of the total price paid of U.S. $434,433,302, less the actual value of the blends supplied after applying the discount of U.S. $387,809,566.
- Glencore's experts, Mr John Minton and Dr Ian Holdaway of Minton, Treharne & Davies ("MTD"), the petrochemical/refinery experts and Mr Michael Roffey, the oil trading expert, adopted a radically different approach to assessing the value of the blends and hence the loss suffered by Petrom if there was any actionable claim in deceit. Glencore's case is that in the event that it is liable in deceit, the loss actually suffered by Rafirom (for which Petrom as its successor in title can claim) was the less valuable yield derived from refining the blends when compared with the yield which it would have derived from refining the contractual grades. This is measured by comparing the Gross Product Worth ("GPW") of each blend supplied with the GPW of the respective contractual grades.
- MTD calculated the GPW of each of the cargoes supplied on the basis of Table B using a particular computer model. Mr Jones calculated GPW by using a different methodology. Although each was originally highly critical of the approach of the other, at a second experts meeting during the course of the trial on 26 January 2015, as recorded in a memorandum signed by all three of them, they agreed that their respective GPW related calculations were reasonably calculated estimates of the loss suffered by Petrom when that loss is calculated on a GPW basis. They also agreed that the tolerances associated with each of their methodologies were such that the results obtained (U.S. $5,119,000 in the case of MTD and U.S. $6 million in the case of Mr Jones) are so similar as to be virtually identical. They discussed the comments in their respective reports on the other's reports and agreed that these issues were no longer substantive as regards the GPW calculations.
- Given that agreement, it was no longer necessary for the court to hear evidence about the GPW methodologies or decide which was more appropriate. The court is only concerned with the issue of principle as to whether the damages should be assessed as the price paid less the CIF Constantza less discount value of what was delivered or by reference to the difference in GPW between the named grades and the blends. In the event that I was to decide that the latter approach is the appropriate one, then I would assess the damages by taking the mid point between the experts' GPW results. I discuss this issue of principle in greater detail below.
The witness evidence
- Before setting out my findings of fact in detail, I should just deal with my assessment of the witnesses who gave evidence. As a general observation, it must be said that in this case, more than any other, the passage of time since the events in question (between 19 and 22 years) is such that, even where a particular witness was endeavouring to tell the truth, the evidence given was inevitably reconstruction and only recollection in a very generalised sense. Normally, in cases where some years have passed since the events in question, the court forms the view that the contemporaneous documents are a better guide to the true position than the supposed recollection of witnesses, however sincerely they believe their recollection to be correct. This was the point I made in my recent judgment in Atlasnavios Navegacao Lda v Navigators Insurance Company Ltd  EWHC 4133 (Comm) at  and it holds true in the present case, with the caveat that, because of the passage of years since the events in question, there are inevitably gaps in the documentation which is still available. In those circumstances, the court has to be cautious not to assume too readily that the absence of documentary evidence about something necessarily means that there never was any such documentation. An example is the point put by Mr Southern QC to Mr Iancu that because there was no document passing between Petex and Rafirom in relation to the "Egyptian Blend" ex SEAWIND II, which I deal with in more detail later, other than the import report, that meant that Petex had never informed Rafirom that the crude oil in question was an unrecognised blend. It seems to me quite likely that there was some memorandum or other communication, which has simply got lost over time.
- On the other hand, there are instances where, even making every allowance for the fact that with the passage of so many years, documents may have been lost or destroyed which once existed, the absence of documentation is very telling. The most obvious example in the present case is the complete absence of any documentation within the Glencore files evidencing a conversation with the management of Petex in which Petex was told that what was being delivered was not Iranian Heavy or GOSM as per the contract but an unrecognised blend, or any document otherwise supporting in any way Glencore's case that Petex knew that what was being supplied was blends but connived in (or indeed required) the presentation of false documentation. If there had ever been such a conversation or if Petex otherwise knew about and connived in what was on any view a fraud on its principal, the absence of any documentary evidence of such knowledge on Glencore's files is quite remarkable. This is not the sort of documentary evidence which would get lost, but is exactly the sort of documentary evidence which Mr Silverberg and Mr Kraft (and anyone else at Glencore involved in the fraud) would be at pains to preserve, if only as some sort of insurance policy in the event that Rafirom ever found out the truth.
- The principal witness for Petrom was Mr Valeriu Iancu who from 1992 to 1997 was the first deputy general director of Petex with responsibility for the import of crude oil and other petrochemical products into Romania. He reported directly to the general director at the time, Mr Aurel Bacila. In late 1997, Mr Iancu became general director himself. Given his position at the time of the delivery of the 32 claim cargoes, he was well placed to describe Petex's relationship with Rafirom and its dealings with Glencore. He gave his evidence in fluent English and was an impressive and straightforward witness. He was cross-examined in detail on the contents of contemporaneous documents, but freely accepted when he had no recollection and refused to speculate.
- On the critical issues, such as whether Petex knew that what was being supplied was not crude oil of recognised grades but unknown blends, his evidence was clear and unshakeable: he had not known and Petex had not known. Likewise he was insistent, despite pressing from Mr Southern QC, that he had not known that Glencore was supplying blends to the Petromidia refinery pursuant to the processing agreement it had with that refinery. I found that evidence entirely credible and plausible. The risk to employees of Petex, a state owned company, of participating in or colluding in a fraud on Rafirom, its principal, another state owned company, was such that they would have had no motive to do so. The suggestion by Glencore that Petex wanted false documentation because of the bureaucracy in Romania or because Petex would get into trouble with the authorities if it could not deliver some crude oil to the refineries was refuted by Mr Iancu and was, frankly, risible.
- I agree with Mr Matthews QC that Mr Iancu clearly had strong feelings about the way in which Petex had been cheated by Glencore and the betrayal of the trust it had reposed in Glencore in a long-standing relationship. One particular example of this aspect of his evidence which stands out is that, when Mr Southern QC asked him whether it had never occurred to him that crude oil being loaded in Israel might not be Iranian Heavy, he said it never crossed his mind that a company like Marc Rich could cheat them. The sense of indignation that came through when it was repeatedly put to him that Petex had known and had connived in the fraud was entirely understandable, but in my judgment it did not colour his evidence or diminish its veracity.
- There were two matters about which he was cross-examined which did not show Petex in a particularly good light. The first was the misappropriation of oil in storage at Constantza. As I have already said, this was quite improper but it is irrelevant to the issues I have to decide and there is no evidence that this was being done on Mr Iancu's instructions. The second did involve him, which was the pursuit of the arbitration by Petex without the knowledge or authority of Rafirom with a view to splitting the proceeds of any recovery with the whistleblower. He accepted that he had been involved in the decision to take this course, although it seems to have been driven by Mr Popescu who had taken over Petex after its privatisation. I detected that Mr Iancu was plainly embarrassed about this and his involvement in it when he gave evidence. Obviously, this too was improper conduct but, as Mr Matthews QC submitted, it was an extraneous issue not capable of full exploration at this trial. I agree with him that it does not undermine Mr Iancu's credibility on the central issues.
- Mr Iancu gave evidence before the arbitrators, as did Mr Bacila. They were both cross-examined on behalf of Glencore (by counsel other than Mr Southern QC) and it was put to them that Petex had known that the cargoes being supplied were blends. They both denied this emphatically. The arbitrators accepted their evidence on this point. Unfortunately, since the arbitration, Mr Bacila has died. In the circumstances, Petrom served a Civil Evidence Act notice in respect of his two witness statements in the arbitration and the transcript of his oral evidence on 6 May 2005. Although I have not been able to assess his veracity for myself, I consider that the fact that the arbitrators accepted his evidence (together with the fact that I found Mr Iancu, whom I was able to assess, a truthful witness) means that I too should accept Mr Bacila's evidence that Petex did not know that the cargoes being supplied were blends.
- Petrom also called Mr Petre Bojan, who was director of production at Rafirom and oversaw matters relating to the processing of crude oil. He explained in his witness statement that, before the purchase of a blend rather than a familiar grade of crude, he would have been contacted and there would have been a quality analysis and a negotiation on price, which is what happened in relation to Keimir crude in 1997. He gave evidence through an interpreter. In cross-examination he said that the approval of the Ministry would not necessarily be required to import a blend and the Ministry was only involved in the SEAWIND II transaction because of its unusual features as a barter deal. I agree with Mr Matthews QC that Mr Bojan gave clear and credible evidence, which I accept.
- Mr Dumitru Marinescu was the economic director of Rafirom and then CRP from 1993 onwards until his retirement. He is now 82 and clearly spent much of his working life in the Romanian oil industry under the previous communist regime. Mr Southern QC submitted, in the context of Mr Marinescu's apparent inability to contemplate the suggestion that the Annual Energy Plan had not been adhered to, that this was evidence of what Mr Ciocanelea (a witness from whom Glencore served a witness statement) described as two layers of everything in Romania, that Mr Marinescu was still hidebound by an inflexible bureaucracy more than twenty years later. However, Mr Ciocanelea declined to come to be cross-examined and therefore little if any reliance can be placed upon his evidence, save where it accords with that of Petrom's witnesses who did attend for cross-examination or who were not required for cross-examination. Furthermore, it seems to me that a more charitable and realistic view of Mr Marinescu's evidence in cross-examination was that he is indeed a very old man and had become confused. In any event, the cross-examination did not seem to me to go to the critical issues in the case.
- Mr Marinescu gave evidence in his witness statement, which he repeated in cross-examination, that Petex required the approval of Rafirom to open a letter of credit and that the applications for letters of credit were made jointly. He also said in his witness statement that the applications for letters of credit to pay for the crude oil were made by Rafirom on the basis that the documents received from the suppliers were genuine and corresponded to the cargo which was delivered and that the banks opening the letters of credit would also have worked on the basis that the documents required to be presented were genuine and corresponded with the cargo delivered. That evidence was unchallenged in cross-examination. He also gave clear evidence both in his witness statement and in cross-examination that Petex never paid for the cargoes received, but it was Rafirom/CRP which was the paying party. This evidence is strongly supportive of Petrom's case on reliance and inducement.
- Mr Viorel Dragomir was the first deputy head of the crude oil department of Petex at the relevant time. His operations team were responsible for checking the documents including the Tomis inspection report and the shipping documents (the bill of lading, certificates of origin and quality and the invoice) and would report back to him. His team never identified any problems in relation to the Glencore cargoes. In cross-examination, he confirmed that the documents reviewed were the ones which had come with the vessel and that they were reviewed about 7 to 10 days after discharge. That evidence is also supportive of Petrom's case on reliance and inducement. He was not challenged in cross-examination on his evidence that it had never occurred to him that Glencore might seek to supply a substitute oil, without the prior agreement of Petex and that, if his attention had been drawn to references in the documents to "Iranian Heavy Blend" or "Gulf of Suez Crude Oils Blend", he would have attached no importance to that, thinking that, in each case, they were the same as Iranian Heavy and GOSM. That unchallenged evidence is flatly contrary to Glencore's case that Petex was aware that the cargoes were blends and that false documents were being presented. It is also confirmation that "Gulf of Suez Crude Oils Blend" and GOSM were and were regarded as the same so far as Petex was concerned.
- Mr Eracle Dumitrescu was the general manager of Tomis. He gave evidence about the testing of cargoes, including similar evidence to that of Mr Dragomir (also unchallenged in cross-examination) that he would have attached no importance to the word "blend" in "Iranian Heavy Blend" or "Gulf of Suez Crude Oils Blend". Most of the cross-examination of Mr Dumitrescu focused on the commingling of oils in the shore tanks at Constantza and the pipelines to the refinery. As Mr Matthews QC pointed out, Glencore has no pleaded case about this. It cannot be relevant to the issues of liability and, once Glencore had to accept, as it now does on the basis of the agreement of the experts, that there was a loss by reference to GPW, so that if it was liable in deceit, Petrom was entitled to damages on that basis, it is difficult to see its relevance to the issues of quantum.
- In any event, as Mr Matthews QC also pointed out, Petrom's petrochemical expert Mr Jones gave clear evidence about this, which I accept:
"I don't think the mixing in pipelines and storage tanks is relevant at all, because as long as you know the compositions along the pipeline then you plan for that accordingly. It's when you do not know the composition, that's when it's a problem."
- The final live witness called by Petrom was Mrs Tatiana Solomon. She worked at the Arpechim refinery (which was managed in turn by Rafirom then CRP) from 1988 to 2005, in charge of matters relating to crude oil processing and dealing with Rafirom/CRP in relation to the import of crude oil and the export of refined products. The main purpose of her witness statement served in January 2014, was to challenge the statement from Mr Ciocanelea served by Glencore. In the event he did not attend court to be cross-examined. In her own cross-examination, Mrs Solomon readily accepted that she was not directly involved in setting budgets, the unloading of cargoes or the allocation of imported crude to the refineries, but as she said (and I accept) she had a clear understanding of how the system worked.
- She explained that the system of budgeting and scheduling was not as rigid as Mr Ciocanelea sought to suggest, nor the threat of refinery shutdown as great. To that extent I agree with Mr Matthews QC that her evidence goes to undermine the case which Glencore sought to develop that the need for crude oil to run the refineries was so acute that Petex was driven to accept the cargoes of blends and false documents. In any event, the short answer to that case is that, even if the need for crude oil was as acute as Glencore suggests, there was no reason why Petex could not have gone to Rafirom and explained (if it really was the case, which I rather doubt) that the only crude oil available at short notice and on the credit terms which the financial constraints in Romania required was the "Ashkelon blend" provided by Glencore. There is no reason why Rafirom would not have agreed to this, as it did with the SEAWIND II cargo, provided a discount was agreed to reflect the fact that it was a blend. It seems to me that there is every reason why the relevant Petex employees would have taken that course if they had known the true position, and no reason whatsoever, given the personal risk to the individuals involved, why they would have gone along with the continuing deceit of Rafirom.
- In addition to the witnesses they called, Petrom served witness statements from five witnesses whom Glencore did not require to attend to be cross-examined and whose evidence therefore stands unchallenged. I have already referred above to the statement of Lucia Olaru, an economist in the finance/accounting department of Rafirom. Although her witness statement in translation reads somewhat obliquely, the thrust of what she is saying is clear, that the shipping documents were checked by her department and, if they were in order, payment, including through the banks, would be finalised. It is no answer for Glencore to say that the documents were not checked by Rafirom until after the banks had paid out under the letters of credit, since the clear inference to be drawn from her evidence is that, whenever they were checked, if they had not been in order (for example if the true position had emerged) Rafirom would have unravelled the payments and insisted on reimbursement. In any event, if Glencore wanted to make this point, it could and should have required her to attend to be cross-examined, so that the issue of payments and checking of documents could be clarified.
- Niculae Sprintaru worked at the relevant time as an economist in the payments department of Rafirom. His job was to check Petex's invoices for commission against the contract and against external documents such as the invoices for the crude oil imported. The checks had to be done before the paperwork was sent to the finance/accounting department. All the import documents were checked in terms of quality and quantity by the import/export department of Rafirom and any discrepancies would be notified to Petex. Again the clear implication is that, if the true position had emerged, the balloon would have gone up.
- Vergil Ardeleanu was director of imports at Petex prior to Mr Iancu, who took over in early 1993. His evidence confirmed, from Petex's side, the evidence of Mr Marinescu that letters of credit opened by Petex were opened on behalf of Rafirom/CRP and had to be approved and signed for by the management of Rafirom/CRP. He also confirmed that the approval and signature was granted on the basis that the crude oil being imported by Petex, but paid for by Rafirom/CRP, was what it purported to be and that this would be supported by the contract documentation. This is further evidence of reliance and inducement on the part of Rafirom/CRP. He also confirmed Mr Dragomir's evidence that Petex would check all the documents received from the discharge port, including the documents sent with the vessel by Glencore.
- Corina Avramescu was another Petex employee, working in the imports department dealing with imports of crude oil. Part of her role was to check the telex confirmations of the contract and prepare a purchase report for approval of the transaction by the Petex board. Subsequently she would review the Tomis inspection report to verify the crude oil quality as regards parameters such as API and sulphur content and review the shipping documents. This again supports Petex's case on reliance and inducement.
- Glencore called only two witnesses. Mr Henry Kraft was one of the traders who had joined Marc Rich in 1989, having previously worked for Transasiatic Oil, a joint venture between the Israeli and Iranian governments before the deposition of the Shah, responsible for building the Eilat Ashkelon Pipeline. Transasiatic was thus the parent company of EAPC. He had been dealing with Petex since the 1970s. I did not regard Mr Kraft as a satisfactory or credible witness. In his witness statement and oral evidence before the court, he claimed not to have been involved in any conversations with Petex in relation to the first claim cargo, which was flatly contrary to the evidence he had given at the arbitration, in which he asserted that he had had conversations with Mr Victor Duman (who was the Petex man in London who had authority to negotiate but not to conclude contracts), which he had then relayed to the head of oil trading at Glencore, Mr Urs Rieder. Before me he sought to deny, in a most unconvincing manner, that his evidence in the arbitration was more likely to be right.
- His evidence was generally evasive. When Mr Matthews QC put to him, by reference to his witness statement in the arbitration, his evidence that Petex knew it was getting blends and that he knew Petex was not telling Rafirom the truth and that he had confirmed in cross-examination in the arbitration that he was not resiling from that evidence, he purported not to understand what "resiling" meant. He then engaged in a fair amount of fencing as to whether he had understood that the false suite of documents was being created to deceive Rafirom amongst others, before eventually giving a straight answer to a question from me. Citation of that answer and his evasion immediately before it will give a flavour of his evidence:
"Q. In the arbitration your evidence was that Rafirom was amongst the people intended to be deceived by these documents?
A. Maybe. I never said Rafirom. It is either this or this, you can say also the Minister of Energy was deceived by them.
Q. Indeed, but amongst the people intended to be deceived, as you anticipated –
A. But I didn't deceive them. I didn't deceive them.
Q. Amongst the people that you anticipated would be deceived by these documents was Rafirom, wasn't it?
A. This is internal between Petex and Rafirom or the Ministry or whatever.
Q. I will give you one last chance.
MR JUSTICE FLAUX: Whoever it goes to, whether it is Rafirom, CRP, the ministry or somebody else in Romania, they are going to be deceived by the false documents, aren't they?
- Mr Arie Silverberg had worked for the Israeli refining company ORL, both on the operations and the trading side. He joined Marc Rich in December 1992 and became head of oil products, then in 1994, head of oil (both crude and products). He was also an unsatisfactory witness. I agree with Mr Matthews that he was more cunning than Mr Kraft and, when faced with awkward questions, sought to retreat to his comfort zone of the technicalities of blending and refining. However, his attempt to suggest that he had little knowledge of Glencore's dealings with Petex in relation to the claim cargoes was incredible. On his own admission, using Ashkelon as a blending facility was his idea and he was something of a specialist on blending, so any suggestion that he did not know how the blends were being described and sold is totally unconvincing. Furthermore, the circumstances of the first claim cargo on the KHAN ASPARUKH (which I describe in more detail below) suggest that whilst this may have been the first time Glencore had passed off a blend as Iranian Heavy so far as Romania is concerned, they had previously been supplying crude oil on this basis to Bulgaria.
- Furthermore, the documents from the first claim cargo onwards show Mr Silverberg as having been at the centre of dealings with Petex. Mr Southern QC sought to address this issue by suggesting that Mr Silverberg only became involved when Petex wished to escalate a complaint for example about the quality of a shipment of Urals at about the same time as the first claim cargo. I was unconvinced by any such attempt to distance Mr Silverberg from the decision to ship blends to Romania. The contract was undoubtedly for Iranian Heavy and Glencore's internal deal ticket filled in by Mr Rieder also refers to the grade as "Iran Heavy", so someone within Glencore must have decided at short notice to ship an "Ashkelon blend" instead. In the absence of any evidence from Glencore as to who else was involved, in my judgment that is more likely to have been Mr Silverberg than anyone else.
- Like Mr Kraft, the credibility of Mr Silverberg as a witness in the case was undermined by his attempt to depart from his evidence in the arbitration in a key respect. In the arbitration, he had been careful to distinguish between the separate knowledge and legal identity of Petex and Rafirom, whereas in his evidence at the trial he sought to suggest that he had thought they were one and the same: "I did not really give Rafirom/CRP much thought – they were just an extension of Petex and part of the state apparatus of Romania." Of course in the arbitration, where the claimant was Petex, it had not mattered whether Rafirom was deceived, whereas in this litigation, an admission that Rafirom was being deceived would undermine Glencore's defence. I regarded this change of evidence as a cynical attempt to avoid any such admission. However, in my judgment (as Mr Kraft had effectively admitted after a great deal of fencing), Glencore (through both Mr Kraft and Mr Silverberg) was well aware that Rafirom would be relying upon the representations made in the shipping documents and would be deceived by them.
- Neither Mr Kraft nor Mr Silverberg could point to any specific conversation or documentary exchange either of them had had with Petex, from which it was clear that Petex was aware that what was being supplied was blends and that the shipping documents were false, let alone that Petex wanted Glencore to go on producing false documents so that Petex did not have to disclose to Rafirom that it could only procure blends not the recognised grades they purported to be. This inability to identify a conversation or a document is scarcely surprising: it reflects the true position, that there never was any such conversation or documentary exchange because, as Mr Bacila and Mr Iancu consistently maintained, Petex did not know it was being deceived.
- Both Mr Kraft and Mr Silverberg sought at various points in their evidence to suggest there had been discussions about this with Mr Duman, who had therefore known that the cargoes being supplied were blends. I reject those suggestions. If Glencore wanted to suggest that Mr Duman was implicated in the fraud, it was incumbent on it to take steps to call Mr Duman to give evidence. He is apparently alive and well. The suggestion in Glencore's written opening submissions that Petrom should have called Mr Duman is misconceived. There was no pleaded case by Glencore of any specific discussion or agreement with Mr Duman and it was not for Petrom to put him up as an Aunt Sally to be challenged on the basis of vague, generalised insinuations by Mr Kraft and Mr Silverberg.
- In any event, any suggestion that there had been a conversation with anyone at Petex about the claim cargoes being blends was contrary to the case Glencore ran ten years ago in the arbitration which was that it did not contend there was an express agreement to accept blends, but a tacit understanding. If there ever had been a conversation, evidence about it would surely have emerged from the internal documentation at Glencore at the very latest at the arbitration, which, although it was a long time from the relevant events, was a good deal closer to them than we are now.
- Likewise, I reject the various attempts by Mr Kraft and Mr Silverberg to suggest, from matters which fell short of a specific discussion or agreement, that Petex knew that the claim cargoes were blends not recognised grades. The suggestion that Mr Bacila, Mr Iancu and Mr Duman used to refer to "special crude" or "special crude from Ashkelon" is an invention of Glencore. Mr Silverberg also asserted that Glencore had supplied blends to the Petromidia refinery pursuant to their processing agreements and that there had been a meeting at the refinery attended by Petex representatives and, specifically, Mr Iancu, at which the use of blends had been discussed. This was vehemently denied by Mr Iancu, whose evidence I accept. In fact, apart from the SEAWIND II cargo of "Egyptian blend", which was apparently originally destined for Petromidia but, for whatever reason, did not go there but remained in the storage tanks at Constantza, Glencore has not produced a single piece of documentary evidence that Glencore was supplying blends to Petromidia, let alone that Petex was aware contemporaneously that this was the case.
- Overall, I regarded both Mr Kraft and Mr Silverberg as duplicitous witnesses, anxious to downplay their own involvement in the fraud, whereas the truth is that they were both knowing participants in a fraud on both Petex and its principal Rafirom/CRP. Save where their evidence was corroborated by the contemporaneous documents or by Petrom's own witnesses, I do not accept that evidence.
- As already indicated, Glencore served two witness statements from Mr Ciocanelea, but since he did not attend for cross-examination, where his evidence differed from that of Mrs Solomon or other Petrom witnesses, I prefer their evidence. Glencore withdrew the evidence of another proposed witness, Mr Gibson, for unexplained reasons during the course of the trial. There were also a number of gaps in Glencore's evidence where it did not call evidence which one might have expected it to adduce. For example, there was no evidence from anyone in operations at Glencore to explain how the arrangements at Ashkelon worked in practice, as regards either the blending process or the loading of cargoes and preparation of shipping documents. Clearly, other employees as well as Mr Kraft and Mr Silverberg must have been implicated in the fraud.
- Equally, there was no evidence as to Glencore's dealings with customers to whom genuine Iranian Heavy shipped from Ashkelon was supplied and what if any discussions there were as to how it was that Glencore was able to supply Iranian crude oil loaded in Israel.
- There was also a striking failure to call any evidence from personnel at EAPC or Mercur or other agents in Israel to explain what instructions they received from whom at Glencore and what their understanding was as to the reasons for giving the blended cargoes false descriptions. The actual operation of the fraud remains somewhat shrouded in mystery and it is no answer for Glencore to say as seemed to be being suggested, that it is all so long ago and documents are no longer available. Throughout the trial, I suspected that Glencore was only revealing so much of the fraud as suited its purposes.
Detailed Factual Chronology
- I do not propose to set out detailed factual findings in relation to each of the claim cargoes, but only the first few and the other specific cargoes on which the parties focused and in relation to which evidence was given and submissions made. Before doing so, I propose to deal with the points about the Petromidia refinery and the SEAWIND II cargo.
The Petromidia refinery
- From about 1989 Marc Rich was involved in some form of joint venture with Total at Petromidia and invested money in upgrading facilities. It supplied crude oil in exchange for refined products which it then traded. There were processing agreements, the latest of them dated 8 January 1992, which provided for Marc Rich to deliver, at its option, various recognised grades of crude oil, including Iranian Heavy, Gulf of Suez Blend and Urals "or any other crude oil…as agreed from time to time between parties". In those agreements, both Petromidia S.A. and Petex were parties described as "Processor". Mr Southern QC pressed Mr Iancu at length in cross-examination on this, putting that, as a party to the processing agreements, Petex must have known Glencore was supplying blends to the refinery. Mr Iancu consistently denied this, explaining that responsibility for the operation of the processing agreement lay with the Petromidia refinery and Petex was only what he described as a "deemed processor", involved because it had overall responsibility for the importation of crude oil into Romania.
- Mr Iancu accepted that he had met Mr Silverberg at Petromidia at some stage, but denied having been at a meeting where blends were discussed. As I have already indicated I accept that evidence and reject Mr Silverberg's evidence to the contrary. Mr Iancu was very clear in his evidence that he had not found out that Glencore had supplied blends to Petromidia until he was told that by the top people there, at some stage after Petex learnt from the whistleblower that the claim cargoes were blends, in other words in 2002 and that, at the time, he had not known Glencore was supplying blends. Again I accept that evidence.
- Mr Southern QC put that, on the basis that, as with the SEAWIND II cargo, the shipping documents for blends supplied to Petromidia would have shown that they were blends, Petex would have known that at the time, which Mr Iancu denied. In any event, irrespective of his clear evidence on this issue, there are two difficulties with this argument. The first is that, as stated above, apart from some documentation in relation to the SEAWIND II, Glencore has not produced any of the shipping documents relating to the crude oil supplied to Petromidia, so that it is impossible to assess how many cargoes of blend were supplied or how any such cargoes were described in those shipping documents. Second, even if Mr Southern QC were right that the shipping documents for the blends supplied to Petromidia described the cargoes as "blend" or "Egyptian Blend" or something similar, I do not see how that assists Glencore in its argument that Petex must have known the claim cargoes were blends. The fact that (if it be the case) the shipping documents for the refinery cargoes properly described them as blends whereas the shipping documents for the claim cargoes fraudulently concealed that they were blends might be thought to have put Petex off the scent, rather than the reverse.
- Finally in relation to the Petromidia processing agreement, Mr Southern QC relied upon the rather confused evidence of Mr Marinescu about Glencore having declared force majeure under that agreement, because it claimed it could not supply the requisite quantity of Iranian Heavy and that it had forced the refinery into bankruptcy, something about which from his demeanour in his oral evidence, it was clear that he had strong feelings. The thrust of what he seemed to be saying was that he regarded the alleged inability to supply Iranian Heavy as a pretext. Mr Silverberg purported not to remember declaring force majeure and said he did not believe he did so, although he said it was possible he "told them at some point that we were unable to supply Iranian Heavy".
- Although Mr Southern QC seeks to tie this in to some date prior to May 1993, in other words during the period when Mr Iancu had responsibility for processing, it is unclear to what period of time Mr Silverberg is referring. In fact, in the first seven months of 1993 (prior to the first claim cargo), Glencore supplied eight cargoes of genuine Iranian Heavy to Petex. During the period from August 1993 to September 1994 (when the first 14 claim cargoes were fraudulently represented to be Iranian Heavy) Glencore supplied a further five genuine cargoes of Iranian Heavy to Petex, suggesting that Glencore had no difficulty obtaining Iranian Heavy. It is true that, after September 1994, Glencore does not seem to have supplied Petex with any Iranian Heavy, whether genuine or counterfeit, and the fraud switched to GOSM. It may be that what Mr Silverberg is remembering is having said something in about September 1994, which would tie in with his evidence that, at around that time, there was adverse publicity in the press that Glencore had shipped a supertanker of Iranian Heavy into Israel.
Egyptian Blend on the SEAWIND II
- The SEAWIND II had loaded a crude oil blend from EAPC at Ashkelon on 5 February 1993. All the shipping documents described the cargo as "Egyptian Blend". It was discharged into shore tanks at Constantza on 9 February 1993 and Tomis produced an inspection report which again described the cargo as "Egyptian Blend". The cargo was apparently for delivery to Petromidia under the processing agreement. However, for some reason, the cargo could not be delivered to Petromidia so that, unless Glencore could persuade Petex to buy it, it would have to be reloaded on board a vessel and taken away. At the same time, Petex had a consignment of just short of 47,000 metric tons of gasoline sitting in storage tanks at Constantza, for which it needed a buyer. In his witness statement in the arbitration, Mr Bacila explained that Glencore's representative in Romania, Mr Stoica, had explained to him that although the SEAWIND II cargo was an unrecognised blend, it would give a not dissimilar yield to GOSM. He was willing to sell it to Petex at a discount (in the event U.S. $0.34 a barrel) and would purchase the gasoline in exchange at an advantageous price.
- As Mr Bacila said in his witness statement in the arbitration, Petex also obtained an analysis and yield report of the cargo from ICERP SA which was sent to Tomis and Petex in telex form on 19 February 1993. The telex copy in the trial bundles is of poor quality and it is difficult to read the API density figure which is either 20.2 or 29.2. If it is the former, that must be a typo as the Tomis analysis shows the API as 30.26. Mr Southern QC rightly points out that the ICERP report refers to a telex dated 28 May 1992 (not now available) suggesting that there was some existing arrangement with ICERP and this was not a one off inspection. Having said that, the absence of any ICERP report from the documents in relation to other cargoes, including the claim cargoes, suggests that they were not asked to provide an analysis regularly, but only in relation to particular cargoes which were out of the ordinary, here no doubt because it was described as Egyptian Blend and was not a recognised grade of crude oil, as Mr Iancu said in evidence.
- Accordingly, what was agreed between Petex and Glencore was a barter deal whereby Petex would pay for the Egyptian Blend by delivering the gasoline to Glencore on FOB Constantza terms. In the Import Report 6/93 prepared by Petex staff to seek the approval of Mr Bacila and other senior management of Petex, the proposed price for the Egyptian Blend is compared with the price of Iranian Heavy, Iranian Light and GOSM and it is stated that the price accomplished is lower than that of the international market at the time of contracting. It is also stated that the payment method of the offset with the export of gasoline avoids the payment of any bank commission on the opening of a letter of credit. Mr Bacila and other senior management approved the deal.
- Because this was a blend and because the contractual arrangement was a bartering one, Petex required the approval of the transaction not only by Rafirom but by the Ministry of Industry. To that end, a Note was prepared by Mr Bacila for approval of the transaction which clearly described the product as "Egyptian Blend" type crude oil. Mr Bacila explained the advantages of the transaction in terms of price and delivery conditions as well as the avoiding of currency change and bank commission. On the Note the General Director of Rafirom, Mr Boteanu, added that he proposed approval and the transaction was then approved by Mr Stanescu, the Minister of Industry.
- In his cross-examination of Mr Iancu, Mr Southern QC sought to suggest that Petex had not properly disclosed that this was an unrecognised blend, nor did the Note discuss the components of the blend or its technical quality or the yield report, the suggestion apparently being that Rafirom may have been misled into thinking this was genuine GOSM. Mr Iancu rejected any such suggestion, explaining that the Note was a summary which did not reflect every conversation which took place and that Rafirom would not have approved the transaction unless it was content to receive the blend. Mr Iancu was right about that. Quite apart from the fact that Mr Boteanu had worked for many years at Arpechim and so would have appreciated from the description "Egyptian Blend" that this was an unrecognised blend (as Mr Dragomir said in evidence), the evidence of Mr Bacila in the arbitration was that, in seeking Rafirom's approval of the transaction, he ensured it had sight of the yield report produced by ICERP SA. In his cross-examination in the arbitration Mr Bacila said there should have been a document to that effect going to Rafirom. It is correct that Petrom has not been able to disclose any such additional, technical report to Rafirom, but there may well have been such a report, although with the passage of time it has been lost. In any event, whether there was a document or not, I see no reason not to accept Mr Bacila's evidence that he ensured Rafirom had sight of the yield report. There is no question of Rafirom having been misled or given insufficient information to take an informed decision.
- As Mr Matthews QC submitted, Glencore's continuing reliance on the SEAWIND II transaction is surprising. Petex purchased what was openly described as a blend on an advantageous basis with the informed consent of Rafirom, having obtained a distillation analysis from ICERP, which was shared with Rafirom. The very fact that Rafirom was prepared to agree to the purchase of this blend seriously undermines the case Glencore sought to put forward of Romania as an inflexible bureaucracy, where unrecognised crudes would not be accepted and Petex would get into trouble with Rafirom if it disclosed that the claim cargoes were blends. Furthermore, there is nothing in the fact that this cargo from Ashkelon was openly described as Egyptian Blend, which could possibly have put Petex on notice that other cargoes from Ashkelon, which were blends, but were dishonestly described as recognised grades, were in fact blends. Any suggestion that the acceptance of this cargo supports a case that Petex was prepared to accept other blends masquerading as Iranian Heavy or GOSM or that there was a tacit understanding to that effect, is unsustainable.
The first claim cargo on the KHAN ASPARUKH
- The relevant documents for the first claim cargo begin with a handwritten internal Glencore deal ticket dated 5 August 1993, on which the trader is identified as Mr Rieder, then the head of oil trading, although that does not necessarily mean it was his deal. As already noted, in the arbitration, Mr Kraft was adamant that he had concluded the deal. The deal ticket refers to 70-80,000 tonnes of the grade "Iran Heavy", with no indication it was anything other than a genuine cargo. The cargo is estimated to be loaded on 7-9 August 1993 at "Alfredo", Glencore's internal nickname for Ashkelon and the intended vessel is the KHAN ASPARUKH. The terms of the contract are set out in a telex confirmation from Glencore in Zug to Mr Bacila copied to Mr Duman timed at 20.33 on 6 August 1993, which clearly describes the crude oil as Iranian Heavy crude oil of normal export quality being sold on CIF Constantza terms. There is nothing in the confirmation to indicate it is anything but a genuine cargo.
- Given the short time scale between agreement of the transaction on 5 August 1993 and the loading range of 7-9 August 1993, this contract was entered urgently. Glencore relied upon the urgency of the transaction as somehow justifying the delivery of a blend rather than the genuine grade, hence Mr Kraft said in evidence: "when they need it very urgently and with no other alternative, we gave them with the same yields". However, there is nothing in that point. Part of the reason for dealing with a major oil trader such as Glencore is that it is able to source recognised grades of crude oil at short notice. In fact, at around the time of this transaction, Glencore shipped and delivered genuine cargoes of Iranian Heavy from Sidi Kerir to Constantza on a few days notice, such as on the KAVKAZ in April 1993, the SEA POWER in May 1993, the ALANDIA FORCE in July 1993 and the SUN in November 1993.
- Furthermore, as Mr Matthews QC correctly pointed out, the supposed urgency of Petex's requirements for Iranian Heavy crude oil and the fact that Glencore had to react swiftly, make the suggestion that, in the short time frame between the fixing of the deal on 5 August 1993 and the loading of the cargo commencing on 7 August 1993, there was some discussion, let alone an agreement, between Glencore and Petex about producing false documents to conceal the true nature of the cargo or some tacit understanding was reached, thoroughly implausible. It seems particularly unlikely that Petex would have agreed to Glencore supplying not only this first bespoke blend, but other bespoke blends in the future, without knowing in advance exactly what the components were. If Rafirom ever found out blends were being supplied, Petex would have been in serious trouble if it could not even say what the components were of the blend being supplied. Yet, in a very real sense, Glencore's case has to be that there was some such understanding or knowledge from the outset, since Glencore has no basis for any suggestion that Petex found out about the fraud later and agreed to it or acquiesced in it from that later date.
- Furthermore, the shortness of that time frame makes it implausible that in that short period, EAPC and Mercur were lined up to cooperate with Glencore in this deception. It is much more likely that there was an established pattern of producing blends and passing them off as recognised grades through false documentation. That is essentially borne out by the circumstances of this first claim cargo. Glencore already had a specific cargo in mind to meet this urgent commitment to Petex. The KHAN ASPARUKH was a Bulgarian vessel and was apparently due to deliver a cargo of "Iranian Heavy" from Ashkelon to Bourgas in Bulgaria, earmarked for delivery to a Bulgarian refinery with which Glencore had a processing agreement. Although, as Glencore explained in a telex of 9 August 1993, the Master had been instructed to load a cargo consistent with the arrival draft at Constantza (which was greater than at Bourgas), due to the promptness of the lifting, that communication did not reach the terminal in time so that the quantity loaded was the lesser quantity consistent with the arrival draft at Bourgas and the bill of lading also showed the destination as Bourgas.
- Since, at the relevant time in August 1993, Glencore's stock records at Ashkelon show that it had only 1,000 tons of genuine Iranian Heavy available there (which was in fact used as a tiny constituent in the blend shipped on this occasion), Glencore must have already been intending to supply an Ashkelon blend to the Bulgarian refinery, whilst describing it as Iranian Heavy in the shipping documents. Since, as I have said, it is highly unlikely that the decision to pass off a blend as genuine Iranian Heavy was made or the cooperation of EAPC and Mercur procured on the spur of the moment, it seems unlikely that this was the first occasion on which Glencore had asked EAPC to prepare a blend and had then passed it off as genuine Iranian Heavy. The stock records suggest that, in March 1993, two cargoes of blends of Egyptian crudes were shipped out of Ashkelon on the ALKYONIS and the SEAWIND II, likewise on unidentified vessels (because the surviving records are redacted) on 8 April, 29 April, 9 June and 1 July 1993 (all of which included modest quantities of actual Iranian Heavy). However, what is not known from the stock records (and there is no evidence from Glencore to assist on this) is to whom those blends were sold and whether the shipping documents correctly described the cargo as "Egyptian Blend" or something similar or falsely described it as Iranian Heavy. It is not necessary to make any specific finding about this and I need only record that it is likely that the blending of crudes at Ashkelon had been going on for some time and it is unlikely that the proposed shipment to Bourgas on the KHAN ASPARUKH with a bill of lading falsely describing the cargo as Iranian heavy was the first time Glencore had passed off a blend as a recognised crude.
- At all events, Glencore created or procured the creation of a full suite of documents which falsely described the cargo as Iranian Heavy: (i) the bill of lading; (ii) the certificate of insurance; (iii) the certificate of quantity; (iv) the certificate of quality; (v) the ship's ullage report and time log; and (vi) the Master's receipt for samples. These documents (although a copy bill of lading rather than the original, although nothing turns on that) will have travelled with the vessel and will have had to be presented at Constantza for the vessel to be allowed into the port to discharge the cargo, as Mr Southern QC put to Mr Iancu, and he agreed. These are the documents which will then have gone to Petex for checking, together with the Tomis inspection report which reported to both Petex and Glencore on quantity and cargo analysis. As I have already held, in checking the documents, Petex was acting as agent for Rafirom. Had the shipping documents revealed the true position, in other words if the false representation in the documents that the cargo was Iranian Heavy had not been made, Petex would have been bound to alert Rafirom which would then had the opportunity to reject the cargo.
- As Mr Matthews QC submitted, deceiving Petex and thus Rafirom into accepting physical delivery of the cargo was only a first step, since Glencore needed to get paid for the cargo under the letter of credit. In the case of this first claim cargo the letter of credit was opened by the Romanian export bank Bancorex and confirmed by Banque Franco Roumaine ("BFR") in Paris. On 29 September 1993, Glencore prepared a commercial invoice falsely representing that it had sold to Petex a cargo of Iranian Heavy. On the same day, as permitted by the letter of credit (because the original shipping documents had not arrived), Glencore sent a telex to BFR setting out the terms of that commercial invoice and of a letter of indemnity warranting title and authority to effect delivery of the stipulated cargo of "Iranian Heavy Crude Oil". BFR then paid Glencore under the letter of credit for Rafirom's account. In doing so it clearly relied upon Glencore's invoice and letter of indemnity.
- Some weeks later, on 18 November 1993, Glencore sent the original shipping documents to BFR for presentation to Petex c/o BRCE in cancellation of the letter of credit and asked for confirmation that it was released from all liability under the letter of indemnity. The shipping documents were then checked by BRCE, found in order and the indemnity was duly released. Glencore clearly knew the banks (and hence Rafirom on whose behalf they were paying) were being deceived, as Mr Kraft admitted in cross-examination:
"Q. You also knew that the banks would be paying on behalf of Rafirom because they were presented with false documents and so Rafirom's account would be debited?
A. This is the case, yes, of course."
- For good measure, in the case of this very first shipment, a copy of the original bill of lading has survived with the endorsement on the reverse by Mr Latham of Glencore to the order of Rafirom. Although other copies of originals with endorsements have not survived, there is no reason to suppose that this practice was not followed in all cases. Certainly, Glencore has adduced no evidence that it was not. As a general rule, although there are minor differences between the various shipments, the same basic pattern of false and misleading documents presented to Petex and the banks continued for the remaining 31 cargoes. The fact that the bill of lading was endorsed to Rafirom, together with the admission by Mr Kraft which I have just quoted, gives the lie to any suggestion that the representations were only intended to be relied upon by Petex or were somehow spent after Petex relied upon them.
The significance of Ashkelon as the load port
- This is a convenient point in the judgment to address an issue on which Glencore placed great reliance and on which Mr Iancu was cross-examined at some length (as he and Mr Bacila were in the arbitration), namely that the shipping documents all showed the load port as Ashkelon, which is in Israel, so that at least in the case of the first fourteen cargoes, which purported to be Iranian Heavy, Petex must have known the cargo could not in fact be Iranian Heavy because of the Iranian embargo, set out in the NIOC General Terms and Conditions, on the crude oil NIOC sold being brought into Israel.
- Mr Iancu was quite clear in his evidence that he was not interested in where Glencore sourced its crude oil from, As far as Petex was concerned it was buying CIF Constantza and had never thought that because the cargo was loaded at Ashkelon, it could not be Iranian Heavy. I have already referred to one answer he gave about this at  above. At another point, he said this:
"Q. It was an obvious question [How come that such an Iranian Heavy or Iranian grade reached Israel?] Did you ask it?
A. I have seen a lot in my lifetime spent in this oil industry. Sometimes I'm not that curious, because curiosity killed the cat and sometimes I'm not that keen to find out everything because I am pretty much convinced I can't settle and solve all the problems of humanity. But I'm trying to also agree, it was possible, Mr Southern."
- Contrary to Mr Southern QC's submission, the reference to not being curious was not to his not wanting to know the cargo was not in fact Iranian Heavy, suspecting that it was not or might not be. Rather, it was to not being curious as to the unorthodox methods by which Glencore might have Iranian crude oil at its storage facility in Israel. That is borne out by the evidence he gave immediately after the passage I have just quoted:
"Q. What was possible?
A. To have Iranian crude oil transported through the pipeline from Eilat to Ashkelon and from Ashkelon further down to another outlet, which was not restricted or banned by the -- by the Iranians, NIOC, by the Iranians, and providing them with certificates of discharge."
- Mr Iancu was clearly right that Glencore did ship Iranian Heavy into Ashkelon. From the stock records it appears that between January 1993 and September 1994, Glencore made three shipments of Iranian Heavy into the storage facilities at Ashkelon, one of 32,188 metric tons on the ENDEAVOUR II in January 1993 which went out on the LEONIDAS on 24 January 1993 and then two large shipments on supertankers: 254,768 metric tons on the ASSIMINA on 10 February 1993 and 210,060 metric tons on the MT CLOUD in July 1994. Of the Iranian Heavy crude oil discharged from the ASSIMINA, there were two shipments out on the KHAN ASPARUKH in February 1993 and one on the SEAWIND II in March 1993. Some of the balance was sold to ORL, the Israeli refining company. Of the Iranian Heavy crude oil discharged from the MOUNT CLOUD, 3,000 metric tons was used in the blend for claim cargo 12 the EQUATOR, 42,382 metric tons was used in the blend for claim cargo 13, the SUPER LADY, and 1,000 metric tons was used in the blend for claim cargo 14, the STAR HERO, the last three purported Iranian Heavy cargoes. The bulk of the balance, some 139,000 metric tons was transferred to ORL at the beginning of August 1994.
- However, what the stock records show is that, at the time that the blend was loaded on the EQUATOR (claim cargo 12) on 12 July 1994, Glencore could in fact have fulfilled that contract by supplying genuine Iranian Heavy loaded at Ashkelon, without any need to resort to a blend. Likewise, if Glencore had not chosen to sell two thirds of the shipment in to ORL and then use 16,774 metric tons of the balance in another blend shipped on the KINGFISHER to Neftochim, Glencore could have fulfilled the contract for claim cargo 13 loaded on the SUPER LADY on 12 August 1994 by supplying genuine Iranian Heavy loaded at Ashkelon. This exercise demonstrates that, although for its own commercial reasons Glencore chose to sell Iranian Heavy to ORL, it did have Iranian Heavy at Ashkelon to fulfil some of the contracts.
- Furthermore, I agree with Mr Matthews QC that this point about Ashkelon was effectively killed by Mr Silverberg in re-examination, albeit unwittingly, when he explained that if a client with whom Glencore had a good relationship for a long time (a category into which Petex would clearly fall) had asked how Glencore was able to ship Iranian Heavy from Israel, then he would not have been shy about revealing that Glencore was willing to breach the Iranian embargo: "Look, we managed to offload a VLCC of Iranian Heavy in Eilat, pumped it to Ashkelon and it is now we can sell it to you". That is effectively what Mr Iancu thought was possible and it is likely that, if he had wished to satisfy his curiosity and asked Mr Silverberg the question which Mr Southern QC was suggesting he should have asked, that is the answer he would have received from Glencore. Similar evidence as to the ability of Glencore to ship Iranian crude oil into Israel was given by Mr Kraft, who frankly admitted: "Bringing oil to Israel when you had embargo under OPEC, you have to find these kinds of solutions." What is quite clear is that, if Mr Iancu had asked the question, Glencore would not have disclosed that it was defrauding Petex and Rafirom by shipping blends whilst representing that they were Iranian Heavy.
The subsequent claim cargoes purporting to be Iranian Heavy
- At about midday on 2 September 1993, Mr Duman reported to Mr Bacila by telex on the availability of crude oil for delivery in the middle of the month to be processed into petroleum products for delivery in the period 1 November to 15 December 1993. He said that for the time being availability of crude oil was limited and the only company which had expressed an interest was Marc Rich which had only about 80,000 metric tons of Iranian Heavy for loading in Sidi Kerir on 20-25 September 1993. Marc Rich agreed to accept petroleum products for the whole amount representing the equivalent of that crude oil. Some five hours or so later at 5.30 pm on 2 September 1993, Mr Duman reported again by telex that in addition to the cargo he had previously referred to ex Sidi Kerir (which was now about 70,000 metric tons), Marc Rich could also deliver about 70,000 metric tons of Iranian Heavy loading in Ashkelon 10-15 September 1993. It was suggested to Mr Iancu in cross-examination that the rapidity with which this cargo became available in five hours meant that this was a coded message for this being the special Ashkelon blend. Mr Iancu clearly regarded the suggestion as nonsense and so do I. This is no more or less than Glencore as an oil trader doing what oil traders do best, finding cargoes for clients at short notice. There was absolutely nothing in Mr Duman's telexes to suggest that this cargo of Iranian Heavy was anything other than what it purported to be.
- This suggestion links in with another related point which is that, on Glencore's case, there must have been a conversation between 5 and 7 August 1993 about the cargo on the KHAN ASPARUKH being a blend in which (before any of the blend had been delivered let alone refined) Petex subscribed to a standing agreement in relation to all future cargoes that Glencore had in effect a unilateral, undocumented option to deliver a blend masquerading as Iranian Heavy. Quite apart from the inherent implausibility of the suggestion, this telex with its proposal for two cargoes of Iranian Heavy one ex Sidi Kerir and one ex Ashkelon, set out on a like for like basis, draws no distinction between the two cargoes and is completely inconsistent with there being some agreement to accept blends.
- The cargo ex Ashkelon referred to in Mr Duman's telex is claim cargo 2. On 6 September 1993, a contract was concluded for the two cargoes of Iranian Heavy (one ex Sidi Kerir and one ex Ashkelon) on the same pricing basis, a further indication that Petex cannot have known they were being defrauded or have agreed to the deception. The first cargo was loaded at Ashkelon on the AFRICAN ADDAX and a bill of lading for Iranian Heavy was issued dated 9 September 1993. A similar suite of other false documents as in the case of the first claim cargo was produced. In this case the letter of credit had not been opened by the time the vessel arrived at Constantza, so Oil Terminal Constantza provided Glencore with a guarantee that it would hold the crude oil in the shore tanks at the disposal of Glencore until the letter of credit was opened.
- In the event the letter of credit was not opened until 27 September 1993 by Bancorex through Deutsche Genossenchaft Bank in Frankfurt. In the meantime, on 24 September 1993, Petex had asked the oil terminal to urgently pump the crude from the AFRICAN ADDAX in order to make space for the crude oil cargo from the KRITI SEA, purchased from Motor Oil Hellas, which was to be used for restocking. This certainly looks like misappropriation of the cargo in contravention of the holding certificate, which would be reprehensible, but as I have already held, of no relevance to the issues I have to decide.
- Glencore in fact authorised the oil terminal to release the cargo to Petex on 28 September 1993, once the letter of credit had been issued. On 22 October 1993, Glencore provided Deutsche Genossenchaft Bank with its commercial invoice and letter of indemnity in telex form, as in the case of the first claim cargo, representing that the cargo was Iranian Heavy crude oil, on the basis of which the bank paid out under the letter of credit. In the case of this shipment, the original shipping documents seem to have taken some time to be presented and to find their way through the banking chain, as it was not until 29 December 1995 that Bancorex sent the documents to Petex and asked them to agree to the cancellation of the letter of indemnity. On 18 January 1996, Petex (obviously acting as agent for Rafirom) provided that agreement. Contrary to Glencore's submissions, this demonstrates that, even at this late stage, Petex and Rafirom were relying on the false representations made by Glencore in the documents. If the documents had disclosed the true nature of the cargo, Petex and Rafirom would not have agreed to the letter of indemnity being cancelled and would have insisted on repayment.
- As I have already indicated, the remaining claim cargoes which purported to be Iranian Heavy followed the same pattern of the presentation of false and misleading documents which were relied upon by Petex, Rafirom and the banks. I do not propose to make specific findings in relation to each of those cargoes, but only in relation to those cargoes where one or other party made a particular point.
- Claim cargo 4 was the second cargo (the first being claim cargo 3) supplied pursuant to a contract made on 30 September 1993 for Iranian Heavy crude oil on CIF Constantza terms, with the price to be the same whether the oil was loaded at Ashkelon or Sidi Kerir. This cargo was loaded in Ashkelon on the HEXAGRAM and a bill of lading was issued dated 20 October 1993, which described the cargo as "Iranian Heavy Blend". It would appear from a telex from the Master to Enerco in London (a subsidiary of Glencore and the actual shipper under many of the bills of lading) that a Mr Brocklesby was due to board the vessel at Buyukdere on the Bosphorus with a view to switching the bills of lading, but that seems not to have happened. Accordingly, it would appear that all the shipping documents that went with the vessel and were presented to Tomis and Petex on discharge described the cargo as Iranian Heavy Blend (apart from the bill of lading those documents are no longer available), as did the Tomis inspection report.
- I have already referred to the evidence of Mr Dragomir of Petex and Mr Dumitrescu of Tomis that they would have attached no significance to the use of the word "Blend" and would have regarded Iranian Heavy Blend and Iranian Heavy as one and the same. Nonetheless, Mr Southern QC sought to attach some significance to a telex dated 22 October 1993 from Mr Bacila to Mr Iliescu General Manager of the oil terminal, Mr Ocneanu, General Manager of Rafirom and Mr Popescu of Tomis informing them that the HEXAGRAM was due to arrive two days later on 24 October 1993, carrying a cargo which he describes as Iranian Heavy crude oil and appointing Tomis to perform the relevant testing. On the telex in handwriting which Mr Iancu identified in cross-examination as that of Mr Bacila, is written a comment which translates as "Pay attention to names because this could create an unwanted situation!" or "Pay attention to the names, regrettable aspect may result!"
- Mr Southern QC put to Mr Iancu that this was an instruction from Mr Bacila to his staff to make sure that they covered up that this cargo was a blend, by getting the names right in future. The implication seemed to be that they should ensure that it should not happen again that "Iranian Heavy Blend" slipped through the net or at least ensure it didn't get to Rafirom. Of course, as Mr Southern QC accepted, we do not know when Mr Bacila wrote this and the thesis Mr Southern QC was putting forward would depend upon his writing it after the bill of lading arrived and he had seen it. Otherwise whatever else it is referring to, it cannot be "Iranian Heavy Blend". One of the major difficulties with this point is that, although this document was available to Glencore in the arbitration, it was not put by its counsel to Mr Bacila in cross-examination. It follows that we do not have his explanation for it which may be a perfectly innocent and mundane one. It is no answer with respect for Mr Southern QC to say, as he did when I pointed this out, that it is not Glencore's fault that counsel in the arbitration did not ask the right question. Given the seriousness of the allegation which lies behind this point, that Mr Bacila was encouraging his staff to deceive Rafirom, one would have thought the point would have been put to him in the arbitration if there was anything in it.
- In any event, it seems to me if what Mr Bacila was alluding to was the undesirability of using the words Iranian Heavy Blend on the shipping documents, that was not a matter for his staff, but for Glencore which was presenting the documents and yet there is no suggestion that the instruction was directed at Glencore. Whatever the explanation for what remains a mystery, this one handwritten instruction is a very slender peg indeed on which to hang a very serious allegation. I decline to conclude on the basis of it that Mr Bacila or anyone else at Petex appreciated that this cargo (or any other of the claim cargoes) was not in fact a designated grade of crude oil, but a blend.
- Next, Mr Southern QC put to Mr Iancu a document from the file for claim cargo 5. That was a shipment on the EQUATOR, due to load at Ashkelon on 15-17 January 1994. On 7 January 1994, Mr Duman sent a telex to Ms McCourt at Marc Rich UK, copied to Petex in Bucharest, accepting the nomination of the vessel. On the copy from Petex's file, someone has underlined the word "Ashkelon" in two places. Mr Southern QC suggested whoever had done that was interested in what he described as the "Ashkelon connection". This seems an even more slender peg for Glencore's case of Petex knowledge. On the copy, Mr Mavric, then head of the crude oil department has written a note to Viorel (presumably Mr Dragomir who was not asked about this document) saying "Please send forms for L/C on time". I suspect the underlining of Ashkelon was simply to emphasise that the cargo would be loaded there in just over a week and therefore would be at Constantza in a fortnight, so it was important to get the letter of credit opened promptly. That is borne out by the PS in the telex from Mr Duman telling Petex that the latest information was that the vessel would be arriving at Ashkelon on 14 January 1994 i.e. a day early. On the copy telex someone has underlined the words "Ashkelon 14 Januarie 1994" suggesting that all this underlining is to do with timing, not with the Ashkelon connection as suggested.
- Mr Southern QC also put to Mr Iancu a document from the file for claim cargo 8, a shipment on the SEA DANCER on 20 April 1994. On a telex dated 13 April 1994 from the owners, which reads: "SEA DANCER ETA Constantza 23rd April for disch abt 125562 mt crude oil from Israel Brgds Owners" someone has circled the word "Israel" and put a question mark and exclamation mark. Mr Iancu could not help as to whose handwriting this was. However, as I pointed out there is no mention in the telex of the crude oil being of Iranian origin so the apparent surprise may have been no more than that there is no crude oil produced in Israel. At all events, this is a hopeless basis for any suggestion that Petex appreciated that the cargoes from Ashkelon could not be Iranian Heavy.
- Claim cargo 8 was in fact the first shipment under a contract dated 18 March 1994 for two shipments of 120,000-130,000 metric tons of crude oil. The contract provided in terms that Iranian Heavy must be delivered for this first cargo and either Iranian Heavy or Iranian Light or Soviet Export Blend at Glencore's option could be delivered for the second shipment. This requirement that the first shipment must be Iranian Heavy is a further indication that Petex had no idea that what Glencore was delivering was not Iranian heavy but a blend, otherwise the requirement would have been pointless. Also, since under the contract, the first shipment was scheduled for arrival at Constantza on 1-5 April 1994, Glencore would have had plenty of time to procure a genuine cargo of Iranian Heavy had it wished to do so.
- Claim cargo 10, a shipment on the ASPILOS on 21 June 1994, is an example of a case where Glencore switched the bill of lading in the Bosphorus. The first bill of lading described the cargo as "Iranian Heavy Blend", whereas the replacement bill described it as Iranian Heavy. The other shipping documents such as the Mercur certificates of quality, quantity and origin all described the cargo as Iranian Heavy crude oil. Claim cargo 12, a shipment on the EQUATOR on 12 July 1994 is another case where the first bill of lading described the cargo as Iranian Heavy Blend and was switched for a replacement bill which described it as Iranian Heavy.
The switch to GOSM
- Claim cargo 14, a shipment of blend represented as Iranian Heavy on the STAR HERO on 26 September 1994, was in fact the last occasion on which the Ashkelon Blend being supplied to Petex was passed off as Iranian Heavy. The contracts between Glencore and Petex thereafter, right through to the last one for claim cargo 31, continued to provide that the crude oil could be of Urals, Iranian Heavy or GOSM in Glencore's option, so that Glencore does not seem to have told Petex that it could no longer supply Iranian Heavy. It just seems to have started misrepresenting the Ashkelon blend as being GOSM rather than Iranian Heavy. In fact, so far as can be seen from the records (which may be incomplete), Glencore seems to have stopped supplying Petex with genuine Iranian Heavy as well. There is no contemporaneous explanation for this abrupt change, although it may be that the adverse publicity for Glencore over a tanker of Iranian crude oil in Israel to which Mr Silverberg alluded in his evidence is the explanation. Glencore may no longer have been able to obtain genuine Iranian Heavy, in which case it would have been necessary to describe the Ashkelon blend as something else, specifically GOSM. In that context, it is noteworthy that it was in the contracts from claim cargo 15 onwards that Glencore inserted the option to deliver GOSM as well as Iranian Heavy or Urals.
Claim cargoes 15 to 31 purporting to be GOSM
- Of course once the blend came to be misdescribed as GOSM rather than Iranian Heavy, there was nothing in the fact that the cargoes were being loaded in Ashkelon to alert Petex to the fact that these were blends, so Glencore's Ashkelon point, even if had any force in relation to the first fourteen cargoes (which it does not) evaporates at this stage.
- So far as the first of the purported GOSM cargoes, claim cargo 15, is concerned, the documentation follows a familiar pattern. On 24 October 1994, Mr Duman telexed Mr Bacila about a proposed contract with Glencore for crude oil to be delivered in November 1994 of 80,000 -130,000 metric tons of Soviet Export Blend or Iranian Heavy or GOSM. He told Mr Bacila that the type of crude delivered was most likely to be Iranian Heavy and the quantity 130,000 metric tons, suggesting again that no-one at Glencore had told him Iranian Heavy was no longer available, indeed it would appear quite the reverse. The contract was concluded the following day, 25 October 1994. The ASPILOS loaded the cargo at Ashkelon and a bill of lading was issued dated 14 November 1994 which described the cargo as "Gulf of Suez Crude Oils Blend". It is clear that this description was regarded in Romania as being synonymous with GOSM. Telexes on 16 November 1994 from Mr Bacila and the oil terminal about the provision of a holding certificate because the letter of credit had not yet been opened, refer to the cargo as GOSM. Although the Tomis cargo analysis refers to the cargo as "Gulf of Suez Crude Oils Blend", that is because their reports always reflect the bill of lading description. The certificate of conformity which Glencore itself provided dated 21 November 1994 clearly represented the cargo as being GOSM Crude Oil.
- In any event, whatever else the blend for this cargo was, it was not simply a blend of Gulf of Suez crudes. Like claim cargo 16, 18 to 25A and 29 after it, this blend contained a substantial quantity of Marib, a Yemeni crude oil, presumably because Glencore had that in stock at Ashkelon at the time. In fact previous claim cargoes 11 to 14 which were represented as Iranian Heavy, had also contained substantial quantities of Marib.
- The shipping documents for claim cargo 16 (the bill of lading and the Mercur certificates of quality, quantity and origin) described the cargo as "Gulf of Suez Crude Oils Blend". Although the certificate of origin certified that the crude was of Egyptian origin, that was false, since it contained a substantial quantity of Marib. The Tomis cargo analysis followed the bill of lading in describing it as "Gulf of Suez Crude Oils Blend", although a telex sent by Tomis to Petex the same day gave inspection details and described it as GOSM crude oil, contemporaneous confirmation of Mr Dumitrescu's evidence that Tomis would have regarded "Gulf of Suez Crude Oils Blend" and GOSM as one and the same. Both the certificate of conformity and the commercial invoice issued by Glencore claiming payment described the cargo as "GOSM crude oil". Thereafter Glencore sent a telex to the bank, UBS, which had confirmed the letter of credit, which set out the commercial invoice and the letter of indemnity, both representing that the cargo was Gulf of Suez Mix crude oil. The bank paid on that basis.
- The same pattern of the shipping documents describing the cargo as "Gulf of Suez Crude Oils Blend" but Glencore's certificate of conformity, commercial invoice and letter of indemnity representing that it was GOSM followed on claim cargoes 17 to 31. In each case Petex, and thus through it Rafirom, was intended to assume and did assume that "Gulf of Suez Crude Oils Blend" and GOSM were one and the same, so that the cargo conformed with the contract. The banks likewise paid Glencore on the basis of Glencore's representation that what had been supplied to their customer was GOSM.
- Much was sought to be made by Glencore, particularly in the cross-examination of Mr Iancu and Mr Marinescu, of the financial difficulties which Romania faced in the 1990s, such as the difficulties of obtaining foreign currency to put up letters of credit (which is what led to the need for holding certificates in those cases where a letter of credit had not been issued when the cargo was discharged) and the disruption caused to the annual energy programme. There is no doubt that Romania did face such financial difficulties. It was submitted by Glencore that this placed Petex under immense commercial pressure and provided a motive for agreeing to the supply by Glencore of blends, whilst concealing that from Rafirom by having a false suite of documents.
- This supposed motive for Petex participating in the deception of its principals is implausible in the extreme. As Mr Iancu made clear in his evidence, it is difficult to see what the incentive would be for Mr Bacila and Mr Iancu to act in that way, for no personal gain (it never having been suggested that anyone at Petex was being bribed) and at immense personal risk. If all that was available at short notice from any oil trader prepared to grant the credit terms was a blend prepared in Ashkelon, then surely Mr Bacila and Mr Iancu would have sought the permission of Rafirom to import such blends, as they did with the SEAWIND II cargo, rather than engaging in an elaborate, and for them, dangerous charade to deceive Rafirom. Furthermore, whilst there is no doubt that Romania did face such financial difficulties, it would seem that they were at their most acute from about November 1995 through 1996, therefore two years and more into the fraud, which hardly explains why Petex would have agreed to defraud its principals two years previously.
- It is equally difficult to see what commercial motivation Glencore would have had for conspiring with the state employees of Petex systematically to produce false documents over a three year period which would deceive Rafirom, the banks, customs officials and insurers, nor has Glencore sought to explain in evidence what its motivation was or would have been in those circumstances. If, on the other hand, this was a fraud by Glencore of which Petex was unaware, as I have found, then the motivation of Glencore is not hard to discern. It stood to make large sums of money out of a fraud which would not be easy to detect.
- In so far as Glencore relies upon the financial difficulties under which Petex and Rafirom operated in support of some suggestion that they would always have had to accept the blend cargoes because nothing else was available from any trader prepared to extend them the credit they needed, quite apart from the fact that any such suggestion is wrong as a matter of law, for the reasons given at  above, it is also wrong as a matter of fact. During the three years that Glencore was perpetrating the fraud, Petex took delivery of dozens of cargoes of a variety of different grades of crude oil, including Iranian Heavy and GOSM, from a variety of oil traders other than Glencore, including Vitol, Trafigura, Galaxy, Bayoil and Masefield as well as from major oil companies such as Shell and Total, even when the financial difficulties were at their most acute.
- Equally, any suggestion that the financial difficulties led to a lack of organisation which meant that Petex was always requiring crude oil at short notice, a point which Mr Kraft sought to make, was also wrong as a matter of fact. Apart from the first two claim cargoes, there were only four other occasions when the period between the contract date and the bill of lading date was less than 20 days (ample time to source genuine cargo, particularly where the contract gave an option as to grades): claim cargo 3 (9 days), claim cargo 5 (10 days), claim cargo 9 (12 days) and claim cargo 21 (11 days). Furthermore, claim cargoes 22 to 28, where the bill of lading dates were between 23 May 1995 and 31 January 1996, were all deliveries pursuant to a term contract made on 28 April 1995 for deliveries of crude oil to Constantza in the period from 1 June 1995 to the first quarter 1996, so that they were not spot sales. The suggestion that in the case of those shipments there was any urgency when Glencore had many months between the contract and shipment dates is clearly absurd. In any event, even where Petex did require crude oil urgently, it is part of an oil trader's job to source crude oil at short notice, as Mr Silverberg accepted in cross-examination. As already set out at  above, Glencore was well able to supply genuine grades of crude at short notice.
- The extent to which any financial difficulties suffered by Petex were irrelevant to the existence and operation of the fraud can be demonstrated by the example of one of the claim cargoes delivered at the time that the financial difficulties were particularly acute, claim cargo 29. This was a shipment of 125,258 metric tons of Gulf of Suez Crude Oils Blend loaded on the HEXAGRAM at Ashkelon on 24 May 1996. It was a shipment under a contract made on 21 February 1996 for the shipment of 120,000 to 130,000 metric tons per month of GOSM or Iranian Heavy or Urals in Glencore's option in the months April to June 1996. As before the shipping documents all described the cargo as Gulf of Suez Crude Oils Blend. This was one of the cases where EAPC notified Glencore of the actual composition of the blend, information that was not passed on to Petex. The commercial invoice and certificate of conformity provided by Glencore to Petex represented that the cargo was GOSM.
- On 27 May 1996, Mr Bacila wrote to Mr Ocneanu, general manager of Rafirom asking for funds to be provided for opening a letter of credit and the following day Petex and Rafirom made a joint application to Bancorex to open a letter of credit. However, the letter of credit was not opened by the time the vessel arrived later that day, so Glencore gave instructions that the cargo was not to be discharged until the letter of credit had been opened. On 30 May 1996, Rafirom wrote to Bancorex informing it that: "In May, only 417,000 tons of crude oil were imported, which resulted in the closing of RAFO SA Onesti and PETROMIDIA SA Constanta refineries for the second half of the month." This meant that the supply of diesel was critical. The letter went on to say that the HEXAGRAM was at Constantza, but could not be unloaded until a letter of credit was opened, because Glencore had already delivered two or three cargoes without letters of credit. In the event a letter of credit was opened through the Anglo-Roumanian Bank Ltd and on 5 June 1996 Glencore confirmed this and permitted the vessel to start discharging. Glencore provided a commercial invoice and letter of indemnity to the bank in the usual way, representing that the cargo was GOSM, on the basis of which the bank paid under the letter of credit.
The football match
- One of the other matters on which Glencore relied in support of its case that Petex had known that the claim cargoes were blends was the fact that when, in December 1994, Mr Bacila, Mr Iancu and Mr Duman were invited by Mr Kraft to Israel for an international football match between Israel and Romania in Tel Aviv, one of the other guests was Mr Andrei Manor, the commercial manager of EAPC who was originally from Romania. In evidence, unsurprisingly, Mr Iancu had no recollection of meeting Mr Manor. Glencore suggested that if it had been deceiving Petex, inviting Mr Manor to the match would have been a high risk strategy, in case he and the representatives of Petex started talking in Romanian about the cargoes loaded at Ashkelon. I was distinctly unimpressed with this point. Quite apart from the inherent unlikelihood that, at a social event such as a football match, people would have talked about work, it would be likely that Mr Manor would have been warned in advance by Glencore not to discuss the blending at Ashkelon. As Mr Matthews QC said, he would hardly have been likely to say: "what do you think of our blends?" As support for a case that Petex must have known all along that the claim cargoes were blends, this was no more than a broken straw in the wind.
Deceit: the law
- By the end of the trial, Petrom no longer sought to contend that the substance of the tort of deceit or the most significant elements of the tort occurred in London. Accordingly, it is accepted that, in the case of the first twenty nine cargoes, the common law rule of double actionability applies, so that Petrom has to establish that the acts or conduct relied upon not only constituted the tort of deceit as a matter of English law, but were also an actionable wrong as a matter of Romanian law: see Red Sea Insurance v Bouygues  1 AC 190 at 198C-D and 199F. So far as the last three cargoes are concerned it is accepted that the applicable law for the purposes of the Private International Law (Miscellaneous Provisions) act 1995 is Romanian law. I consider the question of whether Petrom can establish that Glencore's acts and conduct constituted an actionable wrong in each case as a matter of Romanian law in the next section of the judgment. Before doing so, I will set out the position as a matter of English law.
- The ingredients of the tort of deceit have been most recently restated by Jackson LJ in the Court of Appeal in Eco 3 Capital Limited v Ludsin Overseas Limited  EWCA Civ 413 at -:
"77….What the cases show is that the tort of deceit contains four ingredients, namely:
i) The defendant makes a false representation to the claimant.
ii) The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false.
iii) The defendant intends that the claimant should act in reliance on it.
iv) The claimant does act in reliance on the representation and in consequence suffers loss.
Ingredient (i) describes what the defendant does. Ingredients (ii) and (iii) describe the defendant's state of mind. Ingredient (iv) describes what the claimant does.
78 I do not accept that "intention to deceive" is a separate or free standing element of the tort of deceit. The phrase "intention to deceive" is merely another way of describing the mental element of the tort. It is a compendious description of ingredients (ii) and (iii) as set out in the preceding paragraph."
- That gloss in  demonstrates that it is no answer for the defendant to say: "I did not intend to deceive", if the defendant knows that the representation is false and intends that the claimant should rely upon it: see also the decision of the majority of the Court of Appeal in the well-known case of Brown Jenkinson v Percy Dalton (London) Limited  2 QB 621, that it would have been no answer to a claim in deceit that the plaintiffs did not desire that anyone be defrauded: per Morris LJ at 629 and Pearce LJ at 640.
- Glencore did not seek to challenge that summary of the law. However, Glencore disputed that ingredients (ii) and (iii) could be established here on the basis that, so it was submitted, any representation was made only to Petex and was not intended to travel any further than Petex or was spent before it came to Petrom. In support of that proposition Mr Southern QC relied upon what he submitted was the principle to be derived from the decision of the Court of Appeal in Gross v Lewis Hillman  Ch 445. In order to test this submission, it is necessary to look at that case in some detail.
- The facts can be summarised as follows. Grace Rymer was a property investment company which purchased properties on behalf of clients and also on its own behalf. Its managing director was Colonel Sinclair who was asked by the plaintiff Mrs Gross to find a suitable shop or office property for purchase for investment. His policy was not to buy a property unless Grace Rymer itself was prepared to buy it. The first defendant, Lewis Hillman was a property company controlled by a Mr James. The second defendant Henry James & Partners was a firm of estate agents of which the principal was James. In July 1965, Grace Rymer, acting as agent for the plaintiff purchased a shop in Horsham from a company controlled by James which he as principal of the second defendant had introduced to Grace Rymer. In August 1965 James arranged to let four shops in the north-west to a dormant wool company Somers. He proceeded on behalf of the first defendant to sell the reversion of the shop in Stockport and as principal of the second defendant sent out letters to a number of potential purchasers, including Grace Rymer. The letter stated that the shop had been let to Somers on a 21 years full repairing and insuring lease at £800 per annum exclusive for the sale of wool and hosiery, and that Somers also had retail branches in three other towns. Grace Rymer asked for the tenant's references, to which the second defendant replied that Somers was incorporated in 1928, had a paid up capital of £5,000, and enclosed a banker's reference in connection with the letting of another shop to Somers at £3,000 per annum exclusive.
- Believing as a consequence of the letters that Somers was a going concern, Grace Rymer agreed to purchase the shop on its own behalf. At the same time it recommended the purchase of the shop to the plaintiff as a suitable investment to her and offered to let her have the benefit of its contract in return for a commission of two and a quarter per cent of the purchase price. The plaintiff decided as the result of that recommendation to purchase the shop, and it was conveyed to her directly by the first defendant, to whom she paid the purchase price of £7,700, at the request and on the direction of Grace Rymer. Somers was not successful in its trading and after three months became insolvent and went into liquidation.
- In the proceedings, the plaintiff sought against the first defendant an order rescinding the conveyance and against both defendants damages for deceit on the ground of fraudulent misrepresentation, relying on the representations in the two letters as to the status of Somers. At first instance Russell LJ, sitting as an additional judge of the Chancery Division, held that there had been no fraudulent misrepresentation by James and dismissed the claim. The plaintiff appealed on the ground that that conclusion was against the weight of the evidence. By a respondent's notice, the defendants sought to uphold the judgment on the alternative ground that, in any event, the representations had not been made to the plaintiff so she could not rely upon them.
- The Court of Appeal dismissed the appeal, upholding by a majority the learned judge's conclusion that there had not been a fraudulent misrepresentation. In those circumstances, the alternative ground for upholding the judgment did not strictly arise, but the Court of Appeal dealt with the point anyway. The main judgment was delivered by Cross LJ, who rejected the submissions of counsel for the defendants that the plaintiff was not within the class of persons to whom the representations were originally made and that, in any event, she did not rely on the representations but only on a recommendation of Colonel Sinclair. He said at 461C-E:
"I am not myself prepared to accept either of these contentions. Having regard to James' knowledge of Grace Rymer's business, and, in particular, the recent sale of the property at Horsham to the plaintiff, which had been negotiated by Grace Rymer, I think that the words "which may be of interest to you" in the letter of September 1 can well be read against James as including "or any client of yours to whom you may care to introduce the property." Again I am not prepared to hold that, if a layman asks an expert dealer in some class of property to find a suitable investment for him on a commission basis and the expert, having been misled by fraudulent misrepresentations by the vendor, recommends a certain purchase and in reliance on the recommendation the layman purchases the property, the vendor can rely on the fact that the actual misrepresentations as such were not communicated to the purchaser but only the recommendation of the expert which had been induced by them. I think that the law would be in a very unreasonable state if that were so."
- However, Cross LJ went on to hold at 461F-H that she fell out of the class of persons to whom the representations were originally made when Grace Rymer agreed to buy the property on its own behalf, the representations then being spent:
"So in the present case, if the plaintiff, acting on Colonel Sinclair's recommendation, had herself contracted with James to buy the property, it may very well be that she could have rescinded the sale after conveyance if the misrepresentations made to Grace Rymer were fraudulent. But Grace Rymer itself agreed to buy the property, and that, as I see it, makes a very great difference. Assuming that the plaintiff was within the class of persons to whom the representations were originally made, she fell out of the class when Grace Rymer agreed to buy the property. The original representations were spent, and Grace Rymer thereafter dealt with her as owners in equity of the property who were prepared to let her take it over for a commission. She could no doubt have relied on the misrepresentations if James or some agent of his had repeated them to her or some agent of hers. Again, if James had known that Colonel Sinclair was handing on his bargain to the plaintiff and was repeating to her the misrepresentations which he (James) had made to him and he stood by and allowed her to complete the purchase from him without disillusioning her, she might well have been able to rescind. It would have been such a case as Pilmore v. Hood (1838) 5 Bing.N.C. 97 . But nothing of that sort happened here."
- Widgery LJ also dismissed the appeal at 463-5 on the basis that there was no fraudulent misrepresentation and agreed with Cross LJ's conclusion on why the plaintiff could not have relied upon the representation in any event. Harman LJ would have concluded that James had been guilty of fraudulent misrepresentation, but considered that the representation had not been made to the plaintiff but only to Grace Rymer. His reasoning is at 463E-H:
"But that misrepresentation was not made to the plaintiff: it was made to Grace Rymer, who were themselves the persons who entered into the contract to purchase the property. It was, therefore, they who relied on the representation and not the plaintiff. They communicated to her the result of the information they had received and she bought on their recommendation. The pleadings show quite clearly that that is what the case was. Grace Rymer was the contracting party and, as the representation was undoubtedly made to them, it seems to me that that is as far as the matter goes and you cannot carry it any further - because, as Lord Cairns said in Peek v. Gurney (1873) L.R. 6 H.L. 377 , 411: where are you to stop? The representation is made to A.; A. buys on the strength of it; and the fact that it goes further down the line ad infinitum does not mean that everybody who comes to know of it can rely on it. As Cross L.J. said, when the contract is made with A. the effect of the misrepresentation is spent; and, therefore, on this subject I find it necessary to come to the conclusion that the plaintiff cannot succeed, even though the representation was false to the knowledge of the maker of it. Therefore, the appeal cannot succeed, and I would agree that it ought to be dismissed."
- Although Mr Southern QC sought to rely upon this case as establishing some general proposition that where a representation is made to the other contracting party who relies upon it in entering the contract, the representation cannot then be relied upon by a third party because it is spent, a proposition which he submits is applicable here because Petex being a commission agent contracted as principal with Glencore, in my judgment the case establishes no such general proposition. There are two critical differences between that case and the present case. First, whilst Petex may have contracted as principal, Glencore was aware that it was a commission agent and that whatever representation was made to Petex was being passed on to and relied upon by its principal, Rafirom. In those circumstances, given that as Cross LJ held at 461G-H, the plaintiff in that case could have rescinded, so in this case Petrom has a remedy for deceit.
- Second, as Cross LJ also held at 461G, the position would have been different if James or some agent of his had repeated the representations to the plaintiff or some agent of hers. Those are the facts of the present case: the representations in the shipping documents were not only made to Petex which checked those documents as agent for Rafirom, but repeated to the bank and to Rafirom in the commercial invoices and letters of indemnity and when the original documents were eventually presented to the bank and checked by Rafirom. On the facts of this case, the suggestion that the representation made in the shipping documents that the cargo was Iranian Heavy or GOSM, was somehow spent when the representation was first made to Petex is not only commercially absurd, but factually incorrect. As I have already held, the relevant representations were repeated to Rafirom and the bank(s) which opened or confirmed the relevant letters of credit on its behalf, which for those purposes were acting as its agent.
- Accordingly, the decision in Gross v Lewis Hillman is of no assistance to Glencore in the present case. Furthermore, in the context of shipping documents which the representor knows and intends will be relied upon by banks issuing and confirming letters of credit (as Glencore knew and intended in the present case) the submission that the representations in those documents were somehow spent when made to Petex runs contrary to the well-established principle recognised by the Court of Appeal in Standard Chartered Bank v Pakistan National Shipping Corporation  1 Lloyd's Rep 218 in the case of documents of title such as bills of lading which are put in circulation by the representor but which contain false representations. The principle is stated by Evans LJ at the outset of his judgment in these terms:
1. The judge began his judgment with the following paragraph, which I agree with and would entirely endorse -
"Antedated and false bills of lading are a cancer in international trade. A bill of lading is issued in international trade with the purpose that it should be relied upon by those into whose hands it properly comes - consignees, bankers and endorsees. A bank, which receives a bill of lading signed by or on behalf of a ship owner (as one of the documents presented under a letter of credit), relies upon the veracity and authenticity of the bill. Honest commerce requires that those who put bills of lading into circulation do so only where the bill of lading, as far as they know, represents the true facts."
2. This requirement of honest commerce is stringently enforced by the English Courts. If a false bill of lading is knowingly issued by the master or agent of the shipowner, and if the claimant was intended to rely on it as being accurate, did rely upon it and as a result of doing so has suffered loss, then the shipowner is liable in damages for the tort of deceit.
3. The rule in Derry v. Peek (1889) 14 App. Cas. 337 applies, and it is no defence to the charge of knowingly making a false statement that the master or agent believed that he was justified in doing so or that in the circumstances no harm would result: Brown Jenkinson v. Percy Dalton (London) Ltd.  2 Q.B. 621.
4. It follows from this that a bank which pays the seller the price of goods under a letter of credit against presentation of bill of lading which falsely records that the goods were shipped on the carrying vessel by the specified date, when they were not, has no difficulty in recovering damages from the shipowner sufficient to indemnify it against loss, whether or not it can obtain repayment from the seller."
- In the present case, the evidence is that when the original shipping documents were eventually presented by Glencore, Rafirom checked the documents and relied upon their accuracy and correctness. Of course, had Rafirom known that the documents were false or inaccurate, they would have demanded repayment of the purchase price. On that basis alone, since the representation in the documents was not spent, Rafirom can recover damages in deceit. Furthermore, since the bank which paid Glencore under the letter of credit in each case did so on behalf of Rafirom and Rafirom was the ultimate payee, both the bank in question and Rafirom were victims of the deceit and can recover damages. The bank will have checked the documents and released the letter of indemnity believing that the statements in the documents were honest and truthful. This is clear from Standard Chartered itself at  of Evans LJ's judgment:
"…it does not follow that the bank does not rely upon the customers' implied representation that the documents presented are, to his knowledge, both genuine and truthful. As against Mr Mehra, SCB relied on the accuracy not only of the bill of lading but also of other documents and upon Mr Mehra's breach of this undertaking in both respects (judgment 704). It is on that basis that the bank proceeds to consider whether or not the documents are in conformity with the credit."
- That banks rely upon the genuineness of the documents presented is also clear from the decision of Moore-Bick J (as he then was) in Niru Battery Manufacturing Co v Milestone Trading Limited  EWHC 1425 (Comm);  2 All ER Comm 705 at -:
"…I have no doubt that when Bank Sepah paid under the letter of credit it did so in the belief that goods were held to its order under the bill of lading and that Niru were of the same understanding.
48. The bill of lading was intended to be, and was, relied on as genuine by Bank Sepah in making payment under the letter of credit. I am satisfied, therefore, that in tendering documents including the bill of lading and obtaining payment Milestone committed the tort of deceit against both Bank Sepah itself and against Niru which became bound to, and did, indemnify Bank Sepah in the ordinary way under its counter-indemnity."
- The other way in which Mr Matthews QC put his case on reliance and inducement was that, after the discharge of the cargo in each case, Petex checked that the documents which had come with the vessel conformed with the contract and, in doing so, was acting as agent for Rafirom. Accordingly, Petex and through it Rafirom as its principal were deceived into believing that the cargo conformed with the contract, when in truth it did not. If the true position had emerged in relation to any given cargo, Petex would have informed Rafirom which would have rejected the cargo or, if it was too late to do so, refused to pay the contract price for it. The attempt by Glencore to argue that the relevant representations were only made to Petex because Petex had contracted with Glencore as a principal is misconceived and overlooks that, although Petex contracted with Glencore as a principal because it was a commission agent for Rafirom, vis-à-vis Rafirom, Petex always acted as an agent. That a commission merchant or agent is nonetheless an agent of his principal is clear as a matter of English law from the well-known opinion of Blackburn J given to the House of Lords in Ireland v Livingston (1872) 5 LR HL 395 at 407-9; see also Bowstead & Reynolds on Agency (20th edition) at [1-020]. It was not suggested that the position of commission agents in Romanian law was any different.
- Furthermore, it is clear that where the agent acting on behalf of the principal has relied on the fraudulent misrepresentation and the principal thereby suffers loss, the principal can recover in deceit even if the relevant representation is not actually passed to him. In this context, Mr Matthews QC relied upon the summary of the law in [6-031] of Chitty on Contracts (31st edition):
"There may be said to be three types of representees: first, persons to whom the representation is directly made and their principals; secondly, persons to whom the representor intended or expected the representation to be passed on [which as footnote 149 says includes third persons to whom the representee passes on the representation to the knowledge of the representor] and thirdly, members of a class at which the representation was directed. If the representation is directed at a particular class of persons, the alleged representee must be able to bring himself within that class. Peek v Gurney (1873) LR 6 HL 377 illustrates this point. The plaintiffs bought shares in the market in reliance on the terms of a fraudulent prospectus issued by the promoters. The House of Lords held that the plaintiffs could not recover from the promoters: the purpose of issuing a prospectus was said to be to induce people to apply for shares, and not to induce them to buy in the market shares already issued; therefore the function of the prospectus was exhausted with the allotment, and the plaintiffs could not show that they came within the class of persons at which it was directed. Similarly, in Gross v Lewis Hillman Ltd it was held that the right of a purchaser of certain land to rescind the contract for misrepresentation did not "run with the land" so as to be available to a subsequent purchaser; the subsequent purchaser was not himself a representee of the original vendor. On the other hand, where a person makes a false statement in a document (such as a bill of lading) which he knows is going to be passed on to other people and relied on by them, any person who does in fact rely on the document will be a representee. Nor is it always necessary that the actual representation should reach the representee. If a person asks an agent to find some property for him, and the agent, relying on the fraudulent inducements of the vendor, recommends the vendor's property, the buyer will be entitled to relief for misrepresentation even though the agent did not actually pass on the fraudulent statements."
- In support of the proposition in the last two sentences, the editors cite the judgment of Cross LJ in Gross v Lewis Hillman  Ch 445 at 461 in the passage I have already quoted above:
"She could no doubt have relied on the misrepresentations if James or some agent of his had repeated them to her or some agent of hers. Again, if James had known that Colonel Sinclair was handing on his bargain to the plaintiff and was repeating to her the misrepresentations which he (James) had made to him and he stood by and allowed her to complete the purchase from him without disillusioning her, she might well have been able to rescind. It would have been such a case as Pilmore v. Hood (1838) 5 Bing.N.C. 97"
- The second sentence of that passage is also authority for the proposition stated at footnote 149 to [6-031] of Chitty, where Pilmore v. Hood (1838) 5 Bing.N.C. 97 and Clef Acquitaine SARL v Laporte Materials (Barrow) Ltd  QB 488 are cited. Furthermore, the whole passage in [6-031] about the three types of representee was cited with apparent approval by Hamblen J in Brown v InnovatorOne Plc  EWHC 1321 (Comm) at .
- In my judgment, Rafirom falls into each of the three categories of representee identified. The relevant representations were made by Glencore directly to Rafirom's agents, Petex and the banks which issued and confirmed the letters of credit. Even if the representations in question had never reached Rafirom, but only been relied upon by Petex and the banks as its agents, Rafirom would be entitled to relief, as Chitty says. That Glencore knew that the banks were relying on the false representations it made is clear from the admission made by Mr Kraft set out at  above. In fact however, the representations were passed on to Rafirom and the banks by Petex as Glencore intended and expected. Glencore knew that Petex was passing on the representations. That much was admitted, however reluctantly, by Mr Kraft in cross-examination in the passage I have quoted in  above. Furthermore, Rafirom was clearly in the class of persons to whom the representations in the shipping documents, commercial invoices and certificates of conformity were directed.
- Petrom called as its expert on Romanian law Professor Sorin David who is both the managing partner of a law firm in Bucharest and a professor of law at Bucharest University, teaching commercial law and competition law. His evidence was clear and careful and he was an obviously independent expert. There was something of a contrast with Glencore's expert, Professor Dragos Alexandru Sitaru, also a professor of law at Bucharest University. I found much of his evidence was difficult to understand and I had the clear impression that on occasion he was more concerned with fighting Glencore's corner than giving impartial expert evidence.
- Professor David's evidence was that, whilst as a matter of Romanian law (as would be the position as a matter of English law) the principal of the commission agent cannot bring an action in contract against the third party with whom the agent has contracted, where the third party has committed what would be regarded in English law as the tort of deceit, there was nothing in the Romanian law of contract or in the Commercial Code which would preclude the principal from bringing a claim in delict under Articles 998 and 999 of the Romanian Civil Code. It was his consistent evidence that, since Rafirom/CRP was not a party to any contract with Glencore, there was no contractual derogation from that position, it being common ground between the experts that contractual liability is a derogation from the general law, of which the law of delict is part. In the absence of a contract between the parties, there could be no such derogation. The fact that this was a case of commission agency did not alter the position. Rafirom/CRP was still not a party to any contract with Glencore.
- Professor David drew attention to a recent decision of the Supreme Court of Romania in case number 2905 of 2013 where the claimant was held to have a valid claim in delict against a water company in respect of a leak which caused damage to his property, even though he had a contract with the water company for the supply of water and sewage services. The contract did not preclude the bringing of a claim in delict because the contract had nothing to with the relevant wrongful act, which was the infringement of a general obligation of prudence and diligence rather than of any obligation under the contract. Professor David's opinion was that that principle would apply all the more so in the present case where there was no contract between Glencore and Rafirom/CRP.
- Professor Sitaru accepted that where there is no contract between the claimant and the third party, a claim in delict would not be precluded. Hence he accepted that banks or insurers who had been deceived by Glencore could claim against Glencore under Articles 998 and 999 of the Civil Code. However, his opinion was that Rafirom/CRP could not claim in delict because of the existence of the commission agency. This opinion seemed to be based on two matters. First he relied upon Article 406(2) of the Commercial Code which provides: "The principal has no claim against the persons the commission agent has contracted with and neither [do] those persons have any claim against the principal". However, that provision is talking only about the principal not having a claim against the third party in contract. It does not purport to preclude a claim in delict or otherwise under Articles 998 and 999 of the Civil Code. Professor Sitaru could not point to any decision of the Romanian courts to the contrary and, as Mr Matthews QC rightly pointed out, if Article 406(2) had been the answer to the claim in tort, that is all Professor Sitaru's report would have needed to say.
- Professor Sitaru's reliance on the passage in the textbook Stanescu and Birsan also relied upon by Mr Southern QC in his written closing submissions was misconceived. That passage provides: "in case of a previous existing contract between the parties, of which non-fulfilment has caused prejudice, contractual liability shall be chose instead of tort liability, as the latter constitutes an impossible action". The fallacy in Professor Sitaru's opinion is immediately apparent: there is no previous existing contract between Glencore and Rafirom. By definition as the principal of the commission agent, Rafirom was not party to any of the contracts with Glencore.
- Second, Professor Sitaru maintained that the relevant tort of deceit here was committed within the contract and was either a dol (as that concept is understood in Romanian law) or a breach of contract. Despite Mr Southern QC's submissions that Professor Sitaru was right about this, I found this aspect of his evidence incomprehensible. Once it is recognised that the relevant representation is made to parties who are not parties to the contract with the commission agent (whether banks, insurers or the principal of the commission agent), then the tort was not just committed within the contract. Also it is difficult to see how, when Petex was deceived as it checked the shipping documents on behalf of Rafirom, it could be said that that deception was just within the contract, since the effect of that deception was to deceive Rafirom as well, which was not a party to the contract. One of the principal difficulties with the evidence of Professor Sitaru in cross-examination was that he did not seem able to address the questions he was being asked on the basis that Glencore was deceiving not only Petex but Rafirom and others, but took what might be described as the Glencore "party line" that any deceit was limited to Petex. In my judgment, this made his opinion unreliable.
- So far as the concept of dol is concerned, it is clear from the citations provided by the experts from Romanian law textbooks, for example from Beleiu on Romanian Civil Law, that dol is concerned with fraud or deceit which induces the entry into the contract, in other words which vitiates consent. It is not concerned with deceit after a valid contract has been entered into, which is what is entailed in the present case. Professor Sitaru was unable in cross-examination to point to any Romanian authority or textbook for the proposition that dol extended to inducement to perform a contract. I found his insistence that dol did extend to inducement to perform a contract and was not limited to inducement to enter a contract particularly unimpressive.
- In conclusion on the issue of Romanian law, I am quite satisfied that the opinion of Professor David as to the entitlement of Rafirom to pursue a claim against Glencore in delict is correct and is to be preferred to that of Professor Sitaru. It follows that whether for the purposes of the double actionability rule in the case of cargoes 1 to 28 or on the basis that Romanian law is the applicable law for cargoes 29 to 31, Petrom (as the successor in title of Rafirom) has a good claim against Glencore in deceit as a matter of Romanian law and Glencore does not have any Romanian law defence whether under Article 406(2) of the Commercial Code or otherwise available to it.
Knowledge of Petex
- As already noted earlier in the judgment, a great deal of time and effort was spent by Glencore in cross-examination of Petrom's witnesses and in its own evidence and in submissions in seeking to establish that Petex knew that the cargoes were all blends and, in effect, agreed with Glencore to produce false shipping documents in order to conceal from Rafirom/CRP and the Romanian authorities that it could not obtain the named grades of Iranian Heavy and GOSM, but only blends which approximated to those grades. As a matter of legal analysis this case could never have provided Glencore with a successful defence to the present claim, essentially for two reasons. First, once there was any reliance by and inducement of Rafirom/CRP independent of Petex, as there was because (i) the banks acting on behalf of Rafirom/CRP in paying under the letters of credit relied upon the representations made by Glencore and were induced by those representations to pay under the letters of credit and (ii) Rafirom/CRP relied upon and was induced by the representations when it checked the documents subsequently, the fact that Petex as well as Glencore was deceiving Rafirom/CRP is legally irrelevant. This is because the fact that Rafirom/CRP's agent was also deceiving it could provide no defence to the claim in deceit against Glencore, in circumstances where it could not be argued (and is not argued) that the knowledge of Petex is to be attributed to Rafirom/CRP when, on this hypothesis, Petex was party to the deceit.
- If authority were needed for that proposition, it can be found in a typically short and robust judgment of Scrutton J in Wells v Smith  3 KB 722 at 725-6:
"Mr. Hastings, who argued for the defendant with his usual clearness and brevity, contended that the knowledge of the agent must be imputed to the principal, and, consequently, that there was no fraudulent representation to a principal who, through her agent, knew the untruth of the representation and could not be deemed to rely on its truth. I hope it is not unjudicial to say that I am glad this ingenious argument cannot protect a defendant of whose conduct I strongly disapprove. I think it cannot prevail. In the first place I am not satisfied that knowledge of the agent not acquired in the course of his employment for the principal should be imputed to the principal: see by the Court of Appeal in Welsbach Incandescent Gas Lighting Co. v. New Sunlight Incandescent Co. 2 Ch 1 at p 11; Bolckow, Vaughan & Co. v. Fisher (1882) 10 QBD 161 at p 169; Société Générale de Paris v. Tramways Union Co. (1884) 14 QBD 424 at pp 443, 450 and I do not think the judgment in the peculiar case of Bradley v. Riches (1878) 9 Ch D 189 disturbs this position.
In the second place, I am not aware of any case, and counsel did not refer me to one, where, when a man has made a statement untrue to his knowledge to induce another, whom he does not believe to know its untruth, to act upon it, and that other has acted upon it in ignorance and to his damage, the maker of the false representation has been allowed to protect himself by proving that an agent of the other knew of the untruth. Mr. Smith has made a statement which he knew to be untrue, believing it might be shewn to Mrs. Wells and intending her to act upon it, while he did not believe she knew its untruth. This is fraud, and I should be very slow to allow the effects of actual fraud to be nullified by constructive notice. The case of Bawden v. London, Edinburgh and Glasgow Assurance Co.  2 QB 534 would, I think, have been decided differently if the one-eyed assured had actually put on the proposal a statement that he had the sight of two eyes. Just as in Redgrave v. Hurd (1881) 20 Ch D 1 a man who told a lie as to his earnings was not allowed to protect himself by shewing that he had offered the books for inspection, which, if carefully inspected, would have shewn the untruth of his statement, so, I think, a man who tells a lie to another cannot protect himself by saying 'Your agent should have warned you of my lie.'"
- Second, the suggestion that this was all part of an agreement between Petex and Glencore to deceive Rafirom/CRP by producing false shipping documents simply highlights that, on any view, Glencore intended that Rafirom/CRP should be deceived. Thus, if this aspect of Glencore's case were accepted, it would blow a complete hole in the ingenious but misconceived suggestion, based on Gross v Lewis Hillman, that the representation was spent when it was made to Petex, because on this hypothesis, the whole purpose of the false representations in the shipping documents would have been to deceive Rafirom/CRP, rather than Petex.
- In any event, whether the contention that Petex knew of the falsity of the shipping documents and/or agreed with Glencore that such documents should be presented with a view to deceiving Rafirom/CRP was of any legal relevance or not, the contention is wholly unsustainable on the evidence, essentially for the reasons I have already given in the sections of the judgment above dealing with the assessment of the witnesses and the findings of fact. With a view to drawing the threads together, those reasons can be summarised as follows:
(1) I accept the evidence of Mr Iancu that neither he nor anyone else at Petex was aware that the claim cargoes were in fact blends and not what they purported to be, Iranian Heavy or GOSM. I also accept his evidence that he did not know until after the whistleblower informed Petex of the fraud that Glencore was supplying blends to Petromidia under the processing agreements, but even if he had known that at the time, that would not have alerted him to the fact Glencore was dishonestly passing off blends blended at the Ashkelon facility as named grades of crude oil, not least because the only documentary evidence of supply of a blend to Petromidia is the SEAWIND II cargo which was described honestly in the shipping documents as Egyptian Blend.
(2) I also see no reason not to accept, as did the arbitrators, the evidence of Mr Bacila, now deceased, that he did not know that the claim cargoes were in fact blends. The various documents relied upon by Glencore in relation to the shipments as demonstrating that Mr Bacila or others at Petex were somehow suspicious about Iranian Heavy loaded at Ashkelon do not come anywhere near establishing that Petex knew that the crude oil being supplied was not what it purported to be.
(3) The fact that Glencore was supplying Iranian Heavy loaded at Ashkelon in Israel does not mean that Petex knew or ought to have known (and in a case of deceit what Petex ought to have known or might have ascertained through being more diligent is no answer to the case that it was deceived) that what was in fact being supplied was a blend. Glencore was a major oil trader which could access different types of crude from a variety of sources. In fact Glencore did ship substantial quantities of genuine Iranian Heavy crude oil into Ashkelon during the relevant period, confirming its ability to access even Iranian Heavy by unconventional means. The reason for Mr Iancu not asking too many questions was because he thought Glencore could access Iranian Heavy by unconventional means (about which he was right) rather than because he appreciated or suspected that what was being supplied to Petex was not in fact Iranian Heavy.
(4) In any event, what might be described as Glencore's Ashkelon point is of no significance whatsoever in relation to cargoes 15 to 31 which purported to be GOSM. There was no embargo on shipping this or any other Egyptian crude to and from Ashkelon.
(5) As Mr Iancu's evidence to the court and Mr Bacila's evidence in the arbitration confirm, it is inherently unlikely that state employees such as they were would have run the serious personal risk of deliberately deceiving Rafirom/CRP as to the nature of the claim cargoes with no element of personal gain, rather than coming clean at the outset and explaining that the only cargoes that could be obtained at short notice were blends. The suggestion that this was some sort of cover up to avoid criticism for being unable to procure named grades of crude oil makes no sense whatsoever because: (i) there is no evidence that they would in fact have faced any such criticism. This is really no more than speculation and assertion by Glencore; (ii) contrary to Glencore's assertion, the majority of the cargoes were not required at short notice or at least were not required at such short notice that an experienced oil trader such as Glencore could not have obtained genuine grades of crude oil, a fortiori where, as was the case in relation to nearly all the claim cargoes, the contract gave Glencore an option to supply one of two or three grades of crude; and (iii) again contrary to Glencore's assertion, Petex was in fact able to obtain genuine grades of crude oil from other oil traders throughout the period of the claim cargoes.
(6) Glencore is unable to identify any particular discussion with Petex at any stage over a three year period in which the supply of these blends was agreed or acquiesced in by Petex or from which any tacit understanding could be derived. Although much is sought to be made of the passage in time since the events in question and I have not overlooked that point, the fact is that it is still quite remarkable that, if there was such an agreement or understanding, the Glencore witnesses, Mr Kraft and Mr Silverberg, (who despite their protestations to the contrary were clearly both involved from the outset) were unable to state when any discussion occurred and with whom. It is equally remarkable that neither of them could produce a single document, internal or external, to support the case that there was a discussion and/or an agreement and/or an understanding.
(7) Given that the very first claim cargo was loaded in a matter of days after the contract was made, it is unlikely in the extreme that, in that short time frame, Petex had come to some agreement or understanding with Glencore about delivery of a blend for that shipment, let alone for random shipments in the future. It is much more likely, since the cargo was originally bound for Bourgas and a false bill of lading was issued representing that it was Iranian Heavy, that this was a continuation on the part of Glencore of a pattern of supplying "Ashkelon Blend", but passing it off as Iranian Heavy, originally a deception of the Bulgarian oil terminal but becoming with the claim cargoes, an ongoing deception of Petex and Rafirom/CRP.
(8) Just as it is difficult to see what motive senior Petex employees such as Mr Bacila and Mr Iancu would have had for deceiving Rafirom/CRP over an extended period with all the risks to their jobs and reputation, and potentially personal liberty, it is equally difficult to see what the incentive would have been for Glencore to collude with Petex in producing false documents with a view to deceiving Rafirom/CRP. On the other hand, if this was, as I find it was, a deception of both Petex and Rafirom/CRP, then Glencore's motive is not hard to discern: it could charge and obtain the price for a cargo of Iranian Heavy at any given time whilst supplying a blend which was cheaper to produce. Whilst Glencore has not vouchsafed to Petrom or the court what profits it made out of this fraud over a period of three years (let alone any previous fraud of the Bulgarians) it is to be inferred those profits were substantial.
Satisfaction of all the ingredients of the tort of deceit
- The representations made by Glencore in the bills of lading and other shipping documents, together with the commercial invoices, certificates of conformity and letters of indemnity which it produced and procured with a view to getting paid for, in each case, a cargo of Iranian Heavy or GOSM which was in fact a blend were false representations and Glencore knew those representations were false. I bear in mind that in a case where fraud is alleged, whilst the standard of proof is still the civil one of the balance of probabilities, the court will require cogent evidence before it is satisfied that there has been fraud: see per Lord Nicholls of Birkenhead in In re H  AC 565 at 586. That standard has been amply satisfied in the present case.
- As I have said, despite the ingenious reliance by Mr Southern QC on the decision of the Court of Appeal in Gross v Lewis Hillman  Ch 445, that case is of no avail to Glencore. On the evidence, it is very clear that Glencore intended that the false representations it made should be relied upon by other parties than Petex, including Rafirom/CRP and the banks which issued and confirmed the letters of credit pursuant to which Glencore got paid. I have already referred to the evidence of Mr Kraft at  and  above conceding that the documents were designed to deceive other parties than Petex. The contrary evidence of Mr Silverberg in his witness statement relied upon by Glencore in its written closing submissions, that there was never an intention to deceive Petex or Rafirom was mendacious and unbelievable. There is the further point that, on occasions, the vessel was stopped in the Bosphorus to substitute for the original bills of lading, bills which falsely described the cargo as Iranian Heavy. It is difficult to see what motive Glencore would have had for doing that unless it intended the false representations in the substitute bills to be relied upon. Furthermore, as I have already held at  above, in my judgment, Rafirom/CRP falls into each of the three categories of representee identified in [6-031] of Chitty on Contracts. In the circumstances, it is clear Glencore intended to deceive Rafirom/CRP.
- Equally, I have no doubt that Rafirom/CRP did rely upon the fraudulent representations in the documents and was induced to pay for the cargoes by those representations. I consider Mr Matthews QC is correct that there was reliance by and inducement of Rafirom at two stages. The first stage was when Petex for Rafirom checked the shipping documents which had come with the particular vessel (including the bill of lading, the certificate of quality and the certificate of quantity) within days of discharge. As I have already held at  and  above, if Petex, whose duty it was as agent for Rafirom under the Foreign Trade Agreements, had appreciated the cargoes being supplied were not in conformity with the contracts but were bespoke blends, they would have reported this discrepancy to Rafirom. If Petex and/or Rafirom had been aware of the true position in relation to any particular cargo, it would have been able to reject the cargo and purchase the requisite grade of crude oil elsewhere or, if prepared to accept a blend, would have been able to negotiate the price downwards to reflect the lower value of the blend. Depending upon at what stage the truth had emerged, Glencore would not have been able to deceive Petex and Rafirom into accepting the claim cargoes and paying the price on the basis that the cargoes were Iranian Heavy or GOSM when they were not. In the circumstances, I consider that Glencore's argument that Rafirom did not rely upon and was not induced by the false representations is completely unsustainable.
- However, the matter does not end there. As Mr Matthews QC submitted, there was reliance by and inducement of Rafirom at a second stage. Glencore continued and repeated its false representations that the claim cargoes were Iranian Heavy or GOSM in the commercial invoices and letters of indemnity it presented to the banks initially in order to procure payment under the letters of credit and in the original shipping documents which in due course found their way to the banks, who were acting on behalf of Rafirom in checking documents against the letters of credit and paying out under the letters of credit, on the basis that the documents which were in due course presented were in conformity with the letters of credit. Accordingly, the banks and through them Rafirom were deceived and induced to pay for the cargoes. If at any stage in relation to any given cargo the truth had emerged, the bank would not have paid against the letter of credit or would have insisted on repayment and Rafirom would have countermanded the instructions to pay and/or would not have paid any counter indemnity to the bank and/or would have unravelled the whole transaction, with repayment by Glencore. In these circumstances the ingredients of the tort of deceit are undoubtedly made out so that Rafirom and thus Petrom has a claim for damages in deceit, on the basis of the legal principles recognised by the Court of Appeal in Standard Chartered and by Moore-Bick J in Niru Battery cited at - above.
- For good measure, the evidence was that when the original shipping documents were eventually presented by Glencore to the bank and found their way through the banking chain to Rafirom, employees in the financial/accounting department checked the documents. If the documents had disclosed the true position, that any given cargo was in fact a blend, it can be inferred that Rafirom would not have paid the bank under the counter indemnity or would have insisted on repayment by Glencore. On that basis as well reliance by and inducement of Rafirom is clearly established.
- In any event, the attempt by Glencore to argue that there was no inducement, quite apart from its intrinsic lack of merit, overlooks that there is a presumption of reliance and inducement which it would be for Glencore to rebut. The principles were stated by Arden LJ in Dadourian Group International Inc v Simms  EWCA Civ 169;  1 Lloyd's Rep 601 at :
"As to [inducement], the judge directed himself in law, at J(1) 543 - 546, as follows: (1) it is a question of fact whether a representee has been induced to enter into a transaction by a material misrepresentation intended by the representor to be relied upon by the representee; (2) if the misrepresentation is of such a nature that it would be likely to play a part in the decision of a reasonable person to enter into a transaction it will be presumed that it did so unless the representor satisfies the court to the contrary (see Morritt LJ in Barton v County NatWest Limited  Lloyd's Rep Banking 408 at 421, paragraph 58); (3) the misrepresentation does not have to be the sole inducement for the representee to be able to rely on it: it is enough if the misrepresentation plays a real and substantial part, albeit not a decisive part, in inducing the representee to act; (4) the presumption of inducement is rebutted by the representor showing that the misrepresentation did not play a real and substantial part in the representee's decision to enter into the transaction; the representor does not have to go so far as to show that the misrepresentation played no part at all; and (5) the issue is to be decided by the court on a balance of probabilities on the whole of the evidence before it."
- Although that statement of the legal principles was made in the factual context of inducement to enter any particular transaction, there can be no principled reason for not applying the same principles where, as here, the inducement is during the course of the contract, to accept the goods in question and pay for them. In my judgment, even if the evidence of Ms Olaru (referred to at  and  above) was somewhat oblique about the checking of documents by Rafirom, as I said the thrust of it is clear, that documents were checked (as indeed they were initially by Petex and would have been subsequently by the bank). Glencore get nowhere near rebutting the presumption of inducement.
- In the circumstances, since, as I have held, Petrom has a valid claim in deceit both as a matter of English law and Romanian law, it is unnecessary to consider further the alternative claim in conspiracy. That does not seem to me to add much to the claim in deceit.
Damages for deceit: the law
- The starting point in considering what damages are recoverable in deceit, as in other areas of the law of damages is the classic statement of Lord Blackburn in Livingston v Rawyards Coal Co (1880) 5 App Cas 25 at 39:
"I do not think there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who is injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation. That must be qualified by a great many things which may arise—such, for instance, as by the consideration whether the damage has been maliciously done, or whether it has been done with full knowledge that the person doing it was doing wrong. There could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer—many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort."
- As I said in Parabola Investments Ltd v Browallia Cal Limited  EWBC 901 (Comm);  2 All ER (Comm) 589 at :
The second and third sentences of that passage, which are directly relevant to a claim in fraud such as the present one, are perhaps not as familiar as the first sentence, but the whole passage was quoted with approval by Lord Browne-Wilkinson in Smith New Court Securities v Citibank NA  AC 254 at 262-3. In that case the House of Lords reversed the decision of the Court of Appeal, which had applied the so-called "date of transaction" rule derived from 19th century Court of Appeal decisions, to the effect that, "where a fraudulent misrepresentation has induced the plaintiff to enter into a contract of purchase, the measure of damages is, in general, the difference between the contract price and the true open market value of the property purchased, valued as at the date of the contract of purchase." (per Lord Browne-Wilkinson at 261). In doing so, the House of Lords approved the judgment of the Court of Appeal in Doyle v Olby (Ironmongers) Ltd, [1969 2 QB 158 as having correctly stated the law as to damages recoverable in cases of deceit. Lord Browne-Wilkinson stated that Doyle v Olby established four points, on all of which he regarded it as correctly decided:
'First, that the measure of damages where a contract has been induced by fraudulent misrepresentation is reparation for all the actual damage directly flowing from (i.e. caused by) entering into the transaction. Second, that in assessing such damages it is not an inflexible rule that the plaintiff must bring into account the value as at the transaction date of the asset acquired: although the point is not adverted to in the judgments, the basis on which the damages were computed shows that there can be circumstances in which it is proper to require a [plaintiff] only to bring into account the actual proceeds of the asset provided that he has acted reasonably in retaining it. Third, damages for deceit are not limited to those which were reasonably foreseeable. Fourth, the damages recoverable can include consequential loss suffered by reason of having acquired the asset.' (264-5)"
- At 266H-267D, Lord Browne-Wilkinson summarised the principles applicable in assessing damages for fraud as follows:
"In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property: (1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) is assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property. (6) In addition, the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud."
Of particular relevance to the issues about damages in the present case are principles (3) and (4).
- The other main speech in Smith New Court was that of Lord Steyn. At 279F-280F he discussed the justification for distinguishing between the extent of liability for civil wrong depending upon whether there has been negligence or deceit:
"That brings me to the question of policy whether there is a justification for differentiating between the extent of liability for civil wrongs depending on where in the sliding scale from strict liability to intentional wrongdoing the particular civil wrong fits in. It may be said that logical symmetry and a policy of not punishing intentional wrongdoers by civil remedies favour a uniform rule. On the other hand, it is a rational and defensible strategy to impose wider liability on an intentional wrongdoer. As Hart and Honoré, Causation in the Law, 2nd ed. (1985), p. 304 observed, an innocent plaintiff may, not without reason, call on a morally reprehensible defendant to pay the whole of the loss he caused. The exclusion of heads of loss in the law of negligence, which reflects considerations of legal policy, does not necessarily avail the intentional wrongdoer. Such a policy of imposing more stringent remedies on an intentional wrongdoer serves two purposes. First it serves a deterrent purpose in discouraging fraud. Counsel for Citibank argued that the sole purpose of the law of tort generally, and the tort of deceit in particular, should be to compensate the victims of civil wrongs. That is far too narrow a view. Professor Glanville Williams identified four possible purposes of an action for damages in tort: appeasement, justice, deterrence and compensation: (1951) 4 Current Legal Problems 137. He concluded, at p. 172:
'Where possible the law seems to like to ride two or three horses at once; but occasionally a situation occurs where one must be selected. The tendency is then to choose the deterrent purpose for tort of intention, the compensatory purpose for other torts.'
And in the battle against fraud civil remedies can play a useful and beneficial role. Secondly, as between the fraudster and the innocent party, moral considerations militate in favour of requiring the fraudster to bear the risk of misfortunes directly caused by his fraud. I make no apology for referring to moral considerations. The law and morality are inextricably interwoven. To a large extent the law is simply formulated and declared morality. And, as Oliver Wendell Holmes, The Common Law (edited by M. De W. Howe), (1968), p. 106, observed, the very notion of deceit with its overtones of wickedness is drawn from the moral world.
For more than a hundred years at least English law has adopted a policy of imposing more extensive liability on intentional wrongdoers than on merely careless defendants. This policy was trenchantly spelt out by Lord Blackburn in Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25. [Lord Steyn then cites the last two sentences in the passage I quoted above.]
Since Victorian times there have been great developments in our law of obligations. But there has been no retreat from the policy spelt out by Lord Blackburn."
- Lord Steyn then goes on to analyse Doyle v Olby from which he derives a series of propositions, of which the fifth and sixth, set out at 282C-E, are of particular relevance for present purposes:
"(5) The dicta in all three judgments, as well as the actual calculation of damages in Doyle v. Olby (Ironmongers) Ltd., make clear that the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer. That includes heads of consequential loss. (6) Significantly in the present context the rule in the previous paragraph is not tied to any process of valuation at the date of the transaction. It is squarely based on the overriding compensatory principle, widened in view of the fraud to cover all direct consequences. The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement."
- The following passage in his speech at 284A-F is also particularly relevant to the issues in the present case:
"It is right that the normal method of calculating the loss caused by the deceit is the price paid less the real value of the subject-matter of the sale. To the extent that this method is adopted, the selection of a date of valuation is necessary. And generally the date of the transaction would be a practical and just date to adopt. But it is not always so. It is only prima facie the right date. It may be appropriate to select a later date. That follows from the fact that the valuation method is only a means of trying to give effect to the overriding compensatory rule: Potts v. Miller, 64 C.L.R. 282, 299, per Dixon J.; and County Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co.  1 W.L.R. 916, 925-926, per Bingham L.J. Moreover, and more importantly, the date of transaction rule is simply a second order rule applicable only where the valuation method is employed. If that method is inapposite, the court is entitled simply to assess the loss flowing directly from the transaction without any reference to the date of transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it. An example of such a case is to be found in Cemp Properties (U.K.) Ltd. v. Dentsply Research & Development Corporation  2 E.G.L.R. 197, 201, per Bingham L.J. There is in truth only one legal measure of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendants. The analogy of the assessment of damages in a contractual claim on the basis of cost of cure or difference in value springs to mind. In Ruxley Electronics and Construction Ltd. v. Forsyth  AC 344, 360G, Lord Mustill said: "There are not two alternative measures of damages, as opposite poles, but only one; namely, the loss truly suffered by the promisee." In an action for deceit the price paid less the valuation at the transaction date is simply a method of measuring loss which will satisfactorily solve many cases. It is not a substitute for the single legal measure: it is an application of it. "
- As I said in Parabola at :
"The importance of that passage is that it demonstrates that there are no hard and fast rules in determining damages recoverable in deceit, beyond the overriding principle that the court should strive to award damages which compensate the claimant fully for loss flowing directly from the fraud, which brings one back again to Lord Blackburn's statement of principle."
I agree with Mr Matthews QC that the rationale for the House of Lords departing from the old inflexible rule that damages were to be assessed as at the date of the transaction was to ensure that the claimant who was the victim of deceit was not worse off than he should be, by taking proper account where appropriate of subsequent events after the transaction was concluded. This more flexible modern approach is not designed to provide some benefit to the defendant. As Lord Steyn recognised, the presumption against the deliberate wrongdoer formulated trenchantly by Lord Blackburn in Livingstone v Rawyards remains the law. In my judgment, many of Mr Southern QC's submissions on damages overlooked this point.
Damages for deceit: application of the law to the facts
- Petrom's case as to the damages recoverable involves a straightforward application of Lord Browne-Wilkinson's principles (3) and (4). It claims the full price paid by it in respect of the claim cargoes, U.S. $434,433,302 (a figure which is not in dispute). It then gives credit for what it submits is the market value of each of the bespoke blends as at the bill of lading date (which it is agreed is the most appropriate date to take, rather than the date of the contract). In order to arrive at the market value or actual value of each of the blends, what Petrom's expert Miss Jago has done is to use the FOB price for each of the constituents of the relevant blend to calculate a composite FOB price for the particular blend on the bill of lading date. To that she has added a figure per barrel for the cost of insurance and freight dependent upon the size of vessel on which the particular claim cargo was shipped from Ashkelon to Constantza, in order to arrive at a CIF price for the blend. The total CIF price at which she arrives on the basis of this exercise is U.S. $420,568,562. To that CIF price she then applies a discount in each case which she and Mr Jones assess at U.S. $1.25 per barrel to reflect the fact that these are bespoke blends and not recognised grades or even 32 cargoes of the same recognised blend. Petrom's case is that it is only after the application of that discount that one can arrive at the actual value (on the basis that there is not really a market for bespoke blends) for the claim cargoes for which Petrom must give credit against its claim for the return of the full price. After application of the discount that ascribes an actual value to the claim cargoes of U.S. $387,809,566. When this figure is deducted from the full price of the claim cargoes in accordance with Lord Browne-Wilkinson's principles (3) and (4), the total damages claimed is U.S. $46,623,706.
- I will consider the issue of the appropriate level of discount later in this section of the judgment, when I have considered the issues of principle raised by the different approaches of the parties to the assessment of damages. The experts for Glencore, Mr Roffey, Mr Minton and Dr Holdaway by their own admission did not attempt to assess the market or actual value of the claim cargoes as at the bill of lading date. Rather, they adopted the radically different approach to determining the value of the blends of assessing the GPW of each blend cargo supplied which gives the yield and then comparing that with the yield which would have been achieved from genuine Iranian Heavy or GOSM in each case to arrive at what Mr Southern QC submitted was the real loss suffered by Petrom.
- Before considering in more detail this alternative approach to damages, I should just deal with some of the criticisms levelled by Glencore and its experts at the method of calculating the actual value of the blends adopted by Miss Jago and Mr Jones. A particular criticism made by Glencore's experts was about the artificiality of small components in the blends being shipped on Suezmax or Afromax vessels in relation to which it was also said that Miss Jago's calculation failed to take account of (a) the cost of blending the various components when they had been delivered at Constantza and (b) the cost of storage of the balance of any particular shipment of a component not used in the relevant blend. In my judgment, this criticism betrayed a fundamental misunderstanding of the exercise in which Miss Jago was engaged.
- What her calculation was designed to arrive at was the price for the particular blend delivered CIF Constantza, on the basis that the blending was done at Ashkelon before shipment and it was the blend which was being shipped, not the individual components on different vessels to be delivered and then blended in Romania. Once the real nature of the exercise is appreciated, it is readily apparent that, contrary to Glencore's contentions, the price of the blending forms no part of the price of the blend CIF Constantza. The blending was a matter for Glencore and a cost to be borne by Glencore and the hypothetical willing buyer would not have been in the slightest bit interested in what it cost Glencore to blend the cargo, if he was buying the blend delivered on a CIF basis.
- Equally, the suggestion that some sort of credit has to be given for the cost of storage at Constantza is completely misconceived. As I have said, what Miss Jago's calculation envisages is delivery of the blend CIF Constantza so there is no question of Petrom having to pay storage charges for the balance of cargoes of components, but even if there were, it seems to me that would simply diminish the actual value of the blends, in the sense that a willing buyer who had to pay storage for the balance of components would only be willing to pay a lower price for the blends) so that the point is of no assistance to Glencore.
- As I have already recorded at  above, given the agreement of the experts, it is no longer necessary to consider which methodology for assessing GPW is the more appropriate. The court is only concerned with the issue of principle as to whether damages for deceit in this case should be assessed by giving credit for the actual value of the blends against the full price of the claim cargoes otherwise recoverable, as Petrom contends, or by reference to the difference in GPW between the named grades represented as having been delivered and the actual blends delivered, as Glencore contends.
- In support of Glencore's case that the correct measure of damages was the difference in GPW and that Petrom's measure would compensate it for losses it had not suffered, Mr Southern QC's starting point was that Petrom was the company responsible for the import, refining and export of crude oil and petrochemical products in Romania and that all the crude oil purchased from Glencore was for refining in the four main refineries. Against that background, Mr Southern QC submitted that, since Petrom's case was that it had wanted Iranian Heavy or GOSM and, if it had not got those brands from Glencore, it would have bought them from someone else, but Glencore had tricked it into taking delivery of and refining blends, its true loss was the difference in yield between the blends and the named brands. Mr Southern QC gave the example of a buyer who thinks he is purchasing Brent crude oil but the seller deceitfully delivers Forties the market price of which is, for the sake of argument, Brent minus 50 cents a barrel. The buyer refines the crude and only suffers a refining loss of 30 cents a barrel. Mr Southern QC submitted that the buyer's loss is limited to 30 cents a barrel. He has avoided any greater loss he might otherwise have suffered.
- Mr Southern QC relied by analogy on contractual sale of goods cases where the buyer has purchased goods for a specific purpose and in fulfilling that purpose (for example a sub-sale identified in the contract or use in manufacture of a product) is able to minimise his loss to less than the difference between the contract price and the market price which would otherwise be the prima facie measure of loss under section 53(1) of the Sale of Goods Act 1979. He relied specifically on the decision of the Privy Council in Wertheim v Chicoutimi Pulp Co  AC 301 applied and approved by the Court of Appeal in Bence Graphics International Ltd v Fasson UK Ltd  QB 87.
- In my judgment, there are a number of fallacies in Mr Southern QC's argument that the difference in GPW represents the true loss suffered by Petrom. The first is the assumption that Rafirom is to be taken to have been the refiner. In fact the companies which operated the refineries were separate corporate entities. In the run up to the trial, Glencore sought disclosure of documents concerning the relationship between Rafirom and the refineries or further information on that subject. Petrom's solicitors resisted any such disclosure or further information on the basis that no case about this was pleaded by Glencore and that it was irrelevant to the issues the court had to decide, specifically to the quantum of the loss applying the deceit measure. This point was made by Petrom's solicitors as recently as 22 December 2014, a month before the trial began, and no application for disclosure or further information was pursued by Glencore. Furthermore, I agree with Mr Matthews QC that whilst Rafirom may have intended to supply the crude that was purchased by Petex to the refineries, there is no evidence that it was obliged to do so or that it was obliged to supply any particular claim cargo to any particular refinery, as opposed to selling it for a profit. The fact that Rafirom may have intended to supply the crude oil to the refineries is irrelevant to the assessment of the damages it has suffered. As demonstrated below, that would be the position, on a proper analysis, even if the claim were one for breach of contract, but the position must be a fortiori on the basis that the claim is in deceit.
- Glencore's argument overlooks that the real loss suffered by Rafirom was the full price paid as induced by the deceit, giving credit for the actual value of the blends irrespective of what Rafirom did with the blends. Although Mr Southern QC sought to argue that the yield which the blend would give when refined represented its actual value, that was a submission which ran contrary to the evidence of Glencore's own experts who accepted that GPW is not assessing market value and yield is only part of the picture.
- Another fallacy in the argument is that it is essentially a mitigation argument, that Rafirom mitigated its loss by refining the crude supplied and so its damages should be limited to the loss of yield. Whilst it is correct that the House of Lords in Smith New Court recognised that even in a case of deceit a claimant is under a duty to mitigate and cannot recover a loss he could have avoided, there is no plea in the present case that Rafirom mitigated its loss, so this point does not arise. That is one answer to Mr Southern QC's ingenious Brent/Forties argument, that what he is relying upon is the doctrine of mitigation which does not arise here. More fundamentally that argument (and the similar argument made by Mr Southern QC in his opening submissions about the horse with a latent defect which the seller fraudulently conceals but which ultimately wins all the races or sires all the foals expected of it) ignores that as a consequence of the fraud, the buyer has still paid more for the crude oil (or the horse) than he would have done if he had known the truth and it is the difference between the price paid and the actual value of what was delivered which represents the loss. The refining profit the buyer might make, even assuming (which cannot be assumed here) that he is the refiner, is res inter alios acta. Likewise any profit made by the buyer of the horse on racing or breeding it.
- The argument also appears to assume that the fraudster can supplant the normal measure of loss for deceit calculated in accordance with Lord Browne-Wilkinson's principles by saying that the loss should be calculated by reference to a calculation which leads to a much lower measure of loss than would otherwise be the case. However, what the House of Lords was seeking to achieve in Smith New Court in deciding that, in an appropriate case, the loss should be calculated at a later date than the date of the transaction, was to ensure that the victim of the deceit recovers full compensation for the loss he has suffered. This is made absolutely clear from the passage slightly later in his speech where Lord Browne-Wilkinson applies the principles he has formulated to the facts of that case. At 268B-D he says:
"In the circumstances, it would not in my judgment compensate Smith for the actual loss they have suffered (i.e. the difference between the contract price and the resale price eventually realized) if Smith were required to give credit for the shares having a value of 78p on 21 July 1989. Having acquired the shares at 82¼p for stock Smith could not commercially have sold on that date at 78p. It is not realistic to treat Smith as having received shares worth 78p each when in fact, in real life, they could not commercially have sold or realised the shares at that price on that date. In my judgment, this is one of those cases where to give full reparation to Smith, the benefit which Smith ought to bring into account to be set against its loss for the total purchase price paid should be the actual resale price achieved by Smith when eventually the shares were sold."
- As I said at  above, this flexible approach is not intended to provide the defendant who has committed the deceit with a means of avoiding full compensation for the loss suffered. Rather on the basis of the principle enunciated by Lord Blackburn in Livingstone v Rawyards, everything is presumed against the wrongdoer. That is also an answer to the points made by Mr Southern QC in relation to discount, to which I turn in more detail below.
- The reliance which Glencore placed upon Wertheim and Bence Graphics is misplaced. They are both cases of breach of contract, not deceit, and they have nothing to say about the measure of damages for the tort of deceit. Furthermore, there are a number of problems with Bence Graphics in particular. Before that case, the orthodox view in the case of goods which in breach of contract were delivered in a defective condition and not of the contractual quality was that the fact that the buyer had been able to sell the goods on pursuant to a sub-sale without suffering a loss under the sub-sale was res inter alios acta and did not displace the prima facie measure of loss in cases of breach of warranty as to quality under section 53(3) of the Sale of Goods Act of the difference between the value of the goods at the time of delivery and the value they would have had if they had fulfilled the warranty.
- That orthodox view is represented by the well-known decision of a strong Court of Appeal (Bankes, Warrington and Scrutton LJJ) in Slater v Hoyle & Smith Ltd  2 KB 11. In that case, the fact that the buyer had sold on the defective goods pursuant to a sub-sale without suffering any loss under the sub-sale was held to be res inter alios acta, as, absent special circumstances or knowledge bringing the case within the second head or limb of Hadley v Baxendale (1854) 9 Exch 341, would have been the fact that the buyer had suffered a greater loss under the sub-sale than the section 53(3) measure (which as section 53(2) makes clear is essentially the application of the first head or limb of Hadley v Baxendale to this particular breach): see in particular per Scrutton LJ at 22-23 quoted below.
- In support of its case that the fact that no loss had been suffered under the sub-sale meant that the seller should not be liable for damages under the contract of sale, the seller in Slater relied upon the decision of the Privy Council in Wertheim v Chicoutimi Pulp Co  AC 301. That was a claim for delay in delivery of a quantity of wood pulp. The buyer claimed the difference between the market price at the port of delivery on the due date and the market price on the date of actual delivery. In fact the buyer had on-sold the wood pulp under sub-sale contracts at a price which was considerably more than the market price at the date of actual delivery. The Privy Council held that the buyer's damages were limited to the difference between the market price when the goods should have been delivered and the price achieved under the sub-sales.
- All three members of the Court of Appeal in Slater approved the statement of law by Lord Esher MR in Rodocanachi v Milburn (1886) 18 QBD 67 at 77 (which had in turn been approved by the House of Lords in Williams v Agius  AC 510): "It is well settled that in an action for non-delivery or non-acceptance of goods under a contract of sale the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods." They also considered and distinguished Wertheim on the basis that it applied only to cases of delay in delivery and should not be extended beyond such cases or (per Bankes LJ at 15) not beyond cases where the sub-sale is of the identical goods. Scrutton LJ at 24 clearly thought Wertheim was wrongly decided.
- Bence Graphics v Fasson  QB 87 was a case where the defendant produced vinyl film which the plaintiff bought for use in making decals on which the plaintiff screen printed identification words and symbols to be affixed to containers by self-adhesion. This was the only purpose for which the plaintiff purchased the film. 93% of the decals were sold by the plaintiff to Sea Containers Limited who imposed their own specification for decals and who leased out containers. The defendant was aware of the purpose to which the vinyl film it sold to the plaintiff was being put and was also aware that the standard requirement of decals in the container industry was that they should have a guaranteed minimum five year life. Insufficient stabiliser was used by the defendant in the manufacture of the film, so that it did not last the full five year period and some of the decals became illegible. There were numerous complaints from users of the containers (with whom the plaintiff was not in a direct contractual relationship), but only one complaint relating to a small number of the decals led to a claim against the plaintiff, which the plaintiff settled at its own expense and received compensation from the defendant. The plaintiff also returned defective film worth £22,000 to the defendant, which admitted liability for that sum. The plaintiff claimed as damages for the defendant's breach of contract in delivering defective goods the full price paid for the goods, some £560,000.
- The judge at first instance, Morland J, found that the defendant had not satisfied him that, in all the circumstances in which the contract was made, the parties must be taken to have contemplated that the section 53(3) measure of damages was displaced. Accordingly he awarded the full amount of the claim as damages under that sub-section, evidently on the basis that he considered the goods were worthless. That decision was reversed by the majority of the Court of Appeal (Otton and Auld LJJ). Otton LJ at 99C felt able to distinguish the decision of the Court of Appeal in Slater on the basis that it was a case where the sub-sale was of the same goods after bleaching and the seller did not know of the contemplated sub-sale, whereas in Bence Graphics the goods were substantially processed by the buyer and, at the time the contract was made, the seller was aware of the precise use to which the film was to be put. Auld LJ at 102H did not consider that Slater could be distinguished on the two bases which Otton LJ suggested. He considered at 105D-F that Slater had wrongly disregarded the reasoning of the Privy Council in Wertheim that where the goods have been delivered and it can be seen what the buyer has done with them: "it is possible and proper to measure his actual loss by reference to that outcome."
- Both Otton LJ and Auld LJ considered that the decision of the Court of Appeal in Slater must be considered in the light of the dicta of Devlin J in Biggin v Permanite  1 KB 422 at 435-6 that:
"there is only one area of indemnity to be explored, and that is what is within the prevision of the defendant as a reasonable man in the light of the knowledge, actual or implied, which he has at the time of the contract. It has often been held . . . that the profit actually made on a sub-sale which is outside the contemplation of the parties cannot be used to reduce the damages measured by a notional loss in market value. If, however, a sub-sale is within the contemplation of the parties, I think that the damages must be assessed by reference to it, whether the plaintiff likes it or not. . . . if it is the plaintiff's liability to the ultimate user that is contemplated as the measure of damage and if in fact it is used without injurious results so that no such liability arises, the plaintiff could not claim the difference in market value, and say that the subsale must be disregarded."
- On that basis, the majority of the Court of Appeal held that the prima facie measure of damages under section 53(3) of the Sale of Goods Act was displaced, because it had been in the contemplation of the parties, at the time the contract was made, that the vinyl film was to be used in the manufacture of the decals to be sold on by the plaintiff. In those circumstances, damages were to be assessed by reference to the liability of the plaintiff to the ultimate users arising from the defect in the goods. The majority therefore held that the damages were limited to the £22,000 and to any liability to the end users. Thorpe LJ in the minority considered that Morland J's finding that the measure under section 53(3) had not been displaced did not betray any error of law and so should not be disturbed.
- Mr Southern QC placed particular reliance on what Auld LJ said as quoted at  above to submit that, by parity of reasoning, the same principle should apply here. It had been contemplated when the contracts were entered into that the crude oil Glencore supplied would be refined in the Romanian refineries, as in fact occurred, so that damages should be limited by reference to that outcome to the difference in GPW.
- The obvious ground of distinction between that case and the present is that that was a case of breach of contract and was concerned with the contractual measure of damages, whereas this is a case of deceit where the principles set out by Lord Browne-Wilkinson in Smith New Court apply. Bence Graphics makes no mention of deceit or how damages for deceit are to be assessed. To that extent, despite the ingenuity of Mr Southern QC's submissions, it is wholly irrelevant for present purposes.
- Furthermore, whilst it is not for me as a judge at first instance to say whether or not Bence Graphics is correctly decided on its own particular facts, it is noteworthy that the decision has received trenchant criticism from Professor Treitel in an article in the Law Quarterly Review:  190 LQR 188, essentially on two grounds. First, that he considers that the Court of Appeal may not have asked itself the right question. As Professor Treitel says the majority of the Court of Appeal appear to have treated the case as one of remoteness, but it is doubtful if it is primarily or exclusively one of remoteness:
"Where a seller delivers goods which are not in conformity with the contract, the buyer is or may be prejudiced in two quite different ways. First, the value of the non-conforming goods may be less than that which they would have had, if they had been in conformity with the contract; and secondly, the buyer may have intended to put the goods to some use for which, by reason of the non-conformity, they are unsuitable. The first type of prejudice is not in itself subject to the test of remoteness… The second type of prejudice would arise if the buyer had used [the goods] for some purpose…for which it turned out to be unsuitable, and had therefore been put to extra expense or been exposed to claims from third parties. It is loss of this kind…which is subject to the test of remoteness and so is subject to section 53(2). The relation between subsections (2) and (3) is not, it is suggested, that between a general rule and a special application of that rule to a particular set of circumstances; the two subsections deal with different aspects of the damages problem, or with different types of loss. "
- Professor Treitel points out that it was with that second kind of loss that the judgment of Devlin J in Biggin v Permanite, on which the majority in Bence Graphics placed considerable reliance, was concerned. That case concerned the liability of a manufacturer and of an intermediate seller of roof felt adhesive to the ultimate buyer, which suffered physical damage to property. Thus, it was not a difference in value claim but a claim for consequential loss. Accordingly, as Professor Treitel says, Devlin J's dicta about foreseeability of sub-sales were made in the context of a claim for consequential loss, and do not appear directly relevant to a difference in value claim such as was being made in Bence Graphics. Furthermore, the Court of Appeal in Bence Graphics makes no mention of the fact that Devlin J's decision that the intermediate seller could not recover the sum for which he had settled the claim made against him was reversed on appeal ( 2 KB 314).
- The second ground upon which Professor Treitel criticises Bence Graphics is for the refusal of the majority of the Court of Appeal to follow the earlier decision of the Court of Appeal in Slater. He points out that it is necessary to distinguish two different categories of case in which "identical goods" are sold on. The first is where the buyer under the original contract has entered into a sub-sale the terms of which can be performed only by delivery of the goods bought under the original contract. In that situation, even if the goods are defective, the buyer has suffered no loss, if the terms of the sub-sale are such that they are in conformity with the contract or any liability for non-conformity is excluded, because he has legally no choice as to the disposal of the goods, so that in his hands they are worth no less than the "full price". In such cases the rule in Slater does not apply.
- The second category is where the sub-sale can be performed by delivery of any goods answering the description under the sub-sale and the original buyer chooses to deliver under the sub-sale the goods he which he bought under the original contract. In such cases, as the Court of Appeal held in Slater, the sub-sale is irrelevant to the assessment of the damages suffered. The reason is stated clearly by Scrutton LJ in that case at 22-23:
"If the goods are delivered damaged, he has got goods and has paid the contract price; what he has not got is sound goods, and his loss is therefore the difference between the market value of sound goods and the market value of these damaged goods. Again, sub-contracts do not come into account, for the buyer is under no obligation to use these goods for his sub-contract; he may buy in the market, and he will then be left with goods damaged to a certain extent at the then market price of such goods instead of sound goods at the then market price of sound goods. The difference between the two market prices should be the measure of damages. If the buyer delivers under the sub-contract the damaged goods and has to pay damages, these damages will not be the measure of damages. As Lord Dunedin says [in Williams v Agius  AC 510 at 523] : "How can it ever be known that the damages recoverable under that contract will be calculable in precisely the same way as in the original contract?" If these damages are greater than the difference in market price of sound and damaged goods, they will clearly not be recoverable. The result seems the same if they are less; it is res inter alios acta: "circumstances peculiar to the plaintiff," which cannot affect his claim one way or the other. If the buyer is lucky enough, for reasons with which the seller has nothing to do, to get his goods through on the sub-contract without a claim against him, this on principle cannot affect his claim against the seller any more than the fact that he had to pay very large damages on his sub-contract would affect his original seller."
- Professor Treitel is clearly of the view that Bence Graphics falls into that second category, because the plaintiff was not bound under its contracts for the supply of decals to use the film supplied to it by the defendant and that the reasoning in Slater is to be preferred. However, whether he is right about that or not, quite apart from the fact that the present case is one in deceit, not for damages for breach of contract, the present case is one within the principles stated by the Court of Appeal in Slater. There is simply no evidence that Petex or Rafirom was legally obliged to provide crude oil under any particular contract with Glencore to any particular refinery. No doubt Rafirom did supply the crude oil to the refineries in practice, but there was nothing to stop it selling it on to another third party on the market if it chose to do so.
- In my judgment Bence Graphics is of no assistance to Glencore in the present case. I should add that no assistance is to be had either from the decision of HHJ Mackie QC in Proton Energy Group SA v Orlen Lietuva  EWHC 2872 (Comm);  1 Lloyd's Rep 100. That too was a contract case not a case of deceit. It was also a case where there was no evidence of value by reference to a FOB or CIF calculation such as carried out by Miss Jago in the present case. The judge concluded that the claimant's loss was to be assessed by reference to GPW in circumstances where the defendant was contending that the claimant could not establish that it had suffered a loss at all and the judge was obviously disinclined to accede to that submission.
- The correct measure of damages for deceit in the present case is not the difference in GPW for which Glencore contends, but the measure arrived at by the application of Lord Browne-Wilkinson's principles (3) and (4), namely the full price paid by Rafirom for the claim cargoes, against which credit is to be given for the actual value of what was delivered. I have already dealt above with the first stage of Miss Jago's assessment of that value, her calculation of the price for the blends supplied on a CIF Constantza basis. I now turn to the second stage of that assessment, what is the appropriate discount to be applied to that CIF price to reflect the fact that what was supplied was bespoke blends not recognised grades of crude oil.
- I should deal first with Mr Southern QC's primary submission that there should be no further discount beyond the value calculated by reference to the CIF price because any discount was built into that calculation. The basis for that submission was that that price did not include any of the costs of blending and a willing seller would not have been prepared to grant any further discount. In my judgment, that submission is misconceived. As I have already held, a buyer, however willing, being asked to buy a bespoke blend rather than a recognised grade would not have been the slightest bit interested in the blending costs incurred by the seller. I accept the evidence of Mr Jones and Miss Jago that any buyer being asked to buy any one of these claim cargoes knowing that in each case it was a bespoke blend (and in fact the precise constituents of any given cargo were never the same as any other, so that there was no consistency) would have insisted upon a discount from the CIF price. In cross-examination Mr Roffey, Glencore's trading expert, agreed.
- As Mr Matthews QC put it in his written closing submissions: "The reason why a discount would be required to persuade a buyer to purchase a blend is because there are a whole range of uncertainties that come into play when one is buying an unknown blend as opposed to a recognised grade. The experts all agreed that refiners are conservative by nature, and will require a financial incentive to persuade them to alter the way they run their refinery by changing the crude slate, particularly in a slack market. The greater the level of uncertainty that exists, the greater the discount that the refiner would expect." I accept that analysis, which, quite apart from the fact that it was in accordance with the expert evidence, seems to me to accord with commercial common sense.
- Furthermore, that a buyer in the position of Petex would have required a discount to take a blend is demonstrated by the one blend which Petex knowingly purchased, the Egyptian Blend on the SEAWIND II, where there was a discount of U.S. $0.34 per barrel. However, I disagree with the suggestion by Mr Southern QC that this should somehow be regarded as an upper limit for any discount. Because it was a barter deal, it was particularly attractive to Petex and Rafirom since it avoided any foreign exchange difficulties in putting up a letter of credit and enabled them to dispose of a gasoil cargo they had in storage at Constantza. Those advantages to Petex and Rafirom of the barter deal suggest that for a straight purchase of a bespoke blend, they would have been looking for a discount considerably higher than in that case.
- Mr Jones and Miss Jago identified three broad types of uncertainty someone offered an unrecognised blend would face: (i) uncertainty as to the composition of the blend; (ii) uncertainty as to how to set up the refinery or refineries to which the blend is supplied and (iii) uncertainty as to performance of the blend. The first and third of these can be considered together. So far as composition is concerned, it is common ground for the purposes of the present proceedings that each blend contained the components in the quantities set out in Table B. Although Mr Jones very properly in his expert evidence expressed his opinion that in the case of some of the cargoes, the compositions stated in Table B cannot be correct, an opinion with which Dr Holdaway disagreed, the fact remains that, having agreed Table B, it is not open to Petrom now to seek to go behind it.
- Accordingly I proceed on the basis that the claim cargoes contained the components and proportions set out in Table B. Nevertheless, some of the claim cargoes contained components the precise nature of which remains obscure. Thus, cargo 19 contains some 15,000 metric tons of oil stated to be "N" which the experts understood to be a reference to "Nile Blend". However, that cannot have been Nile Blend because that crude did not exist outside Sudan at the relevant time in 1995. Cargo 21 contained some 20,000 metric tons of crude oil stated to be "DH". None of the experts could explain what that was. In closing submissions, Mr Southern QC submitted that in the arbitration ten years ago the suggestion was that this was a blend of three Kazakh crudes. Whether that is right or not, the precise provenance of DH remains obscure. Cargo 30 contained just short of 1,700 metric tons of something described as "Fuel Oil Mix ????" As Mr Matthews QC rightly submitted, the question marks indicate that there was uncertainty as to what it was, save that it was not crude oil.
- As a general observation, whilst some of the crude oils used in the blends were well known crudes at the time such as Belayim, Ras Budran and Ras Gharib, others were not well known at the time, such as Geisum (used in cargo 26), Zafarana (used in cargoes 22, 26, 27 and 31) and OSO Condensate (a Nigerian crude used in cargoes 26, 27 and 28). This was the evidence of Mr Roffey in the arbitration and he accepted it in cross-examination before me.
- Whilst the obscurity of some of the components and the relative unfamiliarity of some of the others must not be exaggerated, it does seem to me that any buyer faced with the purchase of a blend which contained obscure or unfamiliar components with no history of their performance would have been looking for a further discount from the price he would otherwise have been prepared to pay for a blend, which itself would be a discounted price from what he would be prepared to pay for a recognised brand of crude oil such as Iranian Heavy or GOSM. Furthermore, the information in Table B does not give the buyer information about the presence of cracked materials or high metals or other materials which might cause damage to the refinery in the refining process.
- For the purposes of calculating damages and specifically the appropriate discount given the risks of uncertainty as to the composition of the blends and their performance, Mr Matthews QC accepted on behalf of Petrom that the seller would be able to provide any buyer with the information as to the constituents in the particular blend as set out in Table B. This was essentially a pragmatic concession, notwithstanding that it is unclear to what extent Glencore could in fact have obtained that information in advance from EAPC when offering a blend to a buyer, even in those cases where in due course EAPC did inform Glencore about the quantities of each component in a given cargo.
- However, Mr Matthews QC submits that as a matter of principle, given that, in accordance with what Lord Blackburn said in Livingstone v Rawyards everything will be taken into account which goes most against the fraudster, not everything which goes in his favour, the court should not proceed on the basis that the buyer would have had any further evidence about the blend or its likely performance. Both Mr Southern QC's submissions and Mr Roffey's evidence about the appropriate discount proceeded on the assumption that the seller would have been able to provide full up to date assays for each of the component crudes, a distillation analysis and independent verification as to the constituents of the blend. I agree with Mr Matthews QC that assumption or as he described it "the bells and whistles" should not be made in Glencore's favour as a matter of principle, thereby reducing Glencore's liability, in circumstances where no such additional information was provided to Petrom. The actual value of these blends is to be assessed on the basis that the hypothetical buyer was provided for the particular blend he was buying the information in Table B and no more.
- On that basis, it seems to me that Mr Roffey's evidence about an appropriate discount has to be approached with considerable caution. As Mr Matthews QC said, Mr Roffey was not prepared to put a figure on what sort of discount might have been achieved by a hypothetical buyer in the present case but, based on his own experience of buying blends in the past, he seems to have had in mind something between U.S. $0.15 and $0.60 per barrel. I agree with Mr Matthews QC that, quite apart from the caution required in relation to his evidence, given that it assumed full "bells and whistles" information would have been provided to the buyer, his own experience of buying blends was from working for BP Australia between 1978 and 1981 when he bought about four or five blends at a time when he was purchasing about 180 cargoes a year. He accepted in cross-examination that the market was very tight in terms of supply in that period. In contrast, in the period 1993 to 1996 with which this case is concerned, the market was slack and crude oil was in plentiful supply, market conditions in which fairly obviously any purchaser will require more of an incentive to purchase a bespoke blend rather than a familiar brand of crude oil. Furthermore, as he explained in evidence, the blends BP Australia were purchasing comprised components with which they were familiar and before purchase they calculated the yield they were likely to achieve.
- All this tends to suggest that if Mr Roffey had been faced in a slack market with an unknown blend with the only information available being that in Table B, the discount he would have wished to achieve as a purchaser would have been considerably in excess of the U.S. $0.60 per barrel which seems to have been his upper limit. Indeed, there must be some doubt whether he would have purchased such blends at all, as is apparent from these answers in cross-examination:
Q. You are assuming that the seller both provides him with the relevant information and satisfies him as to the accuracy of that information?
A. I have been asked to comment on a discount which might be negotiated between a willing buyer and a willing seller and I have always said it depends on the information available. If you have no information, then clearly the most likely is that you would withdraw from the negotiation.
Q. You wouldn't touch it, yes?
A. So I don't think we are in disagreement
- In general, I much preferred the evidence of Miss Jago on the issue of discount to that of Mr Roffey. Miss Jago's evidence about uncertainty of performance was there was an analogy to be drawn in the case of these bespoke blends with the sort of discount that would be required for the purchase of a new brand of crude to reflect the uncertainties surrounding such a new brand, which in her opinion would generally be around U.S. $0.50 to U.S. $1 per barrel. Although Mr Southern QC submitted that there was little detail to support her opinion, she made it clear in cross-examination that her opinion was based upon her experience in the market and from working with refiners.
- In fact in her opinion, whilst the analogy was a helpful one, the financial incentive required to purchase a blend in the circumstances of the present case is likely to be greater than for a new crude not only because a new crude would be offered with full "bells and whistles" information, whereas the correct assumption in the present case was that such information was not available, but because new crudes would generally be offered in small volumes whereas the claim cargoes were up to 135,000 metric tons. Furthermore, there would be a long term financial incentive for a buyer in purchasing a new crude which might perform sufficiently well to provide an ongoing supply. That important factor is completely absent in the case of a one-off blend such as each of the claim cargoes.
- At the trial there was much debate about whether the discount allowed by Glencore of U.S. $0.40 to U.S. $0.45 per barrel against the price of Urals for the Keimir crude oil supplied in 1995 and 1997 could properly be regarded as a new crude discount or was allowed because the transportation difficulties from the Caspian Sea were such that the crude had to be brought down river in barges each carrying 3,500 metric tons to the Black sea, so that unless Glencore incurred substantial costs of transhipment into an ocean-going vessel, the crude could only really be delivered in the barges to Constantza or Bourgas. Mr Iancu accepted that his evidence that there had been a new crude discount in relation to the Keimir supplied in 1997 was mistaken. He had evidently overlooked the purchase of the equivalent of 100,000 metric tons of Keimir by Petex shipped to Constantza on barges in 1995/6.
- Although Mr Jones sought to contend that since this was only equivalent to one full tanker of Keimir, it could still be regarded as a new crude in 1997, I was unimpressed with that contention. It seemed to me that the real explanation for the discount on Keimir was the one Glencore gave, the logistical difficulties of selling it to anyone other than Petex or the Bulgarians. Although Mr Matthews QC also sought to rely upon the discount of U.S. $0.25 to U.S. $0.65 per barrel on Cheleken crude as a new crude discount, there was little if any evidence about that.
- Mr Southern QC relied upon the fact that the discount on the Keimir crude was not in fact a new crude oil discount to suggest that Miss Jago's "new crude" discount of U.S. $0.50 to U.S. $1 per barrel was flawed. However, it is clear from her first expert report that the discount derived from her own experience and was not dependent upon the Keimir point. She has merely used the evidence she was told was evidence of a Keimir new crude discount as a point of comparison in her supplementary report to confirm the reasonableness of her overall figure for a discount of U.S. $1.25 per barrel. It seems to me that the highest this can be put is that, if the Keimir point is a false one, one of the benchmarks as to the reasonableness of her own discount figure goes.
- The other risk of uncertainty which Mr Jones identified and relied upon was to do with optimisation losses which would have been incurred in setting up any refinery to run a bespoke blend as opposed to a recognised crude. Mr Jones was cross-examined closely about his assumption that there would be a sub-optimal period of 24 hours and I agree with Mr Southern QC that the maximum sub-optimal period would have been about 12 hours, which Mr Jones agreed in cross-examination was reasonable and which may indeed be over-generous to Petrom, given that the blends did have a similarity to the grades of Iranian Heavy and GOSM and that there is no evidence that there was in fact any margin impairment in refinery operation from the blends.
- In cross-examination Mr Jones also accepted that the average cargo quantity here of 820,000 barrels would have taken 10 to 12 days to process and that if the sub-optimal period was 12 hours, that was half a day out of ten or twelve days, so about 5% of the time. He had taken a margin impairment figure of U.S. $1.50 per barrel about which he agreed there was nothing scientific and accepted that even if this was correct, 5% of that was U.S. $0.06 or $0.07 per barrel.
- Again Mr Southern QC sought to suggest that this more realistic assessment of margin impairment should lead the court to conclude that Miss Jago's overall figure for a discount of U.S. $1.25 per barrel was unrealistic. However, as she pointed out in cross-examination, she did not rely upon Mr Jones' evidence about margin impairment in arriving at her overall figure, but used it as a verification exercise. Nonetheless, it seems to me that the much reduced figure for margin impairment suggests that the figure of U.S. $1.25 per barrel should come down somewhat.
- Before summarising my conclusions about the appropriate discount, I should deal with a general submission made by Mr Southern QC that because the risks for example of damage to the refineries through asphaltenes in the blends had not in fact materialised, there should be no further discount to reflect those risks. However, in my judgment, the exercise here is to establish what discount a willing buyer would have required as at the bill of lading date for the future risks and uncertainties which Mr Jones and Miss Jago identified, albeit with the qualifications which were accepted in cross-examination. Any such buyer would have required a discount to reflect those risks and uncertainties and it is nothing to the point that the risks did not, in the event, occur. Obviously if one of the claim cargoes had caused a refinery explosion for which Rafirom was liable to indemnify the refinery, Rafirom could recover that additional loss as consequential loss pursuant to the principles set out by Lord Browne-Wilkinson in Smith New Court.
- In conclusion on the issue of the discount, it seems to me that in broad terms, as I have indicated, the evidence of Miss Jago about the appropriate discount is much to be preferred to that of Mr Roffey whose experience related to known blends in a tight market. However, as Miss Jago recognised fairly in her evidence the U.S. $1.25 per barrel figure she has adopted is something of a subjective figure and, in my judgment, should be reduced somewhat to reflect the fact that the risk of margin impairment in the set up of the refineries for these blended crudes would not in reality have much impact. I consider that the appropriate figure for the discount, taking account of all the other factors I have identified, is an average of U.S. $1 per barrel.
- It follows that, applying the discount to the total quantity of the claim cargoes gives a figure for the discount of U.S. $26,207,172. When that is added to the difference between the price paid and the CIF price of the blends as calculated by Miss Jago, the overall loss suffered by Rafirom and hence Petrom as its successor in title as a consequence of Glencore's deceit is U.S. $40,071,913.
Account of profits
- During the course of closing submissions, Mr Matthews QC indicated that, in the event that the court decided that Petrom was entitled to recover damages in accordance with the third and fourth principles set out by Lord Browne-Wilkinson, as I have indeed held, Petrom would not pursue its alternative claim against Glencore for an account of profits.
- Petrom also pursued a claim for exemplary damages. Mr Matthews QC realistically recognised that he was unlikely to be able to persuade me to take a different approach to this issue to the one I took in Parabola at  to . As I recorded there such awards are normally limited to something in the region of £15,000 and it would be faintly absurd to suggest that adding such a small sum to the very substantial damages I have held Petrom is entitled to recover would express the court's outrage and displeasure at Glencore's fraud. I decline to make any such award.