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Damages for Non-Stop Acceptance of Goods not Covered by Exclusion Clause Covering "Loss of Profits"

12 March 2014

In the case of Glencore Energy UK Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm), 24 January 2014, the High Court has clarified that a claim for damages for non-acceptance of goods under s50 of the Sale of Goods Act 1979 is not a claim for loss of profits, but rather for loss of the bargain the seller would have benefited from under the contract.

Where parties to a contract wish to exclude claims for damages under s50, the contract must contain clear and specific wording to that effect.

The claimant, Glencore Energy UK Ltd (Glencore), and the defendant, Cirrus Oil Services Ltd (Cirrus) had entered a contract on 4 April 2012 for the sale of crude oil. When Cirrus refused to accept the oil, Glencore successfully brought a claim for damages under s50(2) and (3) Sale of Goods Act 1979 (the Act) for Cirrus' repudiation of the contract. The key issue of interest in this case is the question of whether the seller's claim was excluded by the exclusion wording in the contract.

Section 50 – a reminder

Where ownership of the goods has passed to the buyer at the time of non-acceptance, the seller can make one of two possible claims. The first is a claim for the contract price and the second, a claim for damages for non-acceptance under s50. Most commonly, a claim for the price of goods is preferable because the value of the claim is likely to be higher than the value of a s50 claim. The claimant also will not need to mitigate its loss, which it must do in a s50 claim (indeed, it will be assumed to have done so in an assessment of damages: which will be capped at the difference between the contract price and the market or current price of the goods).

However, where ownership has not passed to the buyer at the relevant time, the seller has no choice.

The seller's only recourse is to bring a claim for damages for non-acceptance under s50. This is because the seller has no entitlement to damages for the price of the goods if he still has title to the goods. Difficulty arises where there is uncertainty about whether the property had actually passed to the buyer when the buyer refused to accept delivery. If the seller decides to pursue a claim for the contract price in the belief that the goods had passed to the buyer at the time of non-acceptance, there is a risk that the court would find that the property had not passed to the buyer and the seller's claim would necessarily fail.

A claimant who seeks damages for non-acceptance under s50 must mitigate its loss, for example by reselling the goods at market or current price. A failure by the claimant to resell the goods at all or to resell the goods at their market or current value will be a failure to mitigate and the seller will not be able to recover damages for the difference between a low (or non-existent) resale price and the contract price. If the seller resells the goods at a higher price, damages might be reduced so that the seller only recovers its actual loss (this will depend upon the facts).

Facts

Following an exchange of emails, Glencore had agreed to provide a cargo of oil to Cirrus for onward sale to a third party (TOR). Before Glencore delivered the goods, it became clear that TOR was not willing to accept the oil, having discovered that the cargo would consist of a blend of oils from different wells. Cirrus refused to accept the cargo and thus repudiated the contract, resulting in Glencore's claim for damages.

Cirrus argued that this was a claim for loss of profits and that, since the contract excluded claims for indirect or consequential losses or expenses including loss of anticipated profit, Glencore was not entitled to damages. The judge rejected this argument. He stated that a claim under s50 is not a claim for lost profits and that "no-one who understands the way in which the Sale of Goods Act works, would refer to this measure as a "lost profits" or "loss of anticipated profits"." He explicitly clarified that the calculation of damages under s50 is not a computation of lost profit, but rather a means of compensating a seller for the loss of the bargain with a buyer.

The claim was successful in spite of the fact that Glencore cancelled its contract with the crude oil supplier without liability, before taking delivery of the crude oil, and so suffered no out of pocket losses from Cirrus' repudiatory breach.
How are damages calculated under s50?

Cooke J describes the measure of damages under the Act as "designed to compensate the seller for the loss of the bargain with the buyer by computing how much worse off the seller would be, if at the time of the breach, he had sold the goods to a substitute buyer." Where there is an "available market," the amount of damages will be decided by calculating the difference between the contract price and the market or current price at the time the goods ought to have been accepted.

Comment:

Glencore v Cirrus draws a clear distinction between claims for loss of profits and claims for damages for non-acceptance under s50. Since the judge found that a s50 claim is not a loss of profits claim, a seller who had contracted out of the right to sue for loss of profits would nonetheless be able to bring a s50 claim, as Glencore did. It was on this point that Cirrus' case failed. Cirrus had relied upon a clause in the contract which excluded liability for loss of anticipated profit. Cirrus argued that it followed from the existence of this clause that Glencore could not succeed in a claim for the profit it would have made had Cirrus not repudiated the contract. The judge rejected this argument and explicitly held that the calculation of damages under s50 is not a computation of lost profit, but rather a means of compensating the seller for the loss of the bargain with the buyer.

The case demonstrates that a seller's right to a claim under the section will be widely interpreted. Glencore had not suffered any out of pocket losses and had failed to mitigate the loss it incurred from Cirrus' refusal to accept the goods, yet was successful in its claim for damages under s50.

The case is also a reminder of how strictly the courts will interpret wording which attempts to exclude liability for claims under s50 and of the importance of careful and specific drafting when the parties wish to exclude liability.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.