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Case Update – Mercuria Energy Trading SA v ONEX DMCC [2026] EHWC 130 (Comm) 

Introduction

The High Court recently passed down a judgment involving a dispute between oil traders following the sale of cargo contaminated with organic chlorides. The principal issue was whether the sale contract contained a guarantee as to this specification.

Background

The claim arose out of alleged issues with a cargo of Iraqi SOMO Basrah Pipeline Sulphur Straight-Run Fuel Oil (the “Cargo”) which was sold via a sale contract on CIF terms (the “Contract”) by the Defendant, Onex DMCC (“Onex”) to the Claimant, Mercuria Energy Trading SA (“Mercuria”). Both parties were experienced oil traders and had previously traded Iraqi SRFO cargoes.

The Cargo was to be delivered to the US Gulf Coast. Parcels of Cargo were loaded from both Khor Al Zubair, Iraq and Fujairah, UAE on board the RELIABLE WARRIOR (the “Vessel”) between 11 July – 6 August 2022.

It was common ground that the contaminated cargo originated from a parcel loaded at Khor Al Zubair from the MT “GOOD NEWS”, which constituted approximately 51% of the total Cargo.

Organic Chlorides can occur naturally within SRFO cargoes, but at too high a level it can lead to chloride corrosion of a refinery’s atmospheric crude oil distillation column. Accordingly, it is common in the industry for SRFO cargoes to be sold with a guaranteed specification as to the levels of Organic Chlorides contained therein.

It became known in the industry shortly after that there were higher than usual levels of Organic Chlorides in cargoes lifted from Iraq. Mercuria received “what purported to be” a certificate of analysis produced on 8 August 2022. This certificate was based on a sample taken from Fujairah, but it was common ground that the analysis was erroneous.

Following industry rumours, Mercuria sought further testing of the Cargo, and analysis conducted by AmSpec indicated that there were levels of Organic Chlorides at approximately 8ppm.

The parties entered into discussions as to how best mitigate the situation. This included heating the Cargo to purge it of elevated Organic Chloride content and taking the Cargo as a “blend”. It became apparent that heating the cargo was not effective.

Mercuria eventually entered into four sale contracts to re-sell the Cargo to alternate buyers in February 2023. Mercuria then brought a claim against Onex for breach.

Issues

Mercuria’s claim was based on the following issues:

• Mercuria argued that Onex were obliged to deliver a Cargo “in line with” a typical Organic Chloride content of 4.1ppm, notwithstanding the incorporation of the BP GTCs.
• Onex argued that that the effect of s.59.1.1 of the BP GTCs was that there was no such obligation.
• Alternatively, Mercuria argued that Onex was in breach of the product description as “100% SOMO IRAQI HSSR” and “SOMO BASRAH PIPELINE HIGH-SULPHUR STRAIGHT-RUN FUEL OIL”.

Mercuria submitted that “in line with” were words of obligation. The BP GTCs were only incorporated “except as specifically detailed above” and the Additional Terms specifically required that the Cargo was “in line with the following typicals”. To the extent that there is any conflict with the BP GTCs and the specifically agreed terms, the latter should prevail.

Onex on the other hand argued that the description of the Product as “TYPICALS” is to be construed as defined in the definitions section of the BP GTCs; that the specification is “given without guarantee and without any promise that the typical quality or attribute would in fact be present”. It was Onex’s position that the words “in line with” were not sufficient to override the preceding provisions, and there is no conflict between the Recap/Additional Terms and the BP GTCs.

Both parties referred the Court to Septo Trading Inc v Tintrade Ltd (“The Nounou”) [2021] EWCA Civ 718, and Onex further referenced Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd (“The Ocean Neptune”) [2018] 1 Lloyd’s Rep. 654. which establish the following principles of construction in these circumstances:

“(1) First, the approach to construction depends upon ascertaining the intention of the parties as it appears from the language that they have used against the commercial setting in which the contract has been concluded. In other words, the court must ascertain what a reasonable person, that is to say a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.

(2) Secondly, there is no magic in the fact that a contract contains both printed and specially agreed terms. The correct approach to construction is to take a practical approach, and not a literal or mechanical one.

(3) Thirdly, if upon a practical construction, the printed term effectively deprives the special term of any effect, then the two clauses are likely to be inconsistent.

(4) Fourthly, if, however, the two clauses can be read fairly and sensibly so as to give effect to both then the court is likely to construe the Contract accordingly.”

Judgment

The Court turned first to the specially agreed terms. Only the table labelled “Typicals” referred to the Organic Chloride, it was referenced in the “Guaranteed Specifications” table. As both tables included references to other Cargo qualities, it follows that the parameters in each table should be considered separately.

The Court also found it appropriate to turn to the BP GTCs to construe the meaning of “Typicals”. The Court agreed with Onex that the Contract must be construed as a whole, and it does not follow to ignore the clear definition in the incorporated terms. The Court said:

“The Contract, when read as a whole, draws a distinction between the

guaranteed specifications on the one hand and Typicals on the other. The use of the

words “in line with” is not sufficient to elevate a “typical” characteristic into a warranty.

They have no more significance than if the Contract had, for example, instead provided “typicals as follows” or in “accordance with the following typicals”. The crucial word is “typicals” and that is defined and explained in sections 57.1.61 and section 59.1.1 of the BP GTCs.”

As such, it was held that a reasonable person in the position of these experienced parties would have understood the Contract to draw a distinction between Guaranteed Specifications and Typicals. The BP GTCs are commonly incorporated into oil sale contracts, and both parties would or should have been aware of their terms. These incorporated terms do not deprive the special conditions of any effect, and there was no relevant inconsistency between the terms.

The Court held that the wording “100% SOMO IRAQI HSSR” was concerned with the origin of the Cargo and had nothing to do with the quality. The Cargo had not lost its commercial identity as a result of the contamination; it remained Basrah Pipeline HSSR fuel oil. Accordingly, Onex were not in breach. Mercuria’s claim therefore failed.

Quantum - Obiter

As the claim failed, the Court did not need to make any findings as to quantum. As strictly obiter, the Court found it was not reasonably possible for Mercuria to sell the cargo as is. Mercuria’s attempts to heat and purge the Cargo were also reasonable, particularly as this was suggested by Onex. Mercuria also made reasonable attempts to investigate the possibility of cargo blending and ultimately sold the Cargo at a reasonable price. Had Mercuria succeeded on liability, they would have been awarded their damages in full (approximately USD26 million).

Commentary

This Judgment provides coherent guidance as to how a Contract that contains specially agreed and incorporated terms will be construed. It is of particular relevance to disputes under commodity contracts with incorporated BPGTCs.

The full judgment can be read here: Mercuria Energy Trading SA v Onex DMCC

Article prepared by:

Tom Whitworth