BP wins $10m damages after buying contaminated oil from Russia

London's high court rules against UK commodity trading company Glencore

The High Court in London has ruled in favour of BP, which will receive more than $10 million in damages. Alamy

Energy company BP has won damages of $10m after it was delivered contaminated oil from Russia by commodity trading company Glencore Energy UK.

BP had taken the case to London's High Court to recover losses it suffered after the trader delivered it tainted oil from Russia.

Mrs Justice Moulder ruled that Glencore had failed to uphold its warranty of quality when it sold the oil to BP.

The crude had been shipped from Russia to Germany, where BP scientists tested it and discovered it contained dangerously high levels of organic chloride, a chemical used to help boost oil extraction but which can damage refining equipment.

The case stems from an April 2019 deal in which Glencore sold BP about 100,000 tonnes of blended crude petroleum.

Mrs Justice Moulder has awarded damages of $10,180,849.

"This is a contractual claim for damages brought by BP Oil International Limited in relation to a cargo of crude oil which BPOI purchased from the defendant Glencore and which BPOI alleges was contaminated with organic chlorides," she said.

"By a contract of sale formed in April 2019, the terms of which are disputed, Glencore sold 100,000 mt of Russian export blend crude oil to BPOI, to be loaded between April 13 and April 18, 2019, delivered to Rotterdam.

"On April 16, 2019, the cargo was loaded on board the vessel Alexia at Ust-Luga, Russia. On about April 22, 2019, the cargo arrived and was discharged at Wilhelmshaven, Germany.

"Two certificates of quality in respect of the cargo were delivered to BPOI on about April 17, 2019.

"Neither of these documents made any reference to organic chlorides. It is alleged for BPOI that upon sampling tests being carried out, it was discovered that the cargo was contaminated by organic chlorides.

"I find that the oil delivered was contaminated and as such cannot be said to be of the quality usually delivered at Ust-Luga. The delivery of a contaminated cargo in breach of contract amounts to a breach of warranty of quality."

Glencore's defence was that it had complied with the "contractual requirement" test and "that without the later tests there was nothing to say the oil was abnormal".

"It is, however, important not to lose sight of the elevated levels of organic chlorides, which were indicated by the later tests," the judge concluded.

"This is not a case where the levels were close to the permitted parameters. The experts, despite their detailed analysis of samples and tests and the reservations as to the manner of recording samples and testing, were nevertheless clear that the cargo was contaminated by organic chlorine compounds.

"Whatever practice was followed at the loading terminal, in light of the body of evidence concerning the contamination of the cargo, [the] certificate of quality was incorrect as to the parameters of organic chlorides in the cargo and I infer that the sampling and testing cannot have been in accordance with good standard practice."

The judge awarded $5,960,095 as the difference between the market value of sound crude oil, $3,682,713 in respect of storage and transportation costs of the contaminated oil between the date it was discharged at Wilhelmshaven, cargo volume losses of $234,861.06 and $303,180 as demurrage paid on other vessels.

Russia’s oil industry was plunged into crisis in April 2019 as a result of the incident.

Exports through the Druzhba pipeline that transports oil to Germany, Poland, Hungary, Slovakia, the Czech Republic, Ukraine and Belarus were temporarily halted.

Russia exports about 7 million barrels per day of crude and refined fuel — about 7 per cent of global supply.

In 2021, energy was the most imported product by the EU from Russia, accounting for 62 per cent of total EU imports, or the equivalent of about $108 billion.

The US this week imposed a ban on Russian oil in response to the conflict in Ukraine.

Existing disruption caused by traders steering clear of Russian supplies due to concern they may unwittingly fall foul of sanctions imposed is likely to worsen after the US oil ban, traders said. Buyers will also be concerned about the kind of reputational hit that Shell took at the weekend for buying Russian oil.

Shell has said it would stop buying oil from Russia and cut links to the country entirely. Its decision came days after it faced a hail of criticism for buying Russian oil at a steep discount — a transaction that two weeks ago would have been routine — underlining how Moscow's pariah status is growing even in a market it used to dominate.