The opinion of the court was delivered by: Debevoise, Senior District Judge
This is an action for breach of contract. Plaintiff, Valero Marketing & Supply Company ("Valero") is a corporation incorporated in the State of Delaware with its principal place of business in Texas. At all times material to this action it leased shore tanks at the Stolthaven facility located in Perth Amboy, New Jersey, where it blended components purchased from third parties into various grades of reformulated gasoline. Defendant, Greeni Trading Oy ("Greeni") is an international petroleum trading company incorporated under the laws of Finland*fn1.
In August, 2001, Ilkka Kokko, Managing Director of Greeni and an experienced petroleum products trader, had a stock of naptha to sell. One of the brokers with whom he communicated was Cees van der Hout of Starsupply Petroleum Feedstocks, Inc., ("Starsupply") in New Jersey. Van der Hout in turn communicated with Valero's trader, Stuart Burt, who was responsible for Valero's blending operations at Stolthaven. Van der Hout informed Burt of the characteristics of the naptha being offered and in due course negotiated a contract between the parties. He dealt with each party, and there were no direct dealings between the parties. Through him on or about August 15, 2001, the parties agreed that between September 10-20, 2001, Greeni would deliver 25,000 metric tons of naptha to Valero's shore tanks at Stolthaven. At that time the naptha was in stock in Hamburg, Germany.
The price for petroleum products is volatile, and traders such as Burt work from pricing models in an effort to calculate prices that will provide acceptable profit margins for the products resulting from a given mix. The price agreed upon in this transaction was ex-ship, ex-duty exchange of futures for physicals against the October NYMEX gasoline less a discount of USDO.1515 per gallon.
The terms of the agreement are reflected in van der Hout's deal sheet and were confirmed in a faxed communication from van der Hout to Kokko. The confirmation detailed the agreement in terms of, inter alia, product, quantity, quality, timing of delivery (September 10 to 20, 2001) and pricing. The vessel on which the naptha would be shipped was subject to acceptance by Valero's Marine Department ("which shall not be unreasonably withheld") and that title and risk of loss or damage to the naptha would remain with Greeni until the product passed at the flange connection between the vessel's manifold connection and the shore line at the discharge port.
On or about August 17, 2001, Valero sent to Greeni a written confirmation containing similar provisions. Of particular significance in the present case are the provisions for delivery "during the period of 09/10/2001-09/20/2001" and "from a vessel 'TBN' provided by the Seller which is subject to Buyer's approval and terminal acceptance. Such acceptance shall not be unreasonably withheld." Greeni expressed no objections to Valero's confirmation, and Kokko communicated with ship brokers to obtain a vessel to transport the naptha.
Brokers brought to Kokko's attention the Bear G. He was familiar with the Bear G, having chartered it ten or fifteen times previously to transport petroleum products and having had no problems. In early August 2001, prior to entering into the naptha contract, Greeni and Valero entered into negotiations for the sale of vacuum gas oil ("VGO") by Greeni to Valero. The VGO was to be transported from Europe to Valero's facilities in Corpus Christi, Texas. Greeni nominated Bear G to transport the VGO, and Valero accepted the nomination.
Initially Greeni chartered Bear G for the naptha delivery "subject," giving it a period of time to consider the deal. After confirming that Bear G could be brought into the Port of Hamburg, Greeni on August 29 imprudently lifted the charter without clearing with Valero and thus committed itself. On August 30, Greeni nominated Bear G to Valero. Starsupply informed Valero. Jason Welch, who was in charge of Valero's operations and plant, asked Valero's Lawrence R. Smith to vet the vessel.
Smith was Valero's manager of marine operations. One of his responsibilities was to vet vessels that carried petroleum products to be delivered to Valero, thus ensuring both reliability of delivery and safety both at sea and in port. The vetting process at Valero was at that time relatively new, and Smith himself had no formal training in vetting. For several reasons Smith rejected Bear G. In his testimony he cited Valero's blanket policy of rejecting vessels that were more than 15 years old; Bear G was 20 years old. Further, it was an oil/bulk/ore ("OBO") vessel, a kind of vessel with which shippers had had problems in the past and the technology of which was dated.
Smith examined a Revised Ship Inspection Report ("SIRE Report") concerning a February 12, 2001 inspection of Bear G. The Sire Report confirmed the vessel's age and noted some corrosion of the top wing tanks, but overall it was a satisfactory report.
Smith also examined a USCG Port State Information Exchange ("PSIX") Report current as of June 30, 2001. Smith noted that some of the vessel documents and certifications were due to expire as soon as September 30, 2001. He also noted an October 29, 2000, problem reflected in the report, and that when Bear G entered the Port of New York on November 16, 2000, fuel oil was leaking into the ballast tanks. A weld had failed and 30 gallons were released into the tanks, although later recovered. Temporary repairs were made prior to departure and the report noted that "vessel must make permanent repairs prior to U.S. return carrying oil cargo, to the satisfaction of Class Society." Smith was not aware whether the repairs had been made.
Smith was also not aware that Valero had recently approved Bear G for a shipment of VGO. He was aware that approximately a year previously Bear G had discharged a cargo at a Valero facility in Corpus Christi. He called the facility to ask about that delivery, but no one called him back, and he pursued the matter no further.
Smith completed his vetting in about an hour, basing his decision to reject Bear G primarily on account of its age and Valero's policy of not approving vessels more than fifteen years old. Smith informed Welsh of his decision, and on the same day as the nomination Welsh notified Aija Antola of Greeni that: "we have received your nomination of the vessel 'Bear G.' Unfortunately, this vessel does not meet Valero's criteria for acceptance at this time. We kindly ask that you renominate another vessel for our review."
This decision caused consternation at Greeni. Kokko sought an explanation from Starsupply and directly from Welch. No explanation was forthcoming other than Bear G did not meet Valero's criteria. What the criteria were was never explained. Valero stated that the decision could not be reversed.
Greeni concluded that it could not at that point find a different vessel. Bear G had a capacity of 56,000 tons. The Valero cargo was 25,000 tons. Greeni had naptha in Tallinn, Estonia, of the same grade and quality as the naptha in Hamburg. On August 28 it entered into a sale of a portion of the Tallinn naptha to Northville for delivery in the New York harbor, and negotiations resulted in a September 7 sale of the balance of the Tallinn naptha to Tosco for delivery in the New York harbor. Bear G was to deliver the entire load.
Two circumstances delayed departure of Bear G from Hamburg with the combined load. Greeni had chartered two vessels to carry the naptha from Tallinn to Bear G. One of the two vessels did not have enough hose or the right kind of hose to effect a transfer of the naptha to Bear G. Obtaining the proper hoses consumed two days. An additional two days were consumed by reason of the fact that Greeni had been misinformed about the capability of the facility at Hamburg at which the loading of the naptha on Bear G was to occur. Two days were required to transfer to another facility and complete the loading.
As a result of these delays Bear G did not sail from Hamburg until September 10, the first day of the delivery window, with an estimated time of arrival in New York harbor of September 21 - a day after the close of the delivery window. In the event, Bear G encountered a severe storm and was delayed an additional day.
On September 12 Greeni nominated Bear G to Tosco and Northville. Both buyers rejected Bear G, not because of any deficiency in Bear G, but because its size did not permit it to unload at the Tosco and Northville docks. The parties agreed that the naptha would be transferred to barges and delivered to the buyers by the barges. The buyers successfully obtained barges for which Greeni paid.
As between Greeni and Valero, Valero refused to permit Bear G to unload at Stolthaven, and it was apparent that in any event Bear G was not going to arrive within the September 10-20 window. After discussions through van der Hout, Valero's Burt on September 14 authorized van der Hout to present a take-it or leave-it proposition. As for the manner of delivery:
It was stipulated in the contract that the vessel nomination was subject to Valero's Marine Department's approval. Since Greeni elected to charter the vessel: "Bear G", which was unacceptable to Valero's Marine department the only way to deliver the contracted volume was by lightering barge(s). Although there was no contractual obligation to do so Valero's operational department agreed that if this was possible to try to locate barges for this operation. It was, however, made clear that Valero wanted Greeni to ultimately take on the chartering of said barges and didn't want to be held responsible for any operational delays since the barge market has been very tight for quite some time.
As for the time of delivery and price:
In view of the current e.t.a. of the "Bear G" on September 20, it has become impossible to make delivery of the naptha within the contractual delivery window. In view of these facts Valero is willing to accept the total volume of product delivered by Greeni to their terminal no later than midnight on September 24*fn2 . For this accommodation the contract price will be adjusted by a discount of $0.0175 per us gallon. After this time Valero is not obligated to take any more volume under this contract. For all barrels delivered on September 20, Valero will of course pay the full contract price.
Kokko recognized that it would be very difficult to locate and unload Valero's naptha by lightering operations by the September 24 date, but he felt he had no alternative but to accept the offer. The barge market was indeed tight, partly for seasonal reasons and partly because of pressures resulting from the World Trade Center catastrophe. Valero made a few perfunctory efforts to identify barges that Greeni could charter. Greeni made strenuous efforts from its offices in Helsinki to secure barges but was unsuccessful. It had secured none by the time that Bear G arrived in the Port of New York and was ready to unload ...