Sky Petroleum Ltd v VIP Petroleum Ltd 20 Nov 1973 [1974] 1 WLR 576, Ch D

During a severe oil crisis, a petrol supplier terminated their contract. The buyer, who had no alternative source and faced business ruin, sought an injunction. The court granted it, effectively ordering specific performance for generic goods, because damages were an inadequate remedy.

Facts

In 1970, the plaintiffs, Sky Petroleum Ltd, entered into a 10-year contract with the defendants, V.I.P. Petroleum Ltd, to purchase all their required petrol and diesel fuel for their filling stations. In return, the defendants provided a loan to the plaintiffs. In the summer of 1973, during a major oil crisis, there was a severe shortage of petrol throughout the country. In mid-November 1973, the defendants purported to terminate the contract, claiming the plaintiffs had exceeded their credit limit. The plaintiffs disputed this and urgently sought an interlocutory injunction to restrain the defendants from withholding supplies, arguing that they had no prospect of finding an alternative source of fuel and their business was in grave danger of collapse.

Issues

The central legal issue was whether the court should grant an interlocutory injunction that would, in effect, amount to an order for specific performance of a contract for the sale of non-specific goods (chattels). The established principle is that courts do not grant specific performance for such contracts, as damages are typically considered an adequate remedy.

Judgment

Goulding J., sitting in the Chancery Division, granted the injunction. He acknowledged the general rule that specific performance is not ordered for ordinary articles of commerce, particularly when they are not specific or ascertained. However, he distinguished this case based on the extraordinary market conditions and the inadequacy of damages as a remedy.

Goulding J. accepted the plaintiffs’ evidence that petrol was in exceptionally short supply and that they were unable to procure fuel from any other source. He reasoned that if the injunction were not granted, the plaintiffs’ business would be severely jeopardised, potentially leading to its complete closure before the trial of the action.

He determined that the balance of convenience lay in favour of granting the injunction to preserve the status quo. On the question of the adequacy of damages, he stated:

I am not at present so satisfied as the defendants contend I should be that damages will be an adequate remedy. Here, the plaintiffs, as the evidence stands, have, by the defendants’ breach of contract, if breach it be, been put in a position where the very existence of their business is in jeopardy, or will be in jeopardy if the defendants are allowed to cut off their supplies of petrol as they have threatened to do.

Goulding J. concluded that the potential harm to the plaintiffs far outweighed any potential harm to the defendants if the injunction were granted. He found that there was a serious question to be tried regarding the validity of the contract’s termination and that it was appropriate to grant an order compelling the defendants to continue supplies pending a full trial.

Implications

The decision in Sky Petroleum v VIP Petroleum is a significant authority for the principle that equitable remedies such as specific performance (or an injunction having that effect) can be granted for contracts for the sale of chattels in exceptional circumstances. It highlights that the key determinant is not the nature of the goods themselves, but whether damages would provide an adequate remedy. Where market conditions make seemingly ordinary goods unique and irreplaceable, and where a failure to supply would destroy the claimant’s business, the court will exercise its equitable jurisdiction to compel performance. This case serves as a crucial example of the flexibility of equity in preventing manifest injustice where the common law remedy is insufficient.

Verdict: An interlocutory injunction was granted, restraining the defendants from withholding supplies of motor gasoline from the plaintiffs except in accordance with the terms of the contract.

Source: Sky Petroleum Ltd v VIP Petroleum Ltd 20 Nov 1973 [1974] 1 WLR 576, Ch D