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Note: By the terms of a joint venture, Glencore International AG deposited high quality oil in the facilities of Metro Trading Inc. ("MTI") in Fujairah, and MTI undertook the process of 'blending' the oil with its own lesser quality stock for resale. At the outset of the joint venture relationship, individual contracts governed each of the frequent deposits and MTI opened seperate LCs in favor of Glencore to cover its obligations. Blended oil not resold to Glencore was retained by MTI for its own resale, with Glencore drawing on the LC for payment. As the relationship evolved, oil deposits were made by Glencore for which no contract was drawn or LC opened. When the price of oil became depressed, MTI was locked into purchasing its blending components at fixed prices far above the resale value of its blended commodity. Glencore discovered during an accounting that some of the oil it deposited into the MTI facilities for the blending joint venture was unable to be accounted for. MTI subsequently collapsed, and Glencore sued MTI and its insurers, claiming portions of the oil still in storage and damages for that oil claimed to be 'missing'. MTI and the insurers defended on the basis that title to the oil had passed to MTI when it was deposited into the common facility and blended into a 'new' commodity, regardless of whether MTI had opened LCs in favor of Glencore for particular deposits. Applying the law of Fujairah with respect to sales and bailment, the Queen's Bench Division (Commercial Court), Moore-Bick, J., made prelimi-nary findings of fact regarding the interests of the parties. In rendering its decision, the court examined the dealings of the parties. MTI argued that the written contracts had ceased to reflect the dealings of the parties. It stated:2001 LC CASE SUMMARIES Oil required for the operation of the joint venture was purchased from prime suppliers by both MTI and Glencore, but it was an essential element in the arrangement that Glencore would finance the supply of oil. Accordingly, whenever MTI entered into a contract with a prime supplier Glencore entered into a contract with MTI to purchase the oil on back to back terms and Glencore provided the letter of credit necessary to enable the prime supplier to receive payment. Initially it was the practice for Glencore to open its own letter of credit in favour of MTI which in turn opened its own letter of credit in favour of the prime supplier, but later it became the practice for Glencore to open a letter of credit in the name of MTI in favour of the prime supplier and for MTI to give irrevocable instructions to its bankers to hold the documents of title relating to the cargo to the order of Glencore. At one stage in these proceedings there was a dispute between the parties as to whether Glencore acquired title to the oil purchased under these back-to-back contracts, but by the time the trial ended it was common ground that title to the oil brought into Fujairah under these arrangements had vested in Glencore by the time the carrying vessel arrived in Fujairah. The court noted: All the witnesses who had experience of the international oil trade agreed that it is usual for those engaged in that trade to do business on letter of credit terms unless they are selling to one of the major oil companies. Glencore is a large and very experienced trading house and it would be surprising, therefore, if at the beginning of its relationship with MTI, a small and relatively unknown company, it had been willing to sell oil on any other terms. However, as the relationship between the two companies developed it is by no means impossible that a sufficient degree of trust was generated to lead it to trade on less restrictive terms. It is necessary therefore to examine the whole of the course of dealing between the two parties to see to what extent, if at all, it developed in the way MTI or the insurers suggest. Ultimately, the court decided that the law of bailment in Fujairah was contrary to English law, and MTI could establish good title to any oil deposited into its common well without a contract, since deposits into the well destroyed any title to the commodity, and MTI's subsequent blending procedure created a new product with title vested in MTI. MTI was also entitled to any oil deposits for which it had opened a LC in favor of Glencore. Glencore was entitled to any oil deposited into the well under the auspices of any contracts for which no LCs had been secured.

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