Key takeaways
Common law rescission
Takes effect automatically once innocent party elects to rescind contract.
Rescission in equity
Requires Court’s permission and is a discretionary remedy.
Tracing rules
These are more flexible in equity.
In this case, a supplier of crude oil had not been paid for a quantity of product that had been mixed with other products and lost its separate identity and then sold. The purchaser of the crude oil was in liquidation and the liquidators thought that the supplier’s rights should not rank ahead of the purchaser’s unsecured and preferential creditors. Instead, the supplier should prove its debt in the liquidation.
However, the Court thought that the supplier had a good arguable claim for equitable rescission of the contracts in question. If, at trial, the supplier’s claim for equitable rescission was upheld, then it could rely on flexible equitable tracing rules to try and follow and identify its misappropriated assets. This was particularly useful when, for example, assets have been mixed or substituted.
The background facts
The application
The purchaser’s liquidation meant the supplier needed the Court’s permission to proceed with its claims. At this stage, the Court considered that it need only determine if the claim was genuinely arguable and it gave rise to a sufficiently serious or substantial question to be tried.
The parties
Glencore Energy UK Ltd (Glencore) entered into five sales confirmations (Relevant Sales Confirmations), pursuant to which it supplied Prax Lindsey Oil Refinery Ltd (PLOR) with crude oil worth more than US$230 million.
PLOR was a member of the Prax group of companies (Group) that dealt in crude oil, petroleum products and biofuels. At the material time, PLOR operated one of six major refineries in the UK, at Immingham, providing approximately 10% of the country’s petrochemical supply.
The contractual framework and arrangements
There were a number of different agreements comprising the transaction documents (Transaction Documents). The key ones for the purposes of this dispute were the following.
The five Relevant Sales Confirmations were dated between 1 April 2025 and 7 May 2025 and provided for deliveries between 8 May 2025 and 4 June 2025. They were entered into pursuant to an agreement for the supply and purchase of crude oil (Crude Supply Agreement) between Glencore and PLOR dated 5 July 2024.
There was also a framework agreement (Framework Agreement) dated 5 July 2024, which set out a process by which title to crude oil supplied by Glencore would be transferred.
On delivery of crude oil to the Immingham oil terminal, title was transferred to PLOR (DAP Sale). On arrival at the Refinery, the crude oil was transferred from the pipeline into segregated crude storage tanks (CSTs) at which point it was re-purchased by Glencore and title was transferred back to Glencore (Into-Tank Sale).
The amounts payable under the DAP Sale and the Into-Tank Sale were fixed at the same price and were set off against each other. When the crude oil was required for refining, it was withdrawn by PLOR from the CSTs and repurchased by PLOR (Ex Tank Sale), for a price calculated in accordance with a first-in/first-out (FIFO) methodology. At the time of the Ex-Tank Sale, title to the crude oil would pass to PLOR after which it would be mixed with other product as part of the refining process.
There was also a VGO & ATRes supply agreement dated 19 July 2024 (VGO/ATRes Agreement). It set out the terms on which Glencore would supply associated refinery feedstocks in the form of low sulphur vacuum gas oil (VGO) and Atmospheric Residue (ATRes) to the Refinery.
Under Schedule 5 to the Framework Agreement, PLOR agreed to make representations and warranties at certain points in time, including as to the absence of events of default under its agreements with counterparties, its solvency and ability to pay its debts as they fell due, its compliance with undertakings set out in the Framework Agreement, the truth and accuracy of the information it provided to Glencore etc.
There was also an oil storage agreement (Storage Agreement) dated 19 July 2024 between Glencore, PLOR and another company within the Group, Prax Storage Lindsey Limited (PSL), by which PSL agreed to make the CSTs available to Glencore for the custody and safekeeping of oil owned by Glencore.
PSL additionally agreed to make available at the Refinery product storage tanks (PSTs) for the storage of PLOR's refined product and other feedstocks (Prax Owned Product) over which Glencore was granted security by way of floating charge pursuant to a security agreement with PLOR (Security Agreement).
The liquidation
At the end of June 2025, a number of companies in the Group went into compulsory liquidation and administration. A winding up order was made against PLOR and the Official Receiver (OR) was appointed as its liquidator, assisted by four external special managers (Special Managers).
On 27 June 2025, Glencore was informed that the liquidation of PLOR was imminent. Glencore served a series of notices, demands and letters on PLOR, which, amongst other things, suspended performance of its obligations under the Framework Agreement and the Crude Supply Agreement.
It also made a demand for immediate payment of c.US$53 million said to be outstanding under the Framework Agreement, gave notice of crystallisation of its floating charge under the Security Agreement and withdrew PLOR's permission to dispose of any Prax Owned Product without Glencore's consent or to withdraw any of the crude oil owned by Glencore in the CSTs.
Glencore alleged that, as of 2 July 2025, it was exposed to losses of US$267 million in respect of Ex Tank Sales for which it had not received payment (Unpaid Ex Tank Oil). Glencore also asserted that it was exposed to losses of US$177 million in respect of crude oil it had supplied to PLOR, which was stored in CSTs at the Refinery (and to which it therefore had title), and US$64 million for VGO which had been sold to PLOR, but for which it had not been paid.
On 3 July 2025, to avoid an immediate shutdown of the Refinery that would not have been to the benefit of PLOR’s creditors, the Special Managers agreed that PLOR should pay Glencore for the crude oil on site at the time of the liquidation. However, that did not provide for sums outstanding in respect of Unpaid Ex Tank Oil.
The Refinery continued operating till around August 2025. However, in July 2025, a number of the companies in the Group commenced proceedings against the sole director of PLOR, Mr Soosaipillai, alleging that he had engaged in extensive fraud that resulted in the Group companies being in breach of their securitisation facility with their bank (Securitisation Fraud).
Mr Soosaipillai allegedly misrepresented the true financial position of the Group to members of the Group, their auditors, investors, lenders and contractual counterparties, including Glencore. He allegedly did so by, among other things, signing the Group's year-end financial statements, knowing that those financial statements gave a misleading picture of the Group's financial position.
Glencore’s claim
On 22 October 2025, Glencore sought to rescind the Relevant Sales Confirmations in equity on the grounds they were induced by fraudulent misrepresentations. It argued that, as a result of the alleged Securitisation Fraud, several of the representations contained in the Framework Agreement were untrue and misleading at the time it was entered into and at all material times thereafter, including on the dates when PLOR and Glencore entered into the Relevant Sales Confirmations. On Glencore’s case, as a sole director of PLOR Mr Soosapillai’s knowledge was to be attributed to PLOR.
Glencore also claimed a constructive trust over any assets into which it could trace the products it had supplied to PLOR, including the proceeds of sale of the refined product.
It applied under s.130(2) of the Insolvency Act 1986 (IA 1986) for the Court’s permission to bring its claims against PLOR.
PLOR’s defence
PLOR (through the liquidators) argued that whatever rights Glencore had due to the alleged misrepresentations, they were not equitable proprietary rights of a nature that allowed it to rank ahead of PLOR’s unsecured and preferential creditors.
PLOR also contended that partial rescission was not available. Glencore could not seek to rescind the Relevant Sales Confirmations while keeping the other Transaction Documents intact.
PLOR also submitted that Glencore had affirmed the Relevant Sales Confirmations because it knew of the alleged fraudulent behaviour in mid-July 2025 and yet did not seek to rescind until October 2025. It also contended that Glencore’s agreement with the Special Managers was further indicative that it had affirmed the contracts.
Finally, PLOR said that Glencore could not trace the crude oil it had supplied, but for which it had not been paid, into the Prax Owned Product, i.e., the final refined products sold out of the Refinery. However, if it was entitled to rescind the Relevant Sales Confirmations, it had to give counter-restitution for the benefits it received at the time of the commercial settlement reached with the Special Managers in July 2025.
The Court decision
Availability of equitable rescission
Glencore sought to rescind in equity, not at common law, because it wished to invoke the more flexible tracing rules available in equity. This was necessary, because the Unpaid Ex Tank Oil transferred under the Relevant Sales Confirmations was mixed with other products and lost its separate identity, having been refined into Prax Owned Product with Glencore's consent, and this refined product was then sold.
Equitable rescission is a discretionary remedy. However, where fraudulent misrepresentation can be established, the discretion to refuse relief is not unrestricted. Rescission would only be refused in specific circumstances, including where it was impossible to put the parties in the position they were in before the contract was entered into, where the contract had been affirmed, unreasonable delay and where third party rights would be adversely affected.
In this case, the Court said that if none of the established bars to rescission in equity were available and if tracing was otherwise possible, then Glencore had at least a good arguable claim that it had equitable proprietary rights.
Partial rescission
As to the prohibition on partial rescission, this extended in some cases to a situation in which the contract in question was part of a wider transaction, the components of which were commercially interdependent.
Here, however, each of the Relevant Sales Confirmations reflected a severable contract for the sale and purchase of separate shipments of crude oil. The Framework Agreement and the Crude Supply Agreement operated as overarching agreements separately from the Relevant Sales Confirmations, even though their terms were applicable to every Sales Confirmation, but were separately applied as and when a Sales Confirmation was agreed. The Framework Agreement and the Crude Supply Agreement could continue to apply to the other Sales Confirmations, notwithstanding the recission of the bargains reflected in the Relevant Sales Confirmations.
Affirmation
This was a very fact-sensitive issue and not susceptible to summary determination.
Mixing and the impossibility of tracing
PLOR contended that it was impossible to identify what proportion of Prax Owned Product or its proceeds could be said to be attributable to the crude oil that Glencore supplied under the contracts sought to be rescinded.
Glencore submitted that chemical transformation of the crude oil during the refining process did not extinguish its ability to identify the value in the refined product and its proceeds which was properly attributable to the Unpaid Ex Tank Oil supplied under the Relevant Sales Confirmations.
The Court recognised that Glencore might have difficulty in conducting its tracing exercise. However, it was seriously arguable that it could trace into at least some of the property that was still in the hands of the OR.
The Court, therefore, allowed Glencore’s claims to proceed.
Comment
The Court only decided that the merits of Glencore’s claim were arguable. At trial, Glencore will have to prove its claim and ability to trace.
Nonetheless, the decision highlights the potential option available to suppliers of product faced with similar circumstances to seek to rescind their contract in equity.
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