AWB Geneva SA v Pioneer Metal Logistics Company Ltd BVI
| Jurisdiction | England & Wales |
| Judge | Lord Justice Thomas,Lord Justice Latham,Lord Justice Chadwick |
| Judgment Date | 18 July 2007 |
| Neutral Citation | [2007] EWCA Civ 739 |
| Docket Number | Case No: A3/2007/1125 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 July 2007 |
[2007] EWCA Civ 739
[2007] EWCA 1167 (Comm)
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM COMMERCIAL COURT
MR JUSTICE FIELD
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Chadwick
Lord Justice Latham and
Lord Justice Thomas
Case No: A3/2007/1125
Ali Malek QC and David Quest (instructed by Reed Smith Richards Butler LLP) for the Appellant
Robin Dicker QC and Stephen Robins (instructed by Holman Fenwick & Willan) for the Respondents
Hearing dates: 12 and 13 June 2007
Judgement
The issues and the decision of the court
The parties to this action are international traders who entered into Forward Freight Swap contracts (swaps) on terms governed by the International Swaps and Derivatives Association (ISDA) Master Agreement. Two issues arise: (1) whether the jurisdiction clause which provides for the exclusive jurisdiction of the English courts entitles the claimants to an anti-suit injunction preventing the trustee of bankruptcy of the first defendant from pursuing certain relief in Canadian insolvency proceedings; and (2) whether an action in the Commercial Court for a declaration as to the meaning and effectiveness of certain of the standard terms of the ISDA Master Agreement which are governed by English law should be stayed pending those insolvency proceedings. The Commercial Judge, Field J, refused the anti-suit injunction and stayed the proceedings for a declaration in the Commercial Court. He refused permission to appeal. The application for permission was referred to the Court with the hearing to follow immediately if permission was given.
At the conclusion of the hearing, in view of a pending hearing in Canada on 15 June 2007, the Court gave its decision:
i) Permission to appeal against the refusal of the anti-suit injunction was refused on the grounds that the proceedings in Canada were not within the scope of the clause.
ii) Permission to appeal against the stay was granted and the appeal allowed on the grounds that it was important for the Commercial Court to determine, at a hearing fixed for 24 July 2007, the dispute as to the meaning of the ISDA Master Agreement. This was governed by English law and it would also be helpful to the court in Canada hearing the bankruptcy proceedings to know the decision of the Commercial Court on the meaning of the Master Agreement. The court stated that it would give more detailed reasons in judgments that would be handed down.
I now give my detailed reasons.
The swaps
The parties to the swaps were:
i) The first claimant (AWB), a company incorporated in Switzerland and carrying on business in Geneva. It is the subsidiary of an Australian wheat trading company.
ii) The second claimant, (Pioneer) a company incorporated in the British Virgin Islands and carrying on business in Beijing. It is a subsidiary of Pioneer Iron and Steel Group and specialises in providing dry bulk ship chartering and operating services.
iii) The first defendant (NASL), a company incorporated in British Columbia. It carried on business in Vancouver as a shipbroker and ship charterer.
During 2006 AWB, as seller, entered into six swaps with NASL, as buyer; four of these covered the period October to December 2006 and two the period January to December 2007. Pioneer entered into one swap with NASL for the period January to December 2007. Under swaps of this type, the parties agree on a route, a settlement date or dates and a contract rate for the route. They also agree upon the method of calculating a market rate, known as the “settlement rate” for the route; this is normally calculated by reference to rates on the Baltic Exchange Index. On specified monthly dates known as “the settlement date”, a settlement sum is calculated as the difference between the settlement rate and the contract rate multiplied by the specified contract quantity. If the settlement rate is greater than the contract rate on that date the seller pays the buyer the settlement sum and vice versa, if the contract rate exceeds the settlement rate. The parties are, in effect, hedging future movements in the freight market against their views of the way in which the market will move.
Each of the swaps was made subject to the ISDA Master Agreement. Each of the swaps was also made by the express terms of each swap and the terms of the ISDA Master Agreement subject to English law and jurisdiction in the following terms:
Clause 16 of the swap:
“Pursuant to Section 13(b) of the Standard Agreement, this Agreement shall be governed by and construed in accordance with English law and subject to the exclusive jurisdiction of the High Court of Justice in London, England…
Clause 13(b) of the ISDA Master Agreement
“With respect to any suit, action or Proceedings relating to this Agreement (“proceedings”), each party irrevocably:—
(i) submits to the jurisdiction of the English courts, if this Agreement is governed by English law, …. ”
Only two terms of the ISDA Master Agreement are relevant to the dispute between the parties as to the meaning and effectiveness of the swaps under English law,
Clause 2(a)(iii):
“Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.”
Clause 5
“(a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an “Event of Default”) with respect to such party:—
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party.
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:—
(2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;
(3) makes a general assignment, arrangement or composition with or for the benefit of its creditors;
(6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets.”
The movement in the market
NASL entered into the swaps as seller because it believed the market rate would decline over the term of the contracts; in fact, during 2006, the rates increased significantly and, as a result, NASL became obliged to make significant payments under the swaps. On 29 November 2006, NASL became insolvent. By the end of the year NASL had incurred liabilities under the swaps of approximately US$47m against moneys due to it of approximately US$6m.
As regards the swaps between NASL and AWB, under the four agreements in respect of 2006, payments from NASL to AWB amounted in total to just over US$2.5m; notice of default was served by AWB in respect of the outstanding amounts on 20 November 2006 and 17 January 2007.
However, in 2007, the market moved in NASL's favour. In respect of the AWB and Pioneer swaps for January and February 2007 approximately US$2.8m would be due to NASL and, if the market does not change, a total sum of US$12.5m could be due to NASL by the end of 2007 from AWB (less the credit due for the 2006 swaps) and US$9.8m from Pioneer.
The position taken by AWB and Pioneer is that they are not liable to make any payments under the swaps that cover 2007, as, under the terms of clause 2(a)(iii), it is a condition precedent to the performance of their obligations that no event of default has occurred and is continuing. They contend that events of default have occurred under clause 5(a)(i) and 5(a) (vii) (2), (3) and (6) as a result of NASL's failure to pay and NASL's bankruptcy. As set out at paragraph 15.i) below, NASL and the second defendant (the Trustee) dispute this.
The events relating to NASL's Bankruptcy
The material events of NASL's bankruptcy can be briefly summarised:
i) On 29 November 2006 NASL filed an assignment in bankruptcy under the Bankruptcy and Insolvency Act Canada; under the provisions of that Act all of its property vested in the Trustee.
ii) A meeting of creditors took place on 5 January 2007. The Trustee's appointment was approved and inspectors appointed to assist in the administration of NASL's estate.
iii) On 8 January 2007 the inspectors authorised the Trustee to affirm the 2007 swaps, but the Trustee declined to do this unless it was clear that it would not incur any personal liability by doing so. An application was made to the Supreme Court of British Columbia seeking appropriate declarations. The application was heard by Tysoe J.
iv) Tysoe J in a judgment delivered on 28 February 2007 held that it was necessary for the Trustee to affirm the swaps in order to take the benefit of them, as it would thereby assure the other party that it would not be treated as an unsecured creditor in respect of the obligations it performed after the date of the...
To continue reading
Request your trial
-
Vizcaya Partners Ltd v Picard and another (Gibraltar)
...implied as a matter of fact or law, prima facie it would not apply to these proceedings. In AWB (Geneva) SA v North America Steamships [2007] EWCA Civ 739, [2007] 2 Lloyd's Rep 315 a swap agreement provided that pursuant to the ISDA Master Agreement, the agreement was governed by English ......
-
Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd [QBD (Comm)]
...WLR 379. AK Investment CJSC v Kyrgyz Mobil Tel LtdUNK [2011] UKPC 7; [2011] 1 CLC 205. AWB Geneva SA v North America Steamships LtdUNK [2007] EWCA Civ 739; [2007] 2 CLC 117. Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] CLC 579. Curtis v Lockheed Martin UK Holdings LtdU......
-
SwissMarine Corporation Ltd v O.W. Supply & Trading A/S (in Bankruptcy)
...96; [2009] ECR I-663; [2009] 1 AC 1138. AWB (Geneva) SA v North America Steamships LtdUNK [2007] EWHC 1167 (Comm); [2007] 1 CLC 749; [2007] EWCA Civ 739; [2007] 2 CLC 117. BNP Paribas SA v Anchorage Capital Europe LLPUNK [2013] EWHC 3073 (Comm). Global Distressed Alpha Fund 1 Ltd Partnershi......
-
Nomura International Plc v Banca Monte Dei Paschi Di Siena SpA
...I accept that the need for a swift determination is an additional relevant factor: see AWB (Geneva) SA v North America Steamship Ltd [2007] EWCA Civ 739; [2007] 2 Lloyd's Rep 315; JP Morgan Europe Ltd v Primacom [2005] 2 Lloyd's Rep 665; Lehman Bros v CMA [2013] EWHC (Comm) 171; and als......
-
Forward Freight Agreements
...does arise will result from the insolvency of one of the parties. That was the case in AWB (Geneva) SA v. North America Steamships Ltd [2007] EWCA Civ 739 in which HFW acted for defendants, NASL. The Court of Appeal rejected an application by AWB for an anti-suit injunction against NASL, wh......