Pioneer Freight Futures Company Ltd v Cosco Bulk Carrier Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux |
| Judgment Date | 05 July 2011 |
| Neutral Citation | [2011] EWHC 1692 (Comm) |
| Docket Number | Case No: 2010 FOLIO 951 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 July 2011 |
[2011] EWHC 1692 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Flaux
Case No: 2010 FOLIO 951
Bankim Thanki QC and Adam Zellick (instructed by Herbert Smith LLP) for the Claimant
Richard Jacobs QC and Siddharth Dhar (instructed by Thomas Cooper) for the Defendant
Hearing date: 22 June 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The claimant (to which I will refer as "Pioneer") is a company incorporated in the British Virgin Islands which has been in liquidation since December 2009. Between January 2007 and August 2008, the claimant entered into a series of eleven forward freight agreements ("FFAs") with the defendant (to which I will refer as "Cosco"), in seven of which Pioneer was the Seller and in four of which it was the Buyer. All the FFAs are on the standard 2007 Terms of the Forward Freight Agreement Brokers Association ("FFABA"), the FFAs made in 2007 originally on the 2005 FFABA Terms having been effectively amended when the first 2008 FFA was made in June 2008, so as to put them on the 2007 Terms as well. The 2007 Terms incorporated by reference the 1992 Master Agreement of the International Swap Dealers Association ("ISDA"), to which I will refer as "the Master Agreement".
The effect of the liquidation of Pioneer in December 2009 was to bring about Automatic Early Termination under the Master Agreement. In essence, the dispute between the parties is as to whether the closing out or "wash-out" calculations which Pioneer then undertook pursuant to Section 6 of the Master Agreement should or should not include those FFAs where the last Contract Month under each such FFA had passed prior to December 2009.
The terms of the contracts
An FFA is a cash-settled contract for differences referenced to the Index rate or rates published by the Baltic Exchange, as selected by the parties. A "Settlement Sum" is calculated for each FFA and each Contract Month from the "Contract Rate" agreed between the parties, the "Settlement Rate" for that Contract Month derived from the Baltic Exchange indices, and the number of days in the Month. As Gloster J said in Pioneer Freight Futures Company Limited v TMT Asia Limited [2011] EWHC 778 (Comm) at paragraph 2:
"In essence, an FFA is a "bet" as to the future movements of the freight market. The product can be used as a hedge by parties involved in shipping freight to protect themselves against fluctuation in shipping rates, or as a means of trading in futures."
Clauses 7 and 8 in the FFABA 2007 Terms set out the payment terms for each Contract Month:
7 Settlement Sum
If the Settlement Rate is higher than the Contract Rate, the Seller shall pay the Buyer the Settlement Sum. If the Settlement Rate is lower than the Contract Rate, the Buyer shall pay the Seller the Settlement Sum.
8 Payment Procedure and Obligations
Payment of the Settlement Sum is due on the later of two (2) London business days after presentation of payee's invoice (with complete payment instructions) or five (5) London business days after the Settlement Date and for this purpose a "London business day" means a day (other than a Saturday or Sunday) on which commercial banks are open for business in London). The Settlement Sum will be deemed "paid" when it has been received into the bank account designated by the payee.
Clause 9 of the FFABA 2007 Terms then incorporates the Master Agreement with specific amendments, as follows:
9 ISDA Master Agreement
This clause 9 applies only if either:
(i) this Confirmation does not already constitute a Confirmation under an existing master agreement entered into by the parties to this Confirmation; or
(ii) the parties agree, either by virtue of clause 20 or otherwise, that the terms of the Master Agreement that is constituted by this clause are to replace any such existing master agreement.
This Confirmation constitutes and incorporates by reference the provisions of the 1992 ISDA® Master Agreement (Multicurrency—Cross Border) (without Schedule) as if they were fully set out in this Confirmation and with only the following specific modifications and elections:
….
(a) Section 2 (c) (ii) shall not apply so that a net amount due will be determined in respect of all amounts payable on the same date in the same currency in respect of two or more Transactions;
(e) for the purposes of payments on Early Termination, Loss will apply and the Second Method will apply;
(f) Automatic Early Termination will apply to both parties…
Section 2 of the Master Agreement is headed "Obligations" and sub-section (a) then sets out General Conditions to which the payment regime in the FFABA Terms was clearly subject:
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.
(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
Other provisions of the Master Agreement which are relevant to the present dispute are as follows:
1. Interpretation
(c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions.
2 Obligations
(c) Netting.
If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
(e) Default Interest…Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6 (c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate…
5. Events of Default and Termination Events
(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;
(ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2 (a) (i) or 2 (e)…) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth 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;…(5) has a resolution passed for its winding up, official management or liquidation…(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 of its assets…
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such...
To continue reading
Request your trial
-
Lomas and Others v JFB Firth Rixson Inc. and Others (International Swaps and Derivatives Association intervening)
...COMMERCIAL COURT THE HONOURABLE MR JUSTICE BRIGGS & THE HONOURABLE MR JUSTICE FLAUX [2010]EWHC 3372 (Ch) , [2011] EWHC 718 (Ch), [2011] EWHC 1692 (Comm) & [2011] EWHC 692 (Comm) Royal Courts of Justice Strand, London, WC2A 2LL Mr William Trower QC & Mr Daniel Bayfield (instructed by Link......
-
Pioneer Freight Futures Company Ltd v TMT Asia Ltd [QBD (Comm)]
...cases, I was not in a position to deliver this judgment before Flaux J handed down his judgment in that case: Pioneer Freight Futures Company Ltd v COSCO Bulk Carriers Company Ltd [2011] EWHC 1692 (Comm) (" COSCO"). That judgment addresses some of the same issues that arise in this case. I ......
-
London Digest - Autumn 2011
...parties. Although the Netting Issue did not arise directly in Pioneer Freight Futures Company Ltd v Cosco Bulk Carrier Company Ltd [2011] EWHC 1692 (Comm) (Cosco), Flaux J seized the opportunity to reinforce the views he set out in Marine Trade. His Honour analysed other usages of the word ......
-
English Court Of Appeal Interprets The ISDA Master Agreement
...arrangements which have the effect of depriving the bankrupt estate of property which would otherwise have formed part of it. 11 [2011] EWHC 1692 (Comm) 12 [2011] EWHC 692 (Comm) 13 [2011] 2 Lloyd's Law Rep 538 14 No. 08-13555 (JMP), 2009 WL 6057286 (Bankr. S.D.N.Y. Sept. 17, 2009). www.cad......