Pioneer Freight Futures Company Ltd v TMT Asia Ltd
2011
COMMERCIAL COURT
United Kingdom
CORAM
- MRS JUSTICE GLOSTER, DBE
Areas of Law
- Banking and Finance Law
- Contract Law
- Commercial Law
- Civil Procedure
2011
COMMERCIAL COURT
United Kingdom
CORAM
AI Generated Summary
Mrs Justice Gloster determined preliminary issues arising from Pioneer Freight Futures Company Limited’s claim against TMT Asia Limited for over US$26 million plus interest under 18 forward freight agreements (FFAs) following Automatic Early Termination (AET). The first 14 FFAs were concluded under FFABA 2005 terms; the last four referenced FFABA 2007 terms, and all incorporated the ISDA 1992 Master Agreement. After market swings left Pioneer initially owing TMT in late 2008 and then in-the-money throughout 2009, Pioneer entered provisional liquidation in December 2009, triggering an Event of Default. The court held that clause 21 of FFABA 2007 retrospectively swept prior FFAs into a single Master Agreement, that AET applied to both Early and Late FFAs, and that TMT’s Loss under Section 6(e) must include both retrospective amounts and prospective loss of bargain calculated on the assumption that conditions precedent in Section 2(a)(iii) were satisfied. Quantum and any resulting judgment were deferred for later argument.
Mrs Justice Gloster, DBE:
Introduction
The Claimant, Pioneer Freight Futures Company Limited (“Pioneer”) is a company incorporated in the British Virgin Islands. It is now in liquidation, with liquidators having been appointed both in the BVI and in England and Wales. By application notice dated 30 June 2010 Pioneer applied for summary judgment against the Defendant, TMT Asia Limited (“TMT”), a company incorporated in the Marshall Islands, in the sum of US$26,088,865.94 plus interest due under 18 forward freight agreements (“FFAs”) entered into between 10 September 2007 and 1 July 2008, as listed at Schedule 1 of the Amended Particulars of Claim. Pioneer claims that the sums are due to it upon the automatic early termination (“Automatic Early Termination”) of the FFAs.
FFAs are contracts for differences pursuant to which the parties agree a fixed price (“the Contract Rate”) in respect of future months (or years) (“the Contract Period”) for designated contract routes published by the Baltic Exchange. If the final settlement price for the designated route (“the Settlement Rate”) is higher than the Contract Rate, then the seller will pay the difference to the buyer, usually at the end of a contract month, and vice-versa. 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.
The volatility of the freight market in 2008 gave rise to a number of liquidations amongst traders, including Pioneer, in respect of which provisional liquidators were appointed by the High Court of Justice of the British Virgin Islands on 16 December 2009.
There is no dispute that the first 14 FFAs, entered into between 10 September and 7 November 2007 (“the Early FFAs”), incorporated standard FFABA 2005 terms. The last four FFAs, entered into between 21 April and 1 July 2008 (“the Late FFAs”), refer to the standard FFABA 2007 terms, but whilst Pioneer contends that the Late FFAs incorporate the FFABA 2007 terms, TMT denies that they do so. FFABA stands for the “Forward Freight Agreement Brokers Association”.
Each of the FFAs incorporated by reference the ISDA 1992 Master Agreement (Multicurrency–Cross Border) (“ISDA 92”). The incorporating provisions were in different terms in FFABA 2005 and FFABA 2007 respectively International Swap Dealers Association, Inc. . There is a dispute betwee