High Court considers the application of the netting provisions in 1992 ISDA Master Agreement
This was the second judgment handed down in these proceedings, which arose out of a series of forward freight agreements (“FFAs”) entered into between Pioneer Freight Futures Company Limited (“Pioneer”) and TMT Asia Limited (“TMT”).
In the first judgment, handed down on 1 April 2011, Gloster J held that Pioneer was entitled to be paid US$26,088,865.94 from TMT under the close out provisions of the FFAs. ( EWHC 778 (Comm)). Following the handing down of that judgment, however, TMT was granted permission to amend its defence so as to take a new argument, the effect of which was said to reduce the quantum of Pioneer’s claim to US$16,557,594.10.
One of the questions raised by the new argument was whether, on a proper construction of ISDA Master Agreement, rights which had been prevented from arising by virtue of the condition precedent in section 2(a)(iii) were nevertheless available for netting under section 2(c). If the answer to that question was “yes”, then it would follow that TMT’s new argument would necessarily fail.
The same question had previously been considered by Flaux J in the case of Marine Trade v Pioneer Freight Futures  1 LLR 631. In that case, Flaux J answered the question in the negative. However, before Gloster J, Pioneer argued that the decision of Flaux J was wrong on this issue, and that, on a proper construction of the Master Agreement, payment obligations which were prevented from arising under section 2(a)(iii) were nevertheless available to be taken into account under the netting provisions.
On 20 July 2011 Gloster J handed down judgment on the new argument raised by TMT. She did so notwithstanding that the parties had settled their dispute prior to judgment, on the ground that the issue was of general importance to the market. In her judgment, Gloster J rejected the new argument raised by TMT, and held that the decision of Flaux J was wrong on the netting issue. It was held that the construction supported by Pioneer was consistent both with the commercial scheme of the ISDA Master Agreement, and with the language of the relevant provisions. It followed that, had the case not settled, Pioneer would have been entitled to the full sum of US$26,088,865.94 awarded under the first judgment.
Charles Kimmins QC and Luke Pearce appeared on behalf of Pioneer, instructed by Holman Fenwick Willan LLP.