Marine Trade SA v Pioneer Freight Futures Co Ltd BVI & Anor

Under the 1992 ISDA Master Agreement, the bankruptcy Event of Default in section 5(a)(vii)(2) contains two distinct alternatives: inability to pay debts as they fall due, and a general failure to pay a substantial volume of debts on time. The condition precedent in section 2(a)(iii) is assessed when the relevant payment obligation accrues. If the conditions are then satisfied, a later Event of Default does not remove the accrued obligation unless the agreement contains clear words to that effect or early termination occurs. Netting requires amounts to be immediately due and enforceable. Restitution for a payment made under protest requires an established unjust-factor category. Payment made while believing it more likely than not that no liability exists is not payment by mistake.

Marine Trade and Pioneer entered into forward freight agreements incorporating the FFABA 2007 Terms and the 1992 ISDA Master Agreement. Following the collapse in freight rates, substantial settlement sums became payable for the January 2009 contract month. Marine Trade alleged that Pioneer was affected by a bankruptcy Event of Default and therefore could not rely on netting. It paid the resulting net balance under protest after an interim injunction was refused, while Pioneer failed to pay the gross sum due to Marine Trade.

The trial concerned the construction of the default, netting and condition-precedent provisions; whether Marine Trade later became subject to an Event of Default; whether Pioneer remained liable for the January sum; whether the payment was recoverable in restitution; and whether declaratory relief should be granted.

1. Event of Default. Section 5(a)(vii)(2) contains two distinct and non-cumulative alternatives: inability to pay debts as they fall due, and failure generally to pay debts as they fall due. “Generally” qualifies the payment of debts, so the evidence must show failure to pay a substantial volume of debts on time; isolated defaults are insufficient. Pioneer’s concession established the first issue in Marine Trade’s favour.
2. Netting. The word “payable” in section 2(c) means immediately due and enforceable. Because Pioneer was affected by an Event of Default, section 2(a)(iii) meant that Marine Trade had no current obligation to pay Pioneer. The sums in Pioneer’s favour were therefore unavailable for netting. The early-termination provisions did not alter the analysis while the transactions remained subsisting.
3. Accrued obligation. The conditions precedent in section 2(a)(iii) are assessed when the relevant settlement sum falls due. Pioneer’s obligation to pay Marine Trade accrued on 6 February 2009, when Marine Trade was not in default. A later Event of Default affecting Marine Trade did not suspend or extinguish that accrued obligation. Clear contractual language would be required, and none existed. The same provisions operate as one-time provisions: a later cure does not create an obligation that never accrued.
4. Restitution. English law recognises no general claim merely because money was paid without legal basis. Marine Trade therefore had to establish payment by mistake. It failed to do so. The evidence showed that Marine Trade thought it more likely than not that Pioneer was in default and paid to avoid the commercial risk of early termination. That was an assumption of risk, not a mistake. The payment was not caused by mistake in any event.
5. Marine Trade’s claim succeeded for US$7,085,981.85. Its restitution claim for US$5,030,242.50 failed. The court declined to grant Pioneer declaratory relief on the subsequent-default issue, since it would have been abstract and the construction already adopted gave no basis for the relief sought.