Pioneer Freight Futures Company Ltd v TMT Asia Ltd

Where successive forward freight agreements are brought under a later master agreement, the later terms and elections may govern earlier transactions if the contractual incorporation provisions so provide. Automatic Early Termination applies to all outstanding transactions under the single master agreement. On close-out under the ISDA 1992 Master Agreement, “Loss” must be calculated on the artificial assumption that applicable conditions precedent to payment were satisfied. This applies both to unpaid amounts accruing before termination and to prospective loss of bargain. The condition precedent in section 2(a)(iii) protects credit risk while transactions remain open; it does not prevent the section 6 close-out calculation from recognising the defaulting party’s contractual gains.

Pioneer, a company in liquidation, sought summary judgment for sums allegedly due following the automatic early termination of 18 forward freight agreements with TMT. The court treated the issues as preliminary issues and postponed determination of any specific monetary judgment.

The first 14 agreements referred to the FFABA 2005 terms. The later four referred to the FFABA 2007 terms. All incorporated the ISDA International Swap Dealers Association, Inc. 1992 Master Agreement. The dispute concerned whether the later terms superseded the earlier terms, whether Automatic Early Termination applied, and how TMT’s Loss had to be calculated under section 6(e).

1. Supercession. The FFABA 2007 terms were apt to apply retrospectively to the earlier agreements. Clause 21 was intended to create one applicable master agreement with uniform elections, unless the parties specifically agreed otherwise. The distinction between the 2005 and 2007 terms showed that earlier FFABA 2005 confirmations were not “substantially the same” as 2007 confirmations, because the 2007 terms introduced Automatic Early Termination.
2. Automatic Early Termination therefore applied to the earlier agreements. Clause 21(d) concerned inconsistencies between transaction-specific terms and the newly constituted master agreement. The introduction of Automatic Early Termination supplemented, rather than contradicted, the earlier elective termination right. The court applied the approach to inconsistency stated in Pagnan v Tradax [1987] 2 LLR 342.
3. The FFABA 2007 Automatic Early Termination provision also applied to the later agreements. Clauses 10(i) and 10(ii) provided alternative routes to its application. A clause in an earlier confirmation did not amount to a specific written agreement disapplying the later clause.
4. For retrospective Loss, section 6(e)(i)(4), read with the definition of Loss, required TMT to include sums which would have been payable before the Early Termination Date if the applicable conditions precedent had been satisfied. “Assuming satisfaction” required an artificial assumption, regardless of what had actually occurred. Section 2(a)(iii) protected credit risk during the life of the transactions; after termination, section 6 supplied a different close-out regime.
5. The same assumption applied to prospective Loss. Market Quotation and Loss were intended to achieve broadly similar results. The court relied on the reasoning in Australian and New Zealand Banking Group Ltd v Société Générale [2000] 2 All ER (Comm) 682 and Peregrine Fixed Income v Robinson Department Store plc [2000] CLC 1328. The court preferred the analysis in Lomas v JFB Firth Rixson Inc [2010] EWHC 3372 (Ch) to the contrary obiter observation in Marine Trade SA v Pioneer Freight Futures Co Ltd BVI [2010] 1 LLR 631.
6. Issues 1 to 5 were determined in the affirmative. Further argument was adjourned on the consequences of the rulings, including quantum and any specific judgment.

First-instance determination of preliminary issues. No appellate history is stated in the judgment.