Pioneer v TMT

The Jolly Contrarian Law Reports Our own, snippy, in-house court reporting service. →Go uptown Editorial Board of the JCLR: Managing Editor: Lord Justice Cocklecarrot M.R. · General Editor: Sir Jerrold Baxter-Morley, K.C. · Principle witness: Mrs. Pinterman Common law | Litigation | Contract | Tort | Click ᐅ to expand: Case notes Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Pioneer Freight Futures v TMT Asia [2011] EWCH 1888

This was the second judgment handed down in proceedings, arising out of a series of forward freight agreements between Pioneer and TMT.

Having lost in the first go round, TMT adjusted its defence in light of the Marine Trade v Pioneer decision, such that the Section 2(c) netting would be disapplied.

So we had this scenario:

Party A defaults while it is in-the-money. Party B invokes Section 2(a)(iii), sticks two fingers up and refuses to carry on. There are other Transactions under way and Party A heroically tries to carry on with them. but — clever — it purports to settle these transactions net under Section 2(c), against obligations it is due under other Transactions.

INTERESTING. Okay, you don’t have to pay me, but should I have to pay you more than I would otherwise have done, were it not for Section 2(a)(iii) allowing me to suspend?

Flaux J had earlier thought the answer to that was “no”. We may ba able to put this down to a basic misconception about how the contract more generally was supposed to work: He thought that a payment obligation once suspended was extinguished — an absurd idea — but one from which it would follow, if you were labouring under it, that one couldn’t possibly net settle future payments, since there was on this view nothing to net settle. But, ohj dear oh dear: 2(a)(iii) is so litigationey.

Then the parties settled — but like the winger who arrives late to a punch-up between two front rows, Gloster J piled in anyway and gave her judgment for the sake of the market. We can be glad she did, because she got it right, and Flaux J’s was a horror show. Still we wonder whether there was any buyer’s remorse on the settlement.

She rejected TMT’s new argument opining that Flaux J in was wrong on the Section 2(c) netting issue. Pioneer’s view was consistent with the ISDA Master Agreement’s commercial scheme and the language of the relevant provisions.

Section 2(a)(iii) litigation

There is a (generous) handful of important authorities on the effect under English law or New York law of the suspension of obligations under the most litigationey clause in the ISDA Master Agreement, Section 2(a)(iii). They consider whether flawed asset provision amounts to an “ipso facto clause” under the US Bankruptcy Code or violates the “anti-deprivation” principle under English law. Those cases are:

• Lomas v Firth Rixson
• Marine Trade v Pioneer
• Pioneer v Cosco
• Pioneer v TMT
• Enron v TXU
• Metavante v Lehman