Pioneer Freight Futures Co Ltd (In Liquidation) v Cosco Bulk Carrier Co Ltd [2011] EWHC 1692 (Comm)

The Claimant and Defendant had entered in to 11 forward freight agreements (the “FFAs”). The Claimant was the seller under 7 of the agreements, and the buyer under the other 4 agreements. All 11 of the agreements were on the standard 2007 terms of the Forward Freight Agreement Brokers Association, which incorporated the 1992 ISDA Master Agreement. Section 2 of the Master Agreement provided that the parties’ payment obligations were subject to the condition precedent that no event of default, with respect to the other party, had occurred and was continuing.  

The Claimant went in to liquidation, which brought about automatic termination under the Master Agreement. The dispute between the parties concerned whether the “wash out” calculations which the Claimant undertook under the Master Agreement should include the 8 FFAs whose last contract month had come to an end before the Claimant went in to liquidation. The Claimant argued that the fact that the contract months of some of the FFAs had come to an end did not mean that those agreements were not still “outstanding” transactions or transactions “in effect” for the purposes of the ISDA Master Agreement. As such, the Claimant submitted, they should be taken in to account.  

The Court found in favour of the Defendant, holding that none of the 8 FFAs whose last contract month had come to an end before the Claimant went in to liquidation should be taken in to account in calculating the payment due on early termination under s.6 of the Master Agreement. Where a particular transaction had terminated at the end of its natural term, any contingent obligation which might have revived, if the condition precedent in s.2 had been fulfilled before the transaction terminated, did not survive the termination of the transaction at the end of its natural term. On that analysis, none of the transactions which terminated at the end of their natural term was a “terminated transaction” within the meaning of the Master Agreement. The definition of “terminated transaction” in the Master Agreement encompassed only transactions “in effect” at the time of early termination.  

In addition, none of the transactions which had come to an end could be described as “outstanding”, as that word assumed that some obligation remained to be performed in the future. If the relevant agreement came to an end through natural expiry, it could not be said that there was an “outstanding transaction” relating to that agreement within the meaning of s.6 of the Master Agreement.  

As to the four FFAs where the s.2 condition precedent had not been fulfilled before the last contract month passed, it could not be said that the relevant transactions were “incomplete or unperformed” when the Claimant became insolvent. Neither party had any obligation to do anything in the future under those concluded transactions. Similarly, in relation to the four FFAs where the Defendant was the seller and the Claimant had failed to pay the settlement sums due, while it could be said that there was an accrued debt outstanding when the agreements came to an end which remained outstanding when the Claimant became insolvent, it would be incorrect to describe those as “outstanding transactions”.