MARINE TRADE SA V PIONEER FREIGHT FUTURES CO LTD BVI

[2009] EWHC 2656 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Flaux, 29 October 2009

Shipping - Finance - Forward freight agreements - Insolvency event - Bankruptcy event - Event of default - Parties owed each other sums under Forward Freight Agreements - First party invoiced the other considering that there had been an event of default - Second party invoiced the first party for the balance of the respective sums - Whether second party entitled to set off sums owed - Restitution - Whether monies paid under protest could be recovered where the payer thought it unlikely that the monies were owed

The claimant and the defendants were parties to forward freight agreements (FFAs). The FFAs were on FFABA 2007 terms and there was a Master Agreement on the terms of the 1992 International Swap Dealers Association (Multi-Currency Cross Border) Master Agreement. In the January 2009 settlement, as a result of the market position, Marine Trade was at an advantage in relation to some of the agreements (about US$7 million), and Pioneer in relation to others (about US$12 million). Marine Trade took the view that there had been an event of default removing Pioneer's entitlement to set off in relation to the settlement, and invoiced Pioneer. Pioneer in return invoiced Marine Trade for the balance owing after deduction (ie about US$5 million), on the basis of an event of default of Marine Trade's part. An event of default was defined as either an inability to pay debts as they became due or a failure generally to pay debts as they became due. At the end of the trial, Pioneer admitted for the purposes of this litigation that there had been a default event. Flaux J held as follows. Pioneer was not entitled to net the US$7 million owed to Marine Trade against the US$12 million owed by Marine Trade. Considering the meaning of the expression "payable" in section 2(c) ("Netting") of the Master Agreement, he held that the language of the clause in question was clear, so that there was no need to look at the commercial purpose of the clause. The US$12 million was not "payable" and could not be netted. The result was that US$7 million became due to Marine Trade from Pioneer in respect of the January 2009 settlement. The next question was if there had been a subsequent event of default on the part of Marine Trade and of so what the effect of that was. Flaux J held that it was not necessary to decide whether the burden of proof was on "he who alleges" (Pioneer) or on the party relying on a condition precedent (Marine Trade). Having looked at the evidence, the judge was "firmly of the view" that since May 2009, Marine Trade had been affected by an event of default. However, this did not have the effect of suspending Pioneer's obligation to pay. Once the condition precedent had been satisfied, Pioneer's obligation to pay had accrued, and it was thereafter in breach of its duty to discharge that debt. Finally, Marine Trade was not entitled to restitution of monies paid under protest in February 2009. There was no general, civilian-type notion of condictio indebiti in the common law. To be entitled to restitution, they must bring themselves within one of the established categories, specifically, to prove that the money was paid by mistake. The furthest a first instance court could go as to the current state of the law was that there may be cases in which a payer can still be said to be under a mistake, even if he has doubts, provided that he paid concluding that it was more likely than not that he was liable to pay. A case such as the present, where the payer makes the payment thinking that it is likely that he is not liable to pay could not properly be described as a case of mistake at all.