Deiulemar Shipping SpA and Deiulemar Compagnia di Navigazione SpA (“Deiulemars”) concluded forward freight agreements (“FFAs”) with Transfield ER Futures Ltd (“TFL”) on the standard FFABA 2007 Terms, incorporating a 1992 ISDA Master Agreement (without Schedule), as modified and supplemented by the FFABA Terms. TFL designated an Early Termination Date of 5 July 2010 based on Deiulemars’ failures to pay Settlement Sums in favour of TFL for the May 2010 Contract Month. Deiulemars disputed the validity of TFL’s action, and claimed to be entitled to restitution of sums paid to TFL for the January-April 2010 Contract Months. TFL counterclaimed Early Termination Amounts of c.US$42m in aggregate, and sought summary judgment on those counterclaims and dismissing Deiulemars’ claims. Summary judgment as sought was granted by the Commercial Court (Mr Colin Edelman Q.C., sitting as a Deputy Judge of the Court,  EWHC 928 (Comm)). The judge refused permission to appeal.
There were two issues: (i) whether Deiulemars had any real prospect of establishing that TFL was affected by a Bankruptcy Event of Default in May/June 2010 (if TFL was so affected, then Deiulemars were entitled not to pay the May 2010 Settlement Sums); (ii) whether Transfield Shipping Inc (“TSI”) was a Credit Support Provider under the ISDA Master Agreement.
Deiulemars’ case under (i) was that TFL had “become [balance-sheet] insolvent” within Section 5(a)(vii)(2) of the ISDA Master. The allegation was that TFL had a liability to Pioneer Freight Futures Co Ltd (“PFF”) of c.US$8m, following Automatic Early Termination of FFAs between TFL and PFF when liquidators were appointed over PFF. It was said that amount should have been recognised in full in TFL’s accounts and that if it had been, there would have been an excess of liabilities over assets in May/June 2010. The judge held that under Section 5(a)(vii)(2) of the ISDA Master Agreement, a company was only to be regarded as having “become insolvent” when it had reached the point of no return because of an incurable deficiency in its assets. TFL’s alleged liability to PFF was disputed at the time on reasonable grounds and fell to be regarded as a contingent liability when assessing whether there was any real prospect of showing that TFL’s finances had reached the point of no return. The judge concluded on the facts that it was fanciful to propose that TFL had reached that point.
Point (ii) above arose because TSI was identified in the Confirmations for (most of) the FFAs as guarantor of TFL and Deiulemars argued that this should be interpreted to mean that it was a Credit Support Provider as defined in the ISDA Master Agreement. The judge held that the status of Credit Support Provider under the ISDA Master Agreement had to be specified by the parties to be applicable; to read references to TSI having guaranteed TFL as specifying that TSI was a Credit Support Provider would be to make for the parties a bargain which they could sensibly have made but did not make.
Andrew W Baker Q.C. was leading Counsel for TFL (appearing with Siddarth Dhar, instructed by DLA Piper LLP).