Britannia Bulk Plc v Pioneer Navigation Ltd & Anor [2011] EWHC 692 (Comm) (25 March 2011)

Britannia Bulk Plc v Pioneer Navigation Ltd & Anor [2011] EWHC 692 (Comm) (25 March 2011)

The 'nil loss' argument fails because, under the ISDA 1992 Master Agreement with Automatic Early Termination, it is impossible for a Bankruptcy Event of Default to continue without termination; the Loss calculation must proceed on the basis that all conditions precedent are satisfied, and the Non-defaulting Party must account for gains as well as losses. The contract does not permit the Non-defaulting Party to avoid payment by relying on the continuing Event of Default.

Citation
[2011] EWHC 692 (Comm)
Parties
Claimant: Britannia Bulk plc (in liquidation); Defendant in Folio 1087: Pioneer Navigation Limited; Defendant in Folio 1087: Atlas Shipping Limited; Defendant in Folio 1331: Bulk Trading S.A.
Jurisdiction
England and Wales
Judgment Date
25 March 2011
Procedural Posture
Commercial Contractual Dispute (preliminary Issue) / Judgment on Preliminary Issue
Outcome
Preliminary issue resolved in favour of Britannia Bulk plc (Claimant).
Legal Topics
ISDA Master Agreement Construction, Automatic Early Termination, Loss and Market Quotation Payment Measures, Close Out Netting, Bankruptcy Event of Default
Commercial Law Insolvency Law Derivatives Law ISDA Master Agreement Construction Automatic Early Termination Loss and Market Quotation Payment Measures Close Out Netting Bankruptcy Event of Default

Case Brief

Summary, issues, holding and outcome

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Parties

Britannia Bulk plc (in liquidation)

Claimant

Pioneer Navigation Limited

Defendant in Folio 1087

Atlas Shipping Limited

Defendant in Folio 1087

Bulk Trading S.A.

Defendant in Folio 1331

Procedural Posture

Commercial Contractual Dispute (preliminary Issue) / Judgment on Preliminary Issue

Legal Issues

  1. 1 Whether under the ISDA 1992 Master Agreement (Second Method and Loss) the 'nil loss' argument applies so that the Non-defaulting Party owes no payment to the Defaulting Party on Automatic Early Termination due to bankruptcy, because no payment would have been due absent termination.

Ratio Decidendi

The 'nil loss' argument fails because, under the ISDA 1992 Master Agreement with Automatic Early Termination, it is impossible for a Bankruptcy Event of Default to continue without termination; the Loss calculation must proceed on the basis that all conditions precedent are satisfied, and the Non-defaulting Party must account for gains as well as losses. The contract does not permit the Non-defaulting Party to avoid payment by relying on the continuing Event of Default.

Court Disposition

Preliminary issue resolved in favour of Britannia Bulk plc (Claimant).

Orders

  • Nil loss argument rejected; Non-defaulting Parties are liable to account for gains under the Loss measure as per the ISDA 1992 Master Agreement.