The High Court has handed down judgment in a long-running dispute arising out of a contract to enter into a series of forward freight agreements. SJ Phillips QC, NG Casey and Clara Benn acted for the successful claimants.
Cooke J found that there was an overarching personal contract between the owner of the TMT Group, Nobu Su, and the Greek shipowner, Polys Haji-Ioannou. By an oral agreement entered into over the course of a single weekend, Mr Haji-Ioannou agreed to buy a substantial position on the forward market in freight rates, which Mr Su promised to buy back a month later at a fixed price. In July 2008, Lakatamia, a company owned by Mr Haji-Ioannou which had a derivatives trading account with RBS, bought the position. In breach of the agreement, Mr Su failed to buy it back.
Lakatamia was left holding the position when the market crashed in the second half of 2008. As a result, Lakatamia was required by RBS to put up substantial margin. In order to reduce the impact of this requirement, Lakatamia novated 80% of the position to two ship-owning companies within Mr Haji-Ioannou’s group. In the event, the loss suffered on the open position on settlement was US$79 million.
Although Mr Su, and various companies that he controlled, made payments against that loss, those payments dried up. Lakatamia issued a claim for outstanding losses of around US$45 million.
In addition to Mr Su’s personal liability, Cooke J was required to decide whether Lakatamia’s loss was limited (by analogy with section 50(3) of the Sale of Goods Act 1979) to the difference between the contractual price at which it was entitled to sell the open position to Mr Su, and the price at which it could have sold the position in the open market at the date of breach. The judge held that the prima facie rule in section 50(3) of the 1979 Act was displaced in circumstances where the defendants had repeatedly promised to buy back the position (and had, to some extent, done so). There was no need for Lakatamia to establish any form of waiver, estoppel or variation. The defendants’ argument on mitigation foundered on the same basis.
Cooke J also rejected the possibility that, as a result of the intra-group novations, 80% of the losses had fallen into a legal “black hole”, holding instead that an implied contract of indemnity could be spelled out from the acts of the parties. Without such a contract, there would have been no commercial incentive in accepting positions which were out of the money.
To view the judgment please click here.