LEGAL ISSUES IN COMMODITIES
their deals. As such, the assessment of damages should be based on a similar method.
• Galaxy argued that damages should be assessed on the date of breach. They argued that it was
possible and appropriate to use the Platts price on the relevant day to assess the market value.
It will not come as a surprise that the Platts price
spiked on the date of breach and the mean price spread across a few days was lower. The Court was assisted by experts retained by
each party. However, whilst the expert evidence was useful in understanding how traders priced their deals, the decision did not turn on expert evidence. The Court preferred Murco’s suggested method
for ascertaining the true market price, commenting that Platts is not a market or an exchange, although it may well be the best evidence of the market. Nonetheless, traders in the market are much more likely to price their deals on a spread of Platts days, rather than a quoted figure on any one day. In their deal, Galaxy and Murco had used a spread of three Platts days to determine price. That was deemed an appropriate measure of damages. In short, the Court adopted the assessment that reflected the commercial reality. The upshot of this decision is that
to blame for its termination. The question before the Commercial Court in this case was the extent to which the invoicing back Rules were incorporated into the specific cotton contract in question. The Court held that the starting point in relation
to the issue of contractual incorporation was the incorporating words used in the “host” cotton contract. In this case, the precise words used were: “This agreement incorporates the Bylaws which set out the Association’s arbitration procedure…”. The error made by the Technical Appeal Committee Tribunal in its decision of 12th
April 2013
was not to address the incorporating words of the host contract, but instead to proceed to consider the wording of the Rules alleged to be incorporated. In his judgment of 10th
February 2014, Mr
Justice Hamblen concluded that the words of incorporation, whilst incorporating the Bylaws, did not, and did not need to, incorporate the invoicing back Rules. As was pointed out by Rix LJ in Tradigrain SA v King Diamond Shipping SA2
: “the first rule relating
to the incorporation of one document’s terms into another is to construe the incorporating clause in order to decide on the width of the incorporation”.
the Court preferred the commercial approach to assessing the market value of the cargo, rather than any overly legalistic or artificial approach. This will be welcomed by the oil trade. It also has wider implications, as commodity traders in other fields will take note that a court’s assessment of damages in default cases can be based on the peculiarities of pricing cargo in respective fields. Having said this, the key test remains: what is the actual market value?
For more information contact Luke Zadkovich, HFW Associate, on +44 (0) 20 7264 8157 or
luke.zadkovich@
hfw.com
Un-Stitching a Tribunal Error – Interpreting the construction of a cotton trade contract In Cottonex Anstalt v Patriot Spinning Mills Ltd (10th
February 2014), the English Commercial Court was asked to determine the correct approach to the question of contractual incorporation when considering the International Cotton Association (ICA) Bylaws and Rules. The ICA Bylaws and Rules are well-known to
those operating in the cotton sector, in particular the “invoicing back” Rules. These provide for a contractual method of closing out cotton contracts based on the market price at the date of closure and irrespective of the issue of breach and who is
42 March 2014
This judgment is important in that it respects freedom of contract and the parties’ right to shape their contractual regime and relationship
The International Cotton Association Bylaws and
Rules are rarely scrutinised by the courts and form a self-contained regime for resolving disputes in a pragmatic and sensible fashion. This judgment is important in that it respects freedom of contract and the parties’ right to shape their contractual regime and relationship. Mr Justice Hamblen remitted the matter back to the
Tribunal to determine the remaining questions. •
For more information, please contact Brian Perrott, HFW Partner, on +44 (0) 20 7264 8184 or
brian.perrott@hfw. com, or Richard Merrylees, HFW Partner, on +44 (0) 20 7264 8408 or
richard.merrylees@
hfw.com, or Simeon Newman, HFW Associate, on +44 (0) 20 7264 8535 or
simeon.newman@
hfw.com
Holman Fenwick Willan is recognised for its world leading commodities practice, covering physicals, derivatives, trade finance and
regulation. The firm’s specialist lawyers handle both contentious and transactional work across the full spectrum of soft and hard commodities
www.hfw.com Footnotes
1. The “Luxmar” [2007] 2 Lloyd’s Rep 542 2. [2002] 2 Lloyd’s Rep. 319 at [78]=
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