#6769 - Marine Trades V. Pioneer Freight - Restitution of Unjust Enrichment BCL

Marine Trades v. Pioneer Freight

Facts

The Claimant and the First Defendant entered 14 Forward Freight Agreements ("FFAs") between May 2007 and September 2008. The 2007 Terms of the Forward Freight Agreement Brokers Association ("FFABA") operated so as to constitute between the parties as of 16 April 2008 a Master Agreement on the terms of the 1992 International Swap Dealers Association (Multi-Currency-Cross Border) Master Agreement ("the Master Agreement") as supplemented and amended by clause 9 of the FFABA 2007 Terms, under which each of the FFAs was and is a Transaction.

Because of the dramatic downturn in the freight market in the fourth quarter of 2008, there was a significant difference between the Contract Rates fixed under the FFAs at a time when the market was more buoyant and the Settlement Rates fixed by reference to Baltic Exchange indices. In consequence, each of the FFAs between these parties has been substantially "in the money" for whichever party is "the Seller" under the particular FFA.

By the end of January 2009, Marine Trade had taken the view that Pioneer was affected by an Event of Default within the meaning of the Master Agreement, so that, on the construction of the Master Agreement for which Marine Trade contends, Pioneer was not entitled to set off the sums payable to it by Marine Trade against the sums payable by it to Marine Trade.

Pioneer on the other hand invoiced Marine Trade by an invoice dated 1 February 2009 for the net balance of just over US$5 million. When Marine Trade did not settle the net balance on that date, on 9 February 2009 Pioneer served a Notice under Section 5(a)(i) of the Master Agreement i.e. a Notice of failure to pay which would constitute an Event of Default by Marine Trade…. If found liable, in the state of the market as it then was, this would have meant that a very substantial sum was payable by Marine Trade to Pioneer by way of wash out of all the contracts… In circumstances which will require more detailed analysis hereafter, Marine Trade then paid the net balance of just over US$5 million under protest on 13 February 2009.

Issue

Is Marine Trade entitled to restitution of the net aggregate Settlement Sums in respect of the January 2009 Contract Month paid to Pioneer by Marine Trade under protest?

Holding

In a case where it is alleged that money has been paid by mistake, two matters must be established, in relation to both of which the burden is on the claimant: (1) that there was a mistake and (2) that the mistake caused the payment.

In the present case, the mistake is said to have been the erroneous impression that there was a real and substantial chance that Pioneer was not affected by an Event of Default and that, accordingly, payment of the US$5 million was due.

Even though Mr Arnese was confident that Marine Trade would succeed in establishing that it was not liable to pay any sums to Pioneer because Pioneer was affected by an Event of Default, the damage to Marine Trade's reputation of a designation of early termination, even if not justified, would have been very severe. (This is the reason why the payment was made in protest.)

This was because Mr Baker accepted, realistically in my view, that the highest he could put Mr Arnese's evidence was that Mr Arnese thought, at the time of payment, that Marine Trade was probably not liable to pay.

State of Doubt and Mistake

Speaking for myself I am not convinced that, even if Lord Hope was resiling from what he had said earlier (and the editors of the leading textbook, Goff & Jones: The Law of Restitution 7thedition (2007) do not seem to think that he was: see the discussion at paragraph 4-002B), he was going any further than saying that there may be cases in which it can still be said that the payer was under a mistake, even if he had a degree of doubt as to the position. However, in my judgment, nothing in the speeches of their Lordships who touched on this issue supports Mr Baker's proposition that a payer can still be making a payment by mistake, when his state of mind is that he thinks it more likely than not that he is not liable to pay.

In my judgment, the furthest that a court of first instance could or should go as to the current state of the law is 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.

However, as Mr Baker has to accept, that is not the present case. I consider that a case where...