This judgment relates to a dispute as to the correct construction of the 1992 Master Agreement of the International Swap Dealers Association, now the International Swaps and Derivatives Association (“ISDA”) which concerns the financial consequences of Automatic Early Termination of a series of forward freight agreements (“FFAs”) between the parties following the insolvency of the claimant Britannia Bulk. On 11 November 2010 Paul Walker J ordered that the so-called “nil loss” issue raised in the pleadings in 2009 Folio 1331 be tried as a preliminary issue and on 17 December 2010, David Steel J ordered that the same issue raised in 2009 Folio 1087 should be tried at the same time. I heard that trial in both actions on 1 and 2 March 2011.

In order to understand the “nil loss” issue, it is necessary to set out in some detail the relevant contractual provisions. Each of the FFAs in issue incorporated the 2007 Terms of the Forward Freight Agreement Brokers Association (“the FFABA 2007 Terms”). Those Terms incorporated by reference the ISDA 1992 Master Agreement (“the Master Agreement”). An FFA on the FFABA 2007 Terms is a cash-settled contract for differences referenced to the Index rate or rates published by the Baltic Exchange as selected by the parties. A “Settlement Sum” is calculated for each FFA and each Contract Month from the “Contract Rate” agreed between the parties, the “Settlement Rate” for that Contract Month derived from the Baltic Exchange indices, and the number of days in the Month.

Clauses 7 and 8 of the FFABA 2007 Terms set out the payment terms for each contract month:

Clause 9 of the FFABA 2007 Terms then incorporates the Master Agreement with specific amendments, as follows:

As will be seen later, the reference to “Second Method” and to “Loss” was to one of two payment methods and to one of two payment measures set out in the Master Agreement. As to the obligation to make payments during the period when a FFA was extant (i.e. before any Automatic Early Termination), Section 2 of the Mater Agreement set out certain General Conditions to which the payment regime in clauses 7 and 8 of the 2007 FFABA Terms was obviously subject:

Section 5 of the Master Agreement sets out various Events of Default and Termination Events. These cases are concerned with so-called “Bankruptcy Events of Default” which trigger Automatic Early Termination:

Section 6 then deals with early termination in these terms:

First Method and Second Method are not in fact defined in the Mater Agreement, but Loss and Market Quotation together with other relevant expressions are defined in Section 14:

Administrators were appointed over Britannia Bulk on 31 October 2008, so that by virtue of Sections 5 and 6 of the Master Agreement Automatic Early Termination then occurred immediately. The payment regime which had been in place under clauses 7 and 8 of the FFABA 2007 Terms and Section 2 of the Master Agreement was thus replaced by the regime for Payments on Early Termination in Section 6(e). Under the Second Method and Loss provision and the definition of Loss, each of the defendants as the Non-defaulting Party was required to reasonably determine in good faith its total loss or gain from the terminated contracts.

The case for Britannia Bulk is that, had the event of default not occurred and each of the FFAs run to expiry, on the basis of the forward rates available at the time of Automatic Early Termination, each of the defendants would have been liable to pay Britannia Bulk considerable sums over the remaining term of the contracts. It is Britannia Bulk’s case that, because early termination has relieved the defendants of those liabilities, the defendants have incurred gains and are required to make payments to Britannia Bulk accordingly.

The defendants’ case is that in fact they have not made any gain at all, the so-called “nil loss” argument. It is an argument which will require careful analysis in the present judgment, but its essence can be shortly stated. The defendants’ case is that, if termination had not occurred, nothing would have been payable to Britannia Bulk under Section 2(a)(i) of the Master Agreement because the condition precedent to payment in Section 2(a)(iii)(1) would not have been fulfilled, since Britannia Bulk would have been affected by bankruptcy throughout the rest of the contractual period. Accordingly, no gain has been made by the defendants from early termination, because nothing would have been payable anyway.

As I have said, the nil loss argument is one which requires a close analysis but I should say at the outset that it seems to me that the argument faces two major difficulties. First, despite the ingenious submissions presented by Mr Hapgood QC on behalf of the defendants, the argument is contrary to what was said, albeit strictly obiter, by Mance LJ in Australia and New Zealand Banking Group Ltd v Societe Generale [2000] CLC 833 and is also contrary to the judgment of Moore-Bick J as he then was, in the later case of Peregrine Fixed Income Ltd (In Liquidation) v Robinson Department Store Plc [2000] CLC 1328, where the dicta of Mance LJ were approved and applied.

Second and perhaps more importantly, it seems to me that Mr Phillips QC for Britannia Bulk is right that the fundamental fallacy in the nil loss argument is that it is founded on an impossibility. Under the terms of a Master Agreement in which Automatic Early Termination applies (as was the case here), you cannot have a Bankruptcy Event of Default without there being Automatic Early Termination. In other words, the argument assumes an Event of Default going forward for the remainder of the contract period, but that is simply not possible, because any such Event of Default would itself lead to Automatic Early Termination. As Mr Phillips says, that is why the “Loss” assessment which the Non-defaulting Party is obliged to make upon termination is on the basis that the loss or gain is valued “clean”, which is what Mance LJ considered was the position in the ANZ case.

It is an essential aspect of the nil loss argument that, whereas adopting Second Method and Market Quotation is intended to create what Mr Hapgood described as a “fictional world” with a notional replacement transaction, adopting Second Method and Loss is rooted in the real world of what actually happened prior to Automatic Early Termination and what would have happened absent Automatic Early Termination. Mr Phillips on the other hand contends that the two payment measures are intended to achieve a broadly similar result, a contention which recommended itself to both Mance LJ and Moore-Bick J. In order to test these rival contentions, it is necessary to look more closely at the four regimes for Payment on Early Termination set out in Section 6 (e) of the Master Agreement and at the effect of Automatic Early Termination.

As I have said, the Master Agreement, somewhat curiously, does not define First Method and Second Method or even explain the difference between them. However, one contrast between them is apparent from the wording of the provisions. First Method only ever involves payments by the Defaulting Party to the Non-defaulting Party where on Early Termination the calculation (whether the payment measure adopted is Market Quotation or Loss) arrives at a positive number, i.e. a loss for the Non-defaulting Party. The Non-defaulting Party never has to make a payment to the Defaulting Party when it has made a gain. This option is explained in Firth: Derivatives Law and Practice (2010) at para 11.157 as follows:

On the other hand under Second Method the wording of Section 6(e) expressly contemplates (for both the Market Quotation and the Loss payment measures) that the Non-defaulting Party not only has to make a payment if the calculation produces a positive number, but also if the calculation produces a negative number i.e. a gain for the Non-defaulting Party. Firth at para 11.157 explains this option as follows:

Mr Phillips set out in his written submissions the history of the two methods in the derivatives markets. In the early days of derivatives, most market participants preferred the First Method which applied automatically under the 1987 version of the Master Agreement. This approach was the subject of some criticism and, in the 1992 Master Agreement which I have to consider, the Second Method applies automatically as the default position, unless First Method is expressly chosen.

Mr Phillips explained that one of the main factors which had led the market to prefer the Second Method was the change in capital adequacy rules for financial institutions in July 1994, when the Basel Committee on Banking Supervision “adopted the view that netting arrangements with ‘walk-away’ clauses introduce[d] an undesirable element of instability and uncertainty into netting arrangements” (Gooch & Klein, Documentation for Derivatives (4^th ed., 2002), vol.1, p.232) and therefore amended the Basel Accord to provide expressly that “contracts containing walkaway clauses will not be eligible for netting for the purpose of calculating capital requirements pursuant to this Accord”.

Mr Hapgood objected to reference to the Basel Accord as any sort of aid to the construction of the Master Agreement in the present case, on the basis that his clients were not members of the ISDA and knew nothing about the Basel Accord. The position of banks whose regulators consider that the Second Method reduces their capital requirements was of no concern to companies such as these defendants (or for that matter Britannia Bulk itself), trading FFAs on FFABA Terms. The Master Agreement was just a convenient umbrella agreement adopted in the FFA trade. In one sense, this objection is rather surprising as Mr Hapgood himself, in his Skeleton Argument, asserted that “Market Quotation” was “made available under the Master Agreement simply to facilitate the capital adequacy requirements of the financial institutions which dominate ISDA’s membership” and then referred, in a lengthy footnote, to the amendment to the Basel Accord.

Be that as it may, I have to construe the Master Agreement as incorporated in these FFAs and, in doing so, I derive little assistance from the history of why there are two payment methods. In any event, the difference between the two methods is apparent from an analysis of the wording of Section 6(e), as I have indicated.

Furthermore, I am assisted in that analysis by what was said about the two payment methods in Section 6(e) of the Master Agreement by Moore-Bick J in Peregrine Fixed Income Ltd (In Liquidation) v Robinson Department Store Plc [2000] CLC 1328 at 1335, paragraphs 23 and 24:

The default position under the Master Agreement is that when an Event of Default occurs, the Non-defaulting Party will have the option of serving a notice under the first sentence of Section 6(a), so as to give rise to an Early Termination Date. As Mr Phillips points out, where the Non-defaulting Party is in the money, it has a financial incentive to serve such a notice. An Early Termination Date crystallises the Non-defaulting Party’s entitlement to compensation for its loss. In contrast, if the Non-defaulting Party is out of the money, it has a financial incentive not to serve such a notice, but to “sit on its hands” and keep the contract on foot, relying on the Defaulting Party’s inability to comply with the condition precedent in Section 2(a)(iii)(1) as relieving it from the obligation to make any payments under Section 2(a)(i), also thereby avoiding having to make any payment to the Defaulting Party on Early Termination.

Mr Phillips submits that if, as in the present case, the parties have selected Automatic Early Termination in their contract, then once one of the specified “Bankruptcy Events of Default” occurs, there will be Automatic Early Termination, in which case an out of the money Non-defaulting Party will be required to calculate and pay an appropriate amount to the liquidator, trustee or administrator of the in the money Defaulting Party. In other words, Mr Phillips submits, selection of Automatic Early Termination prevents the Non-defaulting Party from sitting on its hands and relying on non-compliance with the condition precedent in Section 2(a)(iii).

Mr Hapgood denies that, at least where the Loss payment measure has been selected, Automatic Early Termination has such a radically different effect from the position under the first sentence of Section 6(a). He submits that the real reason for having Automatic Early Termination is to avoid the netting problem i.e. that once a Bankruptcy Event of Default has occurred, the bankruptcy laws of most counties would not permit any set off between different transactions such as Section 2(c) contemplates. Automatic Early Termination seeks to do this by providing that the termination takes effect immediately prior to the presentation of a bankruptcy petition. Whether the provision is effective to circumvent bankruptcy laws is another matter.

Mr Hapgood submits that Automatic Early Termination has two effects. First it eliminates the possibility of an Event of Default being cured. Whether, whilst the contract is still on foot, an Event of Default can be cured and an obligation to pay under Section 2(a) can revive, is the subject of differing judicial views. In Marine Trade v Pioneer Freight Futures [2009] EWHC 2656 (Comm); [2010] 1 Lloyd’s Rep 631 I expressed the view, obiter, at paragraphs 60 and 61 of my judgment, that the provisions of Section 2(a) are “one time” provisions so that, if the settlement date passes with nothing being payable because of an Event of Default, that obligation to pay does not revive at some later date if the condition precedent is then fulfilled. In contrast, in the Lehman Brothers litigation, Lomas v JFB Firth Rixson [2010] EWHC 3372 (Ch), at paragraphs 72 to 79, Briggs J preferred on balance the view that a payment obligation under Section 2(a)(i) would be suspended whilst the condition precedent was not complied with, but could revive if at any time before the swap agreement came to its natural end, the condition precedent was then complied with. Whichever view is correct, Automatic Early Termination undoubtedly has the effect that an Event of Default can no longer be cured, even if it could be cured when the contract was on foot.

Mr Hapgood accepts that the second effect that Automatic Early Termination has, is that the payment obligations of the parties are moved from Section 2 to Section 6. That is of course the effect of any Early Termination even after election through giving notice but, as Mr Hapgood recognised, the critical difference is that where there is Automatic Early Termination, the Loss calculation occurs automatically, rather than by the election of the Non-defaulting Party.

As Mr Phillips submits, the Market Quotation payment measure “provides a rigid and mechanistic approach which produces an objectively verifiable result” whereas the Loss measure is more flexible. As he points out, in a case where a Market Quotation cannot be obtained or would not produce a commercially reasonable result, the Loss measure is the fallback. Peregrine was such a case.

In order to determine the “Market Quotation” amount in respect of each Terminated Transaction, the Non-defaulting Party is required to obtain quotations from “Reference Market-makers” for a “Replacement Transaction” which is “a transaction … that would have the effect of preserving … the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction ... that would, but for the occurrence of the relevant Early Termination Date, have been required after that date”.

Accordingly, the task of the Reference Market-makers is to provide estimates of the market value of each Terminated Transaction from the perspective of the Non-defaulting Party and those estimates must assume the satisfaction of each applicable condition precedent, in other words assume that the Event of Default has not occurred. Once the Settlement Amount (i.e. the Market Quotation or in a fallback situation, the Loss) has been calculated, the Non-defaulting Party then has to add the “Unpaid Amounts” owing to it and deduct any Unpaid Amounts owing to the Defaulting Party. The definition of Unpaid Amounts covers both amounts that became payable prior to the Early Termination Date, but were not paid and amounts that would have become payable, but for Section 2(a)(iii).

That calculation then produces a positive or a negative amount. What consequences flow depends obviously upon whether the parties have chosen First Method or Second Method. If it is a positive amount then under both Methods, the Defaulting Party will be liable to pay the Non-defaulting Party. However, if it is a negative amount, equivalent to an overall gain for the Non-defaulting Party, then only if Second Method applies will the Non-defaulting Party have to pay the Defaulting Party. If First Method applies, then a negative amount is irrelevant.

It is in relation to the definition of “Loss” that the biggest divergence in the approach of the parties arises. Mr Phillips submits that Loss is less mechanistic and more flexible than Market Quotation, but that there is an overlap between the two, in the sense that even if the Market Quotation measure has been chosen, the Loss measure is the fallback position. That is recognised within the Loss definition by the words: “except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)…applies”, which are the two Market Quotation regimes. Mr Phillips submits that, quite apart from any authority bearing on the point, one would expect the two measures to lead to broadly the same result.

Mr Hapgood takes fundamental exception to that proposition. He submits that the words in the first sentence of the Loss definition: “its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain”, do not require the defendants to assess matters on the artificial basis that Britannia Bulk was not affected by an Event of Default and would not have been affected by an Event of Default, had there been no Early Termination.

He submits that the assessment under the Loss measure is one made in the real world, in contrast to the position under the Market Quotation measure where an artificial replacement transaction is created. He submits that, critically, the “assuming satisfaction of each condition precedent” used twice in the Market Quotation definition is absent in the first sentence of the Loss definition, an indication that the Non-defaulting party does not, in making its calculation under this provision, have to make false artificial assumptions, that the conditions precedent in Section 2(a)(iii) would have been satisfied if termination had not occurred, which they clearly would not. The Loss provision with its mention of “loss of bargain” had, so Mr Hapgood submitted, a “distinctly common law/damages feel”. In assessing loss of bargain, one looks at what hypothetically would have happened had the contract not come to an end. Since the defendants would never have been liable to pay anything by virtue of Section 2(a)(iii), accordingly they made no “gain” from Automatic Early Termination.

Attractively though these submissions were presented, I cannot accept them, as they seem to me to contain a fundamental flaw. Taking Mr Hapgood’s reference to the real world and asking what would have happened if Automatic Early Termination had not occurred, one rapidly realises that his argument has to assume a contract which is fundamentally different from this one. The argument depends upon the Bankruptcy Event of Default continuing if Automatic Early Termination had not occurred, relieving the defendants of their payment obligation, because the condition precedent in Section 2(a)(iii)(1) could not be satisfied. However, what that overlooks is that, under these contracts, that could never occur, because once there was a Bankruptcy Event of Default, the contracts terminated automatically. It was impossible for there to be a continuing Bankruptcy Event of Default. That is the whole point of Automatic Early Termination. It is an inevitable consequence of a Bankruptcy Event of Default.

As Mr Phillips pointed out, once there has been such a Bankruptcy Event of Default, which is a status changing insolvency event, the contract comes to an end. It is simply impossible to have a contract going forward where Britannia Bulk is in administration. Accordingly, although it is right that the first sentence of the Loss definition does not say in terms “assuming satisfaction of all conditions precedent”, it does not need to, because that is the only basis upon which the assessment of the “gain” can proceed, namely on the basis that there was no Bankruptcy Event of Default and thus no Automatic Early Termination. The gain in connection with the contract being terminated on that basis is indeed the amount of the payments which the defendants would have been required to make over the remaining term of the contracts.

Since the Second Method contemplates, whichever payment measure is selected, that if the calculation produces a negative number (i.e. the equivalent of a gain to the Non-defaulting Party) the Non-defaulting Party will make payment to the Defaulting Party, Mr Hapgood’s construction of the Loss definition produces the very odd result that, on his analysis, the only circumstances in which the Non-defaulting Party would have to give credit for a “gain” within the first sentence would be if, under the second sentence of the definition (to which I return below), the Non-defaulting Party was liable to pay the Defaulting Party in respect of payments required to be made before the Early Termination Date, but not made.

If the nil loss argument were right, nothing would ever be payable in respect of what might be described as the “gain of bargain” the Non-defaulting Party achieves through Automatic Early Termination, namely the fact that, but for the Bankruptcy Event of Default and consequent Automatic Early Termination, the Non-defaulting Party would have had to make substantial payments to the Defaulting Party. In that context, I agree with Mr Phillips that Mr Hapgood’s attempt to equate the definition of Loss with the common law measure of damages is misconceived. The Second Method is one which, unlike the First Method, is not to be equated with the position at common law. Rather it is a method of calculating close out positions on the termination of a transaction or series of transactions.

That analysis of the Second Method, whether the payment measure is Market Quotation or Loss, was one which Mr Hapgood himself advanced before Moore-Bick J in Peregrine where at paragraph 22 of the judgment the learned judge said:

That argument found favour with the learned judge as is apparent from the passages in paragraphs 23 and 24 of his judgment which I have already quoted. I agree with Moore-Bick J’s analysis of the Second Method (whether the Market Quotation or Loss payment measure is adopted) that: “the fact that the Non-defaulting Party must account to the Defaulting Party for any gain clearly deprives the Event of Default of most of its characteristics as a breach of contract” (paragraph 24). It is a misconception to seek to equate the Loss provision with what the position would be if the Non-defaulting Party had a claim for damages at common law, which is the effect of Mr Hapgood’s argument before me.

Given the clear conclusion I have reached about the meaning of the first sentence of the Loss definition, it is not strictly necessary to consider the parties’ rival submissions about the second sentence, not least because ultimately it seems to me that whatever it means has no real impact on the fundamental point I have addressed above. Nonetheless since the point was argued, I will deal with it.

Mr Phillips submits that the words in the second sentence of the Loss definition: “Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made”, are a reference to Unpaid Amounts. The assumption that the conditions precedent are satisfied is spelt out because (unlike the first sentence) this is looking at past and not future loss of bargain. The assumption avoids any dispute about whether the Defaulting Party was insolvent before Automatic Early Termination (the sort of dispute with which the court was concerned in the Marine Trade case).

Mr Hapgood challenged this submission, making the obvious point that if it had been intended to refer to Unpaid Amounts, it would have been easy enough to say so. He submits that the words: “Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made” cover only those payments wrongfully unpaid prior to termination, which should have been paid. In other words, Mr Hapgood submits that the words in brackets mean “assuming, that is to say, that each applicable condition precedent was satisfied at the time”.

Although I agree that the wording is somewhat awkward and that it could simply have referred to Unpaid Amounts, I prefer Mr Phillips’ construction of the sentence. I agree with him that Mr Hapgood’s argument that “required to be made” means only those payments which ought to have been made, but were wrongfully not made, does not deal at all with payments withheld under Section 2(a)(iii)(1). By using the same formula: “assuming satisfaction of each applicable condition precedent” as elsewhere in the contract, it seems to me clear that the sentence is saying that the Non-defaulting Party is not entitled to rely upon any condition precedent, in which case payments withheld under Section 2(a)(iii)(1) have to be brought into account under the second sentence of the Loss provision.

Furthermore, in my judgment the overlap point is a further indication that the two payment Measures were intended to achieve a broadly similar result. Given that the definition of Settlement Amount expressly contemplates that, if a Market Quotation cannot be determined or would not produce a commercially reasonable result, the fallback position will be a calculation of Loss, it would be very odd if the two payment measures were not intended to achieve broadly the same result, in terms of the payments that have to be made either way by way of close out, on the termination of a transaction or series of transactions.

This was a point which Moore-Bick J in Peregrine also considered was an indication that the two payment measures were broadly intended to achieve the same result: see paragraph 30 of his judgment where he said:

The Pre-Estimate provision in Section 6(e)(iv) with its reference to the amount recoverable where Market Quotation applies being a reasonable pre-estimate of loss and being payable for loss of bargain (to which of course the Loss definition expressly refers) is a further indication that the two payment measures were intended to have broadly the same result, as Moore-Bick J also accepted at paragraph 28 of his judgment in Peregrine.

Given my firm conclusion that Mr Hapgood’s nil loss argument simply fails on the true construction of the Master Agreement, it is not strictly necessary to consider in any detail his submissions as to why, to the extent Mance LJ in the ANZ case and Moore-Bick J in Peregrine reached the same conclusion, they were wrong to do so, since, by definition, if I have rejected his argument on the construction of the Master Agreement, it must follow (i) that the common ground in ANZ was correctly agreed; (ii) that Mr Hapgood’s own submissions before Moore-Bick J in Peregrine were correct and (iii) that both judges’ analysis was also correct. Nonetheless, given that Mr Hapgood devoted a fair amount of time in his submissions before me to an elegant exposition as to why all three of those points are wrong, and given that this case may go further, I propose to deal briefly with the submissions he made.

Australia and New Zealand Banking Group Ltd v Societe Generale [2000] CLC 833 was a case where, as Mance LJ records at the outset of his judgment: “it was common ground that the Loss and Market Quotation clauses aim at broadly the same result and may to that extent assist [to] construe each other” and as Mr Hapgood points out, Mance LJ referred to that common ground several times in his judgment. The case was somewhat unusual in that it involved Societe Generale (“SG”) seeking to raise a number of new points on appeal, the detail of which do not matter, save to note that the Court of Appeal (Kennedy and Mance LJJ) decided that those new points were not open to SG on appeal. Notwithstanding that conclusion, Mance LJ, with whom Kennedy LJ agreed, went on to consider the merits of those new points as they had been extensively argued.

It seems to me that, for present purposes, despite the fact that it was common ground in that case that the Market Quotation and Loss measures were intended to achieve essentially similar results, two sections of the judgment of Mance LJ are of particular relevance. First is the passage in paragraph 24 of his judgment where he deals with what the position would have been, if the Market Quotation basis of calculation had been adopted:

Second is the passage towards the end of his judgment at paragraphs 29 and 30, where Mance LJ concludes that, whichever payment measure is used, on the basis that a broadly similar result was intended, the calculation of loss of bargain should proceed on the same basis of assuming that all conditions precedent had been satisfied. He expresses his conclusion in these terms at paragraphs 29 and 30 of his judgment:

Mr Hapgood submitted that this analysis all proceeded on the basis that it was common ground that the Market Quotation and Loss measures were intended to achieve the same results, and no contrary submissions along the lines of the submissions Mr Hapgood now makes were addressed to the Court of Appeal. This is undoubtedly correct, but Mance LJ engaged nonetheless in a detailed analysis of the provisions and would surely have queried the supposed common ground, if he had thought that there was any basis for doing so.

Peregrine Fixed Income Ltd (In Liquidation) v Robinson Department Store Plc [2000] CLC 1328 is, as Mr Hapgood points out, not a case concerned with derivatives at all, but apparently a case of a long term unsecured loan wrapped up within the terms of the ISDA Master Agreement, as Moore-Bick J recognised at paragraph 20 of his judgment. Nonetheless, given the incorporation of the Master Agreement, the case is still obviously relevant to the issues of construction I have to decide.

Mr Hapgood submitted before me that in that case he had advanced three arguments: (i) that the Loss and Market Quotation measures should produce broadly the same outcome; (ii) that the Loss measure produced a valuation of some US$87 million and (iii) that therefore, the Loss measure trumped the Market Quotation measure, as Moore-Bick J accepted at paragraph 37 of his judgment. Mr Hapgood sought to make much before me of the extent to which he would still accept the submissions he advanced in that case, in relation to the Market Quotation measure, but that only served to emphasise the extent to which he was resiling now from what he had argued then in relation to the Loss measure.

Ultimately, whatever forensic challenges Mr Hapgood may have faced about the fact that what he was arguing before me was flatly contrary to what he had argued before Moore-Bick J ten years ago, what matters is whether his current argument is right or not. As will be apparent from my previous conclusion about the correct construction of the Master Agreement, I have reached the firm view that Mr Hapgood’s current argument is wrong and it necessarily follows that his argument before Moore-Bick J was correct.

Although the decision of Moore-Bick J was influenced by Mr Hapgood’s then submissions, his conclusions at paragraphs 22 to 24 and 30 of his judgment to which I have previously referred were in my view, clearly correct. Even if I had not independently reached the same conclusion as a matter of construction of the provisions with which I am concerned, I would still have followed the decision of Moore-Bick J, both because it is clearly right and because of the desirability of consistency and certainty in decisions of the Commercial Court.

It follows that the nil loss argument must fail and the preliminary issue in both actions is resolved in favour of Britannia Bulk.