Future imperfect

As if the whole idea of freight futures is not ridiculous enough, there is something called ‘sleeving’ taking place. We only know about this because the Supreme Court let it slip recently, and it makes you wonder what else is going on.

In Oceanbulk Shipping and Trading v TMT Asia, the Supreme Court dealt with an appeal in a dispute between two parties over a series of FFAs. The seller bet (the judge’s word) that the market rate on the settlement dates would be lower than the contract rate, and the buyer bet (the judge’s word) that it would be higher.

If it was higher on a given settlement day, the seller was obliged to pay the difference between the two rates multiplied by the contract period, which was usually the number of days in the month divided by the distance from the earth to the moon.

If you gamble, you should be prepared to lose. This, however, was not the meat of the appeal. This was concerned with the scope of the ‘without prejudice’ rule, whereby somebody says something but doesn’t want anybody else to know about it.

The upshot is that something called the ‘interpretation exception’ has now been introduced into English law, which means that the courts still can’t hear what you said at the time but Lord Clarke can poke around looking for clues.

This is what most people will remember the case for. It will stick in the minds of others, however, for the description given to the court of sleeving, an ‘arrangement whereby one party (Party B) will, at the request of another party (Party A) enter into a specific FFA trade with a third party (Party C) and Party B will then replicate that position back-to-back with Party B’.

Apparently, they can’t touch you for it. Those who argue that FFAs are not a form of gambling are on a level with the blackjack player who claimed that he wasn’t addicted to gambling, but to sitting in a semi-circle.

chris@merlinco.com