England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		22 May 2015

Mr Justice Phillips:

1. The central issue in these proceedings is whether bankers have complied with the re-delivery requirements of repo transactions in relation to cargoes of metal by delivering endorsed warehouse receipts to their counterparty, notwithstanding that (i) there is uncertainty as to the existence of the metal and (if it exists) the bankers' title to it, and (ii) the warehouse operators have not attorned to (that is, have not acknowledged that they hold the goods on behalf of) the counterparty as required by s29(4) of the Sale of Goods Act 1979 ("the Act").
2. In late May 2014 the defendants (together, "Citi") held 27 sets of warehouse receipts issued to Citi's order, evidencing ownership and right to possession of aluminium and copper stored in warehouses in the Chinese ports of Qingdao, Penglai and Shanghai. The metal had been purchased from the first claimant ("Mercuria") pursuant to a series of 'obligated' repo transactions, governed by the terms of two Master Agreements executed on 24 May 2013. In each case, pursuant to forward transactions entered at the same time as the sale transaction, Citi was obliged to sell and Mercuria obliged to buy Equivalent Metal ("metal of the same brand and quality and stored in the same location") at a specified future date at a higher price, the common expectation and practice being that the same metal would be re-delivered 'in warehouse' (that is to say, the metal would not leave the warehouse during the transaction, delivery and re-delivery being effected by a transfer of constructive possession). Although the intended commercial effect of the repo transactions was that Citi provided finance to Mercuria on the security of Mercuria's inventory of metal, it is common ground that they were true sales in which title and risk had passed to Citi.
3. On 28 May 2014 evidence began to emerge of a significant fraud in relation to metal supposed to be stored in Qingdao and Penglai. Although investigations are ongoing, it appears that substantial quantities of metal may be missing from the warehouses or may be the subject of 'multiple pledging' whereby the same lot of metal has been used as the subject matter for multiple repo transactions and/or as security for multiple loans. Eighteen of the repo transactions related to metal that is supposed to be in the relevant warehouse in Qingdao and Penglai: one of those transactions was completed on 4 June 2014, subject to a reservation of rights on either side.
4. On 9 June 2014 Citi served notices purporting to exercise a power under the Master Agreements to bring forward the sale date of all the forward transactions to one Banking Day after receipt (although on 16 June 2014 they 'suspended' the notices in relation to metal stored in Shanghai and Mercuria voluntarily repurchased that metal early, leaving 17 transactions outstanding). Mercuria served its own notice on 11 July 2014, declaring a Termination Event, which had the effect of requiring Citi to deliver Equivalent Metal before Mercuria was obliged to pay the price. On 22 July Citi purported to deliver the metal to Mercuria by tendering warehouse receipts issued to Citi, endorsed in blank. Citi did not issue release instructions to the warehouse operators, who have not attorned to Mercuria.
5. Mercuria commenced these proceedings on 12 June 2014, seeking (in the Particulars of Claim) declarations that the notices served by Citi were invalid and/or superseded by its own notice of 11 July 2014 and that, in any event, Citi had not performed its delivery obligations by tendering endorsed warehouse receipts. Citi rejects those contentions and counterclaims the price specified in the forward sales, totalling about US$271m. Citi further claims that it is, in any event, entitled to terminate the Master Agreements.
6. In due course, once the timing, nature and extent of any fraud becomes clearer, there may well be the need for further litigation to determine whether Mercuria or Citi breached warranties as to title in relation to the repos. Citi may also have claims against Mercuria under Services Agreements (also dated 24 May 2013) pursuant to which Mercuria owed certain obligations to Citi in relation to storage of the metal. There may also be insurance claims and/or claims against third parties. Mercuria and Citi have agreed that the trial of the issues addressed in this judgment shall not preclude any subsequent claims between them and that neither party will contend that it is an abuse or otherwise oppressive for any such claim to be brought by fresh proceedings or amendment of these proceedings.
7. It follows that, whilst the contrary may be argued at a later stage, Citi accepts that its current claim to have made valid re-delivery to Mercuria and for judgment for the price of the metal must proceed on the assumptions (i) that Citi acquired good title to and constructive possession of the metal purchased from Mercuria; and (ii) that thereafter the metal may have been stolen or pledged to third parties so that Citi may not have had good title to pass to Mercuria. Citi's case is that, even if it did not have good title to the metal, it was nevertheless entitled to fulfil its delivery obligations under the Forward Sales by tendering to Mercuria the warehouse receipts which purported to show that the metal was held to Citi's order, a position that, it contends, is consistent with its role as financier.

The background facts

8. The background facts and chronology are almost entirely common ground. The summary below is drawn from the Agreed Facts, the Agreed Chronology and from the witness statement of Georgina Baker ("Mrs Baker"), Global Co-Head of Commodities Inventory Management at the second defendant ("CGML") and the documents to which she refers.

(a) The parties

9. Mercuria is a commodities trading company incorporated in Singapore. It is an indirect subsidiary of the second claimant, a company incorporated in Cyprus. The second claimant is joined in these proceedings as guarantor of Mercuria's obligations to Citi under the Master Agreements. No separate issue arises in respect of that guarantee, the second claimant's liability to Citi therefore being coextensive with that of Mercuria.
10. The Mercuria Group is one of the largest energy and commodity trading businesses in the world, with an annual turnover in excess of US$100 billion. It recently acquired the physical commodities trading business of JP Morgan. It is headquartered in Geneva and has offices in 38 countries.
11. The defendants are members of the well-known Citigroup group of companies. The first defendant ("CBNA") is a national banking association organised under the laws of the USA. CGML is a company incorporated in this jurisdiction.

(b) The Master Agreements

12. On 24 May 2013 Mercuria entered a "Master Agreement relating to sales and purchases of metal" with each of CBNA and CGML. Apart from the difference in Citi entity, the Master Agreements are identical in all relevant respects. They are governed by English law and provide for the courts of England to have exclusive jurisdiction over any disputes.
13. The Master Agreements are 'umbrella' agreements, governing the terms on which Citi and Mercuria enter repo transactions, each consisting of a Sale Transaction and a Forward Sale, the details being recorded in a Sale Confirmation and a Forward Sale Confirmation despatched by Citi to Mercuria after agreement.
14. Clause 4.3 of the Master Agreements (in which Mercuria is referred to as "Counterparty") puts it beyond doubt that the Transactions are true sales of metal, providing as follows:

"(B) Upon any sale of Metal to Citi … notwithstanding any arrangements relating to the Forward Sale of Equivalent Metal … full title to and ownership of (and risk to) the Metal specified in the relevant Sale Confirmation will pass to Citi at the time of payment in full of the Sale Settlement Amount…

(C) Citi will have the right to sell, pledge, rehypothecate, assign, use, commingle or otherwise dispose of, or otherwise use in its business any Metal sold to it, free from any claim right of any nature whatsoever, as long as Citi will be in a position to deliver Equivalent Metal to Counterparty …"

15. The Master Agreements provide for Sale Transactions and Forward Sales to be settled as follows:

"5. Settlement of Sale Transaction

5.1 Delivery of Metal

On the Sale Date of a Sale Transaction Counterparty shall deliver Metal to Citi conforming to the Transaction Details for such Transaction, in the manner set out in Clause 7.2 (or, in the case where Counterparty suffers a Termination Event and so long as it is continuing, in the manner set out in Clause 7.4), by 4.00 p.m. on the Sale Date of that Sale Transaction.

5.2 Payment of Sale Settlement Amount

Following compliance by Counterparty pursuant to Clause 5.1 above, Citi shall pay the Sale Settlement Amount to Counterparty (or to its order), in the manner set out in Clause 7.1 (or, in the case where Counterparty suffers a Termination Event which is continuing, in the manner set out in Clause 7.4), on the Sale Date of the Sale Transaction.

6. Settlement of Forward Sale

…

6.3 Settlement and Delivery of Metal

On the Sale Date of a Forward Sale:

(A) Counterparty shall pay the Forward Sale Settlement Amount to Citi;

(B) Citi shall, following receipt of the payment referred to in sub-paragraph (A) above, deliver the Equivalent Metal in the manner set out in Clause 7.2 …; and

(C) full title to and ownership of (and risk to) the Metal specified in the relevant Forward Sale Confirmation will pass to Counterparty at the time payment in full of the Forward Sale Settlement Amount has occurred via irrevocable receipt of funds into Citi's bank account."

16. It will be seen from the above that the obligation of Mercuria and Citi to deliver metal to the other under the respective parts of the repo transaction is in the manner set out in clause 7.2 of the Master Agreements, which provides as follows:

"7.2 Deliveries

(A) Subject to paragraph (B) …. any delivery of Metal due under this Agreement shall be made by the delivery to the recipient of:

(1) … LME Warrants [not relevant in these proceedings]; or

(2) an acceptable Release Confirmation [defined as 'a document issued by the Storage Operator to the owner of the Metal pursuant to which the Storage Operator attorns to the Metal owner by acknowledging that it holds the Metal referred to in the document on behalf of and to the order of the Metal owner and which entitles the Metal owner to exchange the document for a Warrant or a Warehouse Receipt']; or

(3) such other document of title in a form acceptable to Citi and Counterparty.

(B) If, to the extent that Citi wishes to but is unable to deliver the Metal, sold to it by Counterparty pursuant to Clause 4.3, to Counterparty pursuant to its obligation to deliver Equivalent Metal in respect of any Forward Sale under Clause 4.4 (and such inability to deliver is not caused by the wilful misconduct, negligence or lack of reasonable care of Citi or by the occurrence in relation to it of a Termination Event or of an Extraordinary Event), in agreement with the Counterparty Citi's obligations in respect of that Transaction may be otherwise satisfied to the same extent (and shall thereby be deemed to have been irrevocably discharged to the same extent) by:

(1) Citi assigning to Counterparty (at Counterparty's reasonable cost and expense), Citi's rights, title and interest to such Metal or, as appropriate, Citi's rights (if any) against a third party in respect such Metal; or

(2) where the inability to deliver is caused by or a result of an event insured under insurance maintained by Citi, Citi assigning to Counterparty Citi's right to claim under the insurances in respect of that event unless the proceeds of such claim have already been paid to Citi, in which case Citi shall pay all such proceeds (or an amount equivalent to those proceeds) … to Counterparty; or

…

and in each case Counterparty agrees to accept that assignment or payment as the case may be in full satisfaction of the obligations of Citi in respect of that Transaction …"

17. Clause 8(2) provides that Mercuria will procure insurance cover at all times for:

"… loss or risk of damage to the Metal, during the full tenor of the handling of this Metal by the Counterparty and until the date on which title to all the Metal is transferred by Citi to Counterparty or to any third party ..

(A) … with Citi named as co-assured …"

18. Clause 9 provides that the sale date under a Forward Sale will be brought forward in, amongst others, the following circumstances:

"9. Bring Forward Events

9.1 The following shall be "Bring Forward Events" in respect of a Transaction:

…

(C) the Storage Facility [defined as "any bonded storage facility which has been accepted by Citi as set out in the relevant Sale Confirmation"] in which the Metal is stored is no longer licensed or otherwise able to safely or satisfactorily (in the reasonable opinion of Citi) store the Metal or any step is taken for the winding up, administration, receivership or any other form of debt enforcement or insolvency procedure relating to the Storage Operator or for the purposes of proposing a compromise or arrangement (including a voluntary arrangement) to its creditors;

…

9.2 A Party shall notify the other Party by written notice (the "Bring Forward Event Notice") immediately upon becoming aware of the occurrence of a Bring Forward Event. In such case, notwithstanding anything to the contrary in any Forward Sale Confirmation, the relevant Sale Date under such Transaction shall now be such date as shall be specified by Counterparty in the Bring Forward Event Notice (if served by Counterparty) or within one Banking Day after receipt by Counterparty of the Bring Forward Event Notice (if served by Citi) but in any event shall be no later than two Banking Days after receipt by the receiving party of the Bring Forward Event Notice, and in any case no later than the relevant Latest Sale Date. If Counterparty does not specify a date in accordance with the above, the Sale Date shall be the second Banking Day after the date of the Bring Forward Event Notice served by Citi."

19. Clause 10.1 sets out the warranties given by the parties. Mercuria gives Citi extensive warranties as seller in respect of the Sale Transactions. The provisions in relation to Citi's position as seller in the Forward Sales is less clear. First, clause 10.1(C) purports to exclude any warranty as follows:

"To the extent permitted by applicable law, no term, condition, warranty or representation of any kind whatsoever, express or implied, is or is deemed to be given by or on behalf of Citi in respect of Metal delivered by it pursuant to a Forward Sale, including Citi's title to such Metal, its type, quality, description or in respect of its fitness for any purpose."

20. However, the very next provision, clause 10.1(D), provides that Citi makes representations and gives warranties in the same terms as certain assurances provided by Mercuria under the Sales Transactions:

"Citi represents and warrants to Counterparty that on the Sale Date of each Forward Sale Transaction:

(1) Citi has good title to and the right to possession of the Metal;

(2) Citi has a full, unencumbered right to sell and deliver the Metal and has not sold all or any part of the Metal since acquiring it;

(3) there exists no Encumbrance over the Metal (other than a general warehouse lien in respect of storage in accordance with market practice)."

21. Despite the apparent conflict, Citi has accepted (in the Agreed List of Issues) that, pursuant to clause 10.1(D), it warrants good title and a right of possession to the metal being sold on the Sale Date of each Forward Sale.
22. Clause 10.3 sets out various Termination Events and their consequences, including the following:

"10.3 Termination Events

(A) The events and circumstances set out below with respect to either Party shall constitute Termination Events:

…

(3) the Defaulting Party suspends, ceases or threatens to suspend or cease to carry on all or a substantial part of its business or any event or series of events occur which in the opinion of the other Party has or could reasonably be expected to have a material adverse effect on: (1) the ability of the Defaulting Party to comply with its obligations under this Agreement, the Services Agreement, any Confirmation or any Transaction or (2) the business, financial condition or assets of the Defaulting Party …

(B) Upon the occurrence at any time with respect to a party of a Termination Event, whilst that event is continuing, the other party may refuse to make any payments or deliveries until the corresponding payment or delivery of that party has been irrevocably and unconditionally settled in full."

23. Schedule 1 to the Master Agreements contains the pro forma to be completed for each Sale Transaction Confirmation. It records that "Counterparty agrees to sell the Metal (as defined below) to Citi with full title guarantee on the following terms" then sets out the Sale Date, details of the Metal (origin, quantity, storage location and minimum quality, price). It then contains the following provisions in relation to delivery and title documents:

"Delivery:

Delivered by means of in warehouse transfer pre import and/or re-import clearance into any jurisdiction, with irrevocable and unconditional transfer of title and possession, free from any Encumbrance, to Citi on payment of the Invoice Value.

Title Documents:

The following documents will be delivered to Citi on the Sale Date:

[LME Warrant/Non-LME Warrant/Warehouse Receipt] [Delete as applicable]"

24. Schedule 2 contains the pro forma for each Forward Sale Confirmation. It records that "Citi agrees to sell the Metal (as defined below) to Counterparty on the following terms" (making no reference to selling with full title guarantee) then sets out the Latest Sale Date, details of the Metal and the Floating Forward or Fixed Forward Price. It makes no reference to 'title documents', but contains the following provision in relation to delivery:

"Delivery:

Delivered by means of in warehouse transfer pre import and/or re-import clearance into any jurisdiction, with irrevocable and unconditional transfer of title and possession, free from any Encumbrance created by Citi, to Counterparty without the need for any confirmation from the owner/operator of the Storage Facility following receipt of payment of the Invoice Value."

(c) Trading under the Master Agreements

25. The parties commenced entering repo transactions in September and October 2013, dealing in aluminium and copper located in bonded warehouse sections of the ports in Qingdao, Penglai or Shanghai, none of which is LME approved. There were also four transactions in relation to metal stored in LME approved warehouses in Vlissingen in the Netherlands, but those transactions were completed without incident, prior to the issues emerging at the Chinese ports. No metal ever physically moved as part of the repo transactions which completed, Citi always delivering back the same metal to Mercuria. Indeed, the Forward Sale Confirmations replicate the exact tonnage of the Sale Transaction Confirmations to a number of decimal places.

(d) The problems at Qingdao and Penglai

26. On 28 May 2014 Mercuria informed Citi that reports were emerging that a fraud had been discovered at Qingdao. The suggestion was that a Chinese trader, Decheng (from whom Mercuria had purchased the metal sold to Citi), had colluded with one of the port companies at Qingdao, the Dagang Port Company, to issue fraudulent rukudans (port receipts) to the warehouse operators who had issued warehouse receipts to Citi. The three warehouse operators in question were Impala/NEMS, CWT and GKE. There was (and remains) no suggestion that Mercuria was in any way involved in the alleged fraud.
27. Mrs Baker, based in London but on holiday at home in Southampton, ensured that Citi immediately appointed A. H. Knight (Jingling) Co Ltd ("AHK"), an independent inspector, to carry out a site visit at Qingdao to examine Citi's holding of metal. Citi also sent one of its own employees, Ms Gao, to Qingdao.
28. On 29 May each of the three warehouse operators informed Citi that Qingdao Dagang was "out of bounds to all" as the Port Authority was doing its own stock take. AHK was therefore unable to inspect the metal. Citi asked each of the warehouse operators to confirm that the metal receipted by them was in their custody and remained available to Citi, but none replied.
29. On 30 May Ms Gao reported to Citi that banks were "flying in" to place claims on metal and that Chinese banks were calling for "asset preservation". She further reported that Standard Chartered Bank had been informed by the Port Authority that there were approximately 60,000 to 70,000 tonnes of aluminium inside the port: Citi alone was supposed to have 73,000 tonnes stored there.
30. On 2 June Metal Bulletin published an article stating:

"The major Chinese port of Qingdao has blocked the shipment of some material as it investigates the allegedly fraudulent use of warehouse receipts multiple times to raise finance, sources told Metal Bulletin."

31. The next day, 3 June 2014, it emerged that there were similar problems at Penglai, where Citi supposedly held metal pursuant to 5 warehouse receipts issued by Impala, representing approximately 20,000 tonnes of aluminium. On 4 June Citi was informed that, the previous week, Impala had carried out a stock-check and found only 16,000 tonnes present at the port. It follows that at least 4,000 tonnes of Citi's metal appeared to be missing, possibly more given that Impala had apparently also issued warehouse receipts to Standard Bank for 5,000 tonnes of aluminium. Citi were told that the receipts (rukudans) issued by the Port Company to Impala (against which Impala issued warehouse receipts to Citi) were not signed by an authorised person.
32. On 6 June representatives of Citi and Impala were allowed into the port at Penglai on an escorted visit, but were not permitted to carry out an inspection of or photograph the stocks present.
33. On 7 June Mercuria sent an email to Citi proposing that they cooperate with each other and with the warehouse operators to take "protective actions" in relation to metal supposedly held to Citi's order. Later that day Mercuria clarified that they were considering requesting Impala to start an "attachment process" in relation to the aluminium inventory in Penglai.
34. On 8 June Mrs Baker received an email directly from Impala, stating that the Penglai port authority "now won't let us inside again".
35. Since that time neither Citi nor its agents has been able to inspect any of the Metal at Qingdao or Penglai, which has remained inaccessible.

(e) Transaction 6

36. The sixth repo transaction, entered by Mercuria and Citi on 4 December 2013, related to copper cathodes stored in Qingdao with GKE. GKE, having received back warehouse receipts it had issued to Mercuria, had issued two new warehouse receipts to Citi on 5 December 2013.
37. The Forward Sale under the transaction was due for settlement on 3 June 2014. On that date Citi sent Mercuria an invoice for the US$13,603,193.96. Mercuria paid, but without prejudice to its rights under the Master Agreements. The next day Citi purported to effect delivery under the Forward Sale by delivering to Mercuria the warehouse receipts Citi had received from GKE, specifically endorsed to Mercuria.
38. Mercuria sought delivery of the metal referred to in the warehouse receipts but, by letter dated 11 June 2014, GKE explained that it was unable to access the facility where the goods were stored, so the goods were unavailable. GKE also asked for clarification of the legal basis of Mercuria's claim. Mercuria has to date been unable to obtain an attornment from GKE.

(f) Citi's metal stored in Shanghai

39. No problems were reported at Shanghai, where access to stored metal remained unhindered. However, Mercuria confirmed to Citi that the majority of the metal stored in Shanghai had also been purchased from Decheng or its affiliates, giving rise to the risk that it might be subject to claims from other creditors of that company. On 5 June Mercuria strongly advised Citi to move the metal outside China and offered to assist in that process. Citi, however, decided against moving the metal.

(g) The purported Bring Forward Event Notices ("the BFE Notices")

40. On 9 June 2014 CBNA and CGML each wrote to Mercuria (delivered by hand in Singapore), purporting (i) to give notice of the occurrence of a Bring Forward Event (within the meaning of clause 9.1 of the Master Agreements) in respect of each of the Transactions to which they were party and (ii) to bring forward the Sale Date under the Forward Sales to one Banking Day after receipt. The letters stated

:

"On 28 May 2014, we were informed by you that possible fraudulent activities may have taken place, committed by a port authority employee and a local Chinese company in Qingdao. According to various Chinese and international press reports released in the past week, the Chinese authorities have commenced a probe into a potential fraud or other criminal act by a third part(ies) [sic] at warehouses in Qingdao where the Metal is stored. We also understand that certain metal shipments out of the port have been halted as a result of the pending investigation. Since 29 May 2014, our representatives in Qingdao have sought to inspect the Metal stored in the Storage Facilities in Qingdao, but have been prevented by the Port Authorities from doing so. We understand that access to warehouses in the port of Penglai has been suspended in line with actions taken by the Port Authorities.

In discussions between Citi and Mercuria since 28 May 2014 to date, and by your email of 5 June 2014, you have informed us that steps are being taken to verify the presence of Metal, stored in Storage Facilities in Shanghai, and whether it had been sourced from Qingdao Decheng and/or its affiliates. In your email, you indicated a concern that the problems reported in Qingdao and Penglai may also be present in Shanghai, and thus you strongly recommended the removal of the Metal that is the subject of the Affected Transactions from the Storage Facilities in Shanghai out of China.

We note that certain press reports have speculated that Qingdao Decheng and certain warehouses companies are involved in the alleged fraudulent activities being investigated in Qingdao.

For the above reasons, we reasonably believe one or more Bring Forward Events has occurred in relation to each Affected Transaction documented under the Master Agreement. Specifically in relation to each Affected Transaction:

(i) in accordance with Clause 9.1(C), Citi reasonably believes that each relevant Storage Facility is no longer able to safely or satisfactorily store the Metal; and/or

(ii) in accordance with Clause 9.1(D), the Port Authorities in Penglai and Qingdao have taken action to prevent the removal of Metal from Storage Facilities at those ports and the inability of Citi to withdraw its Metal from these warehouses is likely to have an adverse material effect on Citi.

Accordingly, pursuant to Clause 9.2 of the Master Agreement, Citi serves this Bring Forward Event Notice to you and as a result, the Sale Date in relation to each Affected Transaction shall be brought forward to one Banking Day from the receipt of this Bring Forward Event Notice in accordance with Clause 10.11(B)."

41. Each BFE Notice attached a list of the affected transactions to which the relevant Citi entity was party.
42. On 10 June Mercuria responded, disputing the validity of the BFE Notices. On 12 June Citi gave notice that Mercuria's failure to make payment in respect of the transactions referred to in the notices, if not rectified within one Banking Day, would be a material breach under the Master Agreements.
43. On 16 June Citi withdrew the notices in respect of Transactions relating to metal Storage facilities in Shanghai. Thereafter Mercuria voluntarily repurchased the Shanghai metal early, following which no dispute remains in relation to those transactions (although Mercuria continues to rely upon the fact that the BFE Notices included the Shanghai transactions in relation to its argument as to their validity).

(h) Mercuria's Termination Event Notice ("the 11 July Notice")

44. On 11 July 2014 Mercuria, through its solicitors Stephenson Harwood, gave notice to Citi that, in its opinion, the events in Qingdao and Penglai could reasonably be expected to have a material adverse effect on Citi's ability to comply with its obligations to deliver Equivalent Metal pursuant the Forward Sales Confirmations, amounting to a Termination Event within clause 10.3(A)(3) of the Master Agreements.
45. For the purposes of these proceedings, Citi does not challenge that a Termination Event had arisen as set out in the 11 July Notice and therefore accepts that, if the BFE Notices were invalid, Mercuria was not thereafter obliged to pay Citi the price on the maturity of Forward Sales until Citi has made delivery of the metal. However, Citi does not accept that the 11 July Notice has retrospective effect. Citi therefore maintains that if the BFE Notices were valid, Mercuria's payment obligations to which it gave rise continued unaffected.

(i) Purported delivery by Citi

46. On 22 July 2014 Citi delivered all of the warehouse receipts in respect of the 17 outstanding transactions to Mercuria, endorsing each of them in blank, together with invoices totalling US$272,061,934.00. Citi's covering letter included the following:

"Insofar as any further steps or actions are required in order to effect or perfect delivery to Mercuria in accordance with the Master Agreements and Forward Sales (for the avoidance of doubt, our firm belief is that no such steps or action are required), we hereby confirm that we will take (and/or use our best endeavours to procure that third parties take) such steps and actions in order to effect or perfect such delivery and/or to preserve or enforce Mercuria's rights in relation to the metal."

47. By email dated 23 July 2014 Stephenson Harwood, on behalf of Mercuria, rejected the warehouse receipts and informed Citi that they were held to Citi's order.
48. Neither Mercuria nor Citi has attempted to procure that the warehouse operators attorn to Mercuria in relation to these 17 transactions.

The issues

49. The first issues which arise in terms of the chronology relate to (i) the validity of the BFE Notices and (ii) whether, if the BFE Notices were valid, the obligation of Mercuria to which they gave rise (to pay the price due under the Forward Sales within one Banking Day) continued after Mercuria served the 11 July Notice.
50. However, the importance of those issues is significantly diminished in view of a concession made by Citi. In its skeleton argument for trial, Citi accepted that, even if Mercuria was under an obligation to pay the prices specified in the Forward Sales confirmations after service of the 11 July Notice, if Citi's tender of endorsed warehouse receipts on 22 July 2014 was not valid and effective delivery for the purposes of the Master Agreements, Mercuria would have a circuity of action defence to Citi's claim for the price of the metal. In closing argument Citi withdrew its acceptance that Mercuria would have a direct defence of circuity of action, but conceded that Mercuria would have a counterclaim for damages for non-delivery (in a similar but not necessarily identical sum) which Mercuria would be entitled to set-off against the price. Mercuria maintained in closing argument that Citi's original concession was rightly made and that Mercuria had a defence of circuity of action to the claim for the price and to the claim that Mercuria was in breach of contract in not paying it.
51. Given Citi's concession, it is common ground that the central and largely determinative issue at this stage is whether or not Citi made good delivery by tendering endorsed warehouse receipts. That issue is also central to Mercuria's claim for non-delivery in relation to Transaction 6 and in relation to the remaining 17 transactions. Given its importance, I propose to address the issue of delivery first.
52. A further 'delivery issue' is Citi's alternative claim for a declaration that, if it was unable to deliver by tendering endorsed warehouse receipts, it is entitled to satisfy its obligations by assigning rights to Mercuria pursuant to clause 7.2(B) of the Master Agreements.
53. The issues relating to the BFE Notices do nevertheless remain relevant because Citi contends that, if Mercuria was liable to pay the prices as from one Banking Day after their receipt, Mercuria's failure to do so entitles Citi to terminate the Master Agreements (either pursuant to their terms or by accepting a repudiatory breach) regardless of whether Citi made valid delivery of the metal on 22 July 2014. I will consider those issues following and in the light of my determination of the delivery issues, and then consider the issues as to Citi's claim to be entitled to terminate the Master Agreements, including Mercuria's defence of affirmation.

The delivery issues

A. Whether Citi made valid delivery

(i) The law relating to delivery of goods in the possession of a warehouseman

54. It is common ground that the Sales Transactions and Forward Sales are sales of metal to which the Sale of Goods Act applies and that, at the time of each sale, the goods in question were in the possession of a third party (one of the warehouse operators) as bailee for the seller, the seller having constructive possession of the goods.
55. For the purposes of the Act, 'delivery' is defined in s61(1) as "voluntary transfer of possession from one person to another". S29(4) of the Act makes specific provision about delivery where the goods sold are in the possession of a third party as follows:

"Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods."

56. Benjamin's Sale of Goods 9^th Ed. (2014) provides the following explanation at para 8-012:

"This subsection is declaratory of the common law, and means that a bailee or other third person in possession of the goods must attorn to the buyer before delivery will be held to have taken place. One effect of such acknowledgement is that the third person thenceforth ceases to hold goods on behalf of and to the order of the seller and instead holds them on behalf of and to the order of the buyer. The acknowledgement by the third person must be given with the consent of both the buyer and the seller, and each party to the contract of sale must do all that is necessary, so far as it depends upon him, to obtain it. If the buyer, having fulfilled his part, cannot obtain the acknowledgement, he may be able to treat the contract as discharged. Conversely, if the failure to obtain the acknowledgement is due to the buyer's fault alone, it may be that the seller can treat the delivery as duly made."

57. It will be apparent from the above that (absent the transfer of a document of title to the goods, namely, a bill of lading) it is only when a warehouse operator itself attorns to the buyer that delivery is effected. It is at that point that the third party becomes bailee for the buyer and the buyer acquires constructive possession of the goods. In particular, it is well established that the transfer by the seller to the buyer of a "warrant" or "receipt" issued by the warehouse operator in respect of the goods does not in itself effect delivery, even if that document promises delivery to the seller's order or to his assigns. Thus in Farina v Home (1846) 16 M. & W. 119, a wharfinger had handed a warrant to the plaintiff's shipping agent, making the goods deliverable to the agent or his assigns by indorsement. The warrant was thereafter being indorsed by the agent and delivered to the defendant. Parke B held that this did not constitute delivery of the goods:

"Mr Prentice insisted that there was no sufficient evidence of the actual receipt of the goods, that is, the delivery of the possession of the goods on behalf of the vendor to the vendee, and the receipt of the possession by the vendee; and that the delivery and receipt of the warrant was not in effect the same thing as the delivery and receipt of the goods; and we are all of that opinion. This warrant is no more than an engagement by the wharfinger to deliver to the consignee, or any one he may appoint; and the wharfinger holds the goods as the agent of the consignor (who is the vendor's agent), and his possession is that of the consignee, until an assignment has taken place, and the wharfinger has attorned, so to speak, to the assignee, and agreed with him to hold for him. Then, and not till then, the wharfinger is the agent or bailee of the assignee, and his possession that of the assignee, and then only is there a constructive delivery to him. In the meantime, the warrant, and the indorsement of the warrant, is nothing more than an offer to hold the goods as the warehouseman of the assignee."

58. That analysis was approved and applied by the House of Lords in Dublin City Distillery (Great Brunswick Street, Dublin) v Doherty [1914] AC 823, Lord Atkinson stating:

"The giving by the owner of goods of a delivery order to the warehouseman does not, unless some positive act be done under it, operate as a constructive delivery of the goods to which it relates: McEwan v Smith. And the delivery of a warrant such as those delivered to the respondent in the present case is, in the ordinary case, according to Parke B, no more than an acknowledgement by the warehouseman that the goods are deliverable to the person named therein or to any one he may appoint. The warehouseman holds the goods as the agent of the owner until he has attorned in some way to this person, and agreed to hold the goods for him; then, and not till then, does the warehouseman become a bailee for the latter; and then, and not till then, is there a constructive delivery of the goods. The delivery and receipt of the warrant does not per se amount to a delivery and receipt of the goods: Farina v Home; Bentall v Burn.

This statement of the law in Farina v Home is supported by many authorities, and, as I understand, was not questioned on behalf of the respondent in the present case. "

59. Thus an attornment by the warehouse operator is a necessary element in the transfer of constructive possession from the seller to the buyer and, as delivery is by definition the transfer of possession, it is also a condition of delivery. The position can be contrasted with the more straightforward situation where the goods are in the possession of the seller, in which case the manner in which possession is to be transferred (including the buyer obtaining constructive possession) is purely a matter for agreement between the parties.
60. In the present case, Citi accepts that the warehouse receipts which it tendered to Mercuria were not documents of title within the meaning of s29(4). Accordingly, applying the established principles set out above, the tender of those warehouse receipts on 22 July 2014 did not result in Mercuria obtaining constructive possession of the metal and therefore did not effect delivery within the meaning of s29(4) of the Act.

(ii) Citi's case as to delivery

61. Citi does not dispute the conclusion set out above, but contends that the effect of the Master Agreements and, in particular, of the Forward Sales Confirmations, is that the tender of endorsed warehouse receipts by Citi to Mercuria is "deemed" to be delivery as a matter of and for the purpose of the contract between the parties, even though not actual delivery within the meaning of s29(4) of the Act. Citi's case as to delivery stands or falls on that contention: it does not rely on any failure of Mercuria to take steps to obtain an attornment as giving rise to deemed delivery in the sense referred to in para 8-012 of Benjamin (above).
62. The foundation of Citi's case is the inclusion in the Delivery provision of the Forward Sale Confirmations of the wording "without the need for any confirmation from the owner/operator of the Storage Facility", a phrase which is not found in the Sale Confirmations. Citi contends that this constitutes the clearest express agreement between the parties that an attornment by the warehouse operators is not necessary in order for Citi to be deemed to have made delivery to Mercuria, its only delivery obligation being to tender endorsed warehouse receipts.
63. Indeed, Citi goes further and contends that this provision demonstrates that Citi will have fulfilled its delivery obligations under the Forward Sales if it tenders the warehouse receipts it received under the Sale Transactions (duly endorsed), regardless of whether the metal exists or whether Citi has good title to the metal. Citi argues that this is entirely consistent with the commercial reality of the transaction, pursuant to which Citi is providing finance against the security of Mercuria's inventory of metal: it is not surprising, Citi contends, that such a lender should be able to deal with the transaction on a purely documentary basis and obtain repayment without having to concern itself with problems at the Storage Facility or otherwise deal with the warehouse operators. In contrast, Citi argues, Mercuria is obliged to make actual delivery of metal to Citi (by way of perfecting Citi's security), requiring an attornment by the warehouse operator, explaining why the wording relied upon by Citi is missing from the Sale Confirmations.

(iii) Interpretation of the contractual provisions as to delivery

64. Clause 4.1 of the Master Agreements provides that their provisions shall apply to each Transaction, but that if there is any inconsistency between a term of those agreements and the terms of any Confirmation, the terms of the Confirmation shall prevail for the purposes of the relevant Transaction. Citi suggested that the terms of the Forward Sale Confirmations in relation to delivery should therefore be regarded as governing that issue, regardless of any possibly inconsistent provisions in the Master Agreements. However, as the delivery provisions in question were contained in the pro-forma Forward Sale Confirmation annexed to the Master Agreements (rather than being new provisions added in relation to specific transactions), it is plainly necessary to construe those provisions together with and in the light of the Master Agreements, to which the Confirmations are designed to give effect. Ultimately, I did not understand Mr Toledano QC, leading counsel for Citi, to dissent from that approach.
65. In my judgment the provisions of the Master Agreements provide little or no support for Citi's suggested interpretation of its delivery obligation but, on the contrary, make it plain that Citi is obliged to make actual delivery in the sense of transferring constructive possession of the metal.
66. First, Citi's contention is that Citi and Mercuria's contractual delivery obligations are significantly different, its case being that Mercuria is obliged to make actual delivery, transferring possession to Citi by means of an attornment, whereas Citi is only obliged to make 'deemed' delivery by tendering endorsed warehouse receipts. However, the provisions of the Master Agreement make no such distinction between the delivery under a Sale Transaction and delivery under a Forward Sale. Indeed, in each case delivery is to be made as set out in clause 7.2(A) (to which I shall return below). It is difficult, if not impossible, to read the Master Agreements as using the term 'delivery' in two different senses, sometimes in relation to a single usage of that term.
67. Second, the Master Agreements refer throughout to the obligation of both parties being to "deliver the Metal" or "deliver the Equivalent Metal". There is no hint that Citi's obligation is in fact simply to deliver documents.
68. Third, clause 7.2(A) provides that any delivery of Metal shall be by delivery of a release confirmation (an attornment from the warehouse operator) or a document of title. The contractual provision therefore appears to mirror the requirements of s29(4) of the Act. It is difficult to construe that wording as permitting Citi (but not Mercuria) to tender unspecified documents, not amounting to actual delivery within the meaning of s29(4), but satisfying some unmentioned concept of 'deemed' delivery. Mr Toledano submitted that the reference to "other document of title in a form acceptable to Citi and Counterparty" should be read as extending to documents other than a strict document of title (a bill of lading) where agreed by the parties. He points to the fact that the Sale Transaction Confirmations, in a box headed "Title Documents", provide the option of delivery to Citi of a Warehouse Receipt. However, that is clearly a reference to a receipt issued by the warehouse operator to the order of Citi (and therefore fulfilling the requirements of a release confirmation, the primary document by which delivery is to be effected under clause 7.2(A)). There is nothing in the Master Agreements or the Confirmations which indicates that an endorsed warehouse receipt to another party's order is a "document of title", nor that such a document is acceptable to either party. Neither has Citi relied on any extraneous agreement, estoppel or market practice in that regard.
69. Fourth, clause 7.2(B) provides that Citi may satisfy its obligations under a Transaction by assigning its rights over metal or the benefit of insurance claims to Mercuria where it is "unable to deliver the Metal sold to it by Counterparty". That provision would appear to confirm that Citi's obligation is to make actual delivery, such that it may be unable to do so if something happens to the metal which would give rise to a claim against a third party "in respect of such Metal" or an insurance claim. Such a detailed provision would seem unnecessary and inapposite if Citi could perform its delivery obligation simply by tendering endorsed warehouse receipts. Mr Toledano argued, to the contrary, that clause 7.2(B) would be relevant on Citi's case if warehouse receipts are stolen or forged, referring to certain provisions in Mercuria's Marine Open Policy which might provide insurance cover where fraudulent documentation resulted in losses. However, whilst the clause might well apply where there are problems with documentation, its primary focus and purpose is to deal with situations where something has happened to the metal or Citi's ability to deliver it.
70. In addition, the provisions of the Master Agreements do not, in my judgment, support Citi's contention that it was entitled to make delivery regardless of the existence of and its title to the relevant metal. Contrary to Citi's proposed rationale for its construction, it is clear (and stated expressly in clauses 4.3(B) and (C)) that risk in the metal passes to Citi under the Sales Transactions and Citi is free to deal with the metal as it wishes thereafter. Further, Mercuria is required to insure Citi's interest pursuant to clause 8.2. Such provisions would be largely undermined and deprived of sensible purpose if Citi was entitled to make "deemed" delivery and obtain the price even if the metal (or title to it) had been lost whilst at Citi's risk.
71. Further, it is common ground that, by clause 10.1(D), Citi represents and warrants that, on the Sale Date of each Forward Sale, it has good title to and right to possession of the Metal. Such representations and warranties are wholly inconsistent with Citi's obligation being limited to delivery of documents regardless of the status of the metal. Further, where (as in this case) Citi does not know whether or not the relevant metal exists or whether or not Citi has title to the metal, the contractual representation would seem to be of matters that Citi (at the time the representation is deemed to be made) knows may well not be true. It would be unattractive, to say the least, to construe the Master Agreements as permitting Citi to perform its delivery obligations in a manner which would result in Citi completing a transaction on the basis of a representation which is at best false and might even be regarded as fraudulent.
72. The question is therefore whether the express wording of the Forward Sale Confirmations, which does on its face appear to dispense with the need for an attornment, should be read as overriding the otherwise clear requirement of the Master Agreements that Citi should make actual delivery of Equivalent Metal. Citi, of course, contends that it does.
73. However, earlier in the sentence containing the wording on which Citi relies, the Forward Sale Confirmation provides that delivery by Citi shall be "by means of in warehouse transfer … with irrevocable and unconditional transfer of title and possession". As an "in warehouse" transfer of possession can only take place by means of an attornment, at this point the Forward Sale Confirmation would appear to be requiring actual delivery in accordance with s.29(4) and the Master Agreements. The words on which Citi relies, if read as providing for "deemed delivery", therefore create an internal inconsistency within the Confirmation as well as being inconsistent with the terms of the Master Agreement.
74. Mr Dunning QC, leading counsel for Mercuria, submitted that the words "without the need for any confirmation from the owner/operator of the Storage Facility" should be read as relating to Citi's obligation to deliver "free from any Encumbrance created by Citi", but that construction would appear to be overly strained, both as a matter of language (the words "to Counterparty" being juxtaposed between the two phrases) and commercial sense (it being unlikely that a Storage Operator would be willing or able to confirm that Citi had not encumbered the metal).
75. Mr Dunning argued in the alternative that the wording is intended to make clear that there was no need for any confirmation from the Chinese companies that operated the warehouses and held the goods as sub-bailees of the warehouse operators, not from the warehouse operators themselves. He points to the fact that the Confirmation refers to "the owner/operator of the Storage Facility", not "Storage Operator", the term used in the Master Agreements for the warehouse operators. However, I do not accept that any such distinction can be drawn: the term Storage Operator is defined as "the operator of any Storage Facility": whilst the Forward Sale Confirmation has not used the defined term, it has used precisely the concept and must be referring to the warehouse operators.
76. In my judgment, the wording of the Forward Sale Confirmation on which Citi relies does purport to exclude the need for a release confirmation or other attornment from the warehouse operator, but in so doing is inconsistent with the wording which precedes it, the intended meaning and effect of the Master Agreements and the overall commercial scheme of the Transactions and their operation. The parties cannot have intended that that unheralded wording would fundamentally change the nature of Citi's delivery obligation as set out in the Master Agreement. As the words are repugnant and cannot be harmonised, they must be rejected: see Chitty on Contracts 31^st Ed. para 12-077.
77. It follows that I do not accept Citi's contention that the tender of endorsed warehouse receipts to Mercuria should be deemed to be 'delivery' for the purposes of the Forward Sales and the Master Agreements. I find that, in the absence of an attornment from the warehouse operators, Citi has not made valid delivery of the metal within the meaning of the Master Agreements.
78. Citi could, of course, have issued release instructions to the warehouse operators, requesting them to attorn by issuing a release confirmation or a new warehouse receipt (as occurred in relation to all its purchases from Mercuria), thereby effecting delivery. Citi's explanation for not issuing release instructions in relation to the outstanding 17 transactions is that it was not obliged to pass title to Mercuria. It is apparent that Citi wished to be in a position to argue its case as to "deemed" delivery, but simultaneously to limit Mercuria's ability to obtain actual delivery until it had paid for the metal. At least at this stage, it has lost that gamble.

(iv) Mercuria's argument as to the mandatory effect of s29(4) of the Act

79. Mercuria's starting submission on the issue of delivery was that s29(4) of the Act is mandatory in its terms, excluding the option of the parties agreeing between themselves that delivery would take place without an attornment by the third party in possession of the goods. Mr Dunning emphasised that the involvement of a third party meant that the parties could not transfer constructive possession (and thereby effect delivery) without the third party attorning to the buyer (being the act which transfers constructive possession). Further, to the extent that the third party is a bailee, its acknowledgment is necessary to transfer its rights and liabilities from seller to buyer.
80. However, during the course of the trial it became clear (if it was not clear before) that Citi was not contending that the tender of endorsed warehouse receipts amounted to actual delivery, but merely to contractually "deemed" delivery. In closing argument Mr Dunning accepted that it might therefore not be necessary to determine whether s29(4) of the Act is mandatory. Given my decision above in relation to Citi's case on delivery, I see no need to decide this further issue, which in any event appears to have no relevance to the dispute between the parties.

B. Whether Citi is entitled to invoke clause 7.2(B) of the Master Agreements

81. Citi contends that if (as I have found above) its tender of endorsed warehouse receipts to Mercuria is not valid delivery, it is "unable to deliver the Metal sold to it by Counterparty" and is therefore entitled, under clause 7.2(B) of the Master Agreements, to satisfy the Transactions by assigning such rights as it has to Mercuria. Citi seeks a declaration to that effect.
82. In my judgment there is a short answer to this contention as follows:

i) Citi has not yet given release instructions to the warehouse operators, so it is unclear whether they would attorn to Mercuria if Citi attempted to make delivery in the manner I have found to be required.

ii) If it is asserted by Citi (and it is unclear that it has been so asserted to date) that such instructions would not result in delivery to Mercuria, either because the warehouse operators will not attorn or because of uncertainty as to the existence of the metal or Citi's title to it, any such problem would almost certainly be the result of the problems at Qingdao and Penglai described above.

iii) Those problems were the "events or series of events" which formed the basis of the 11 July Notice that a Termination Event had occurred in relation to Citi (Citi accepting for present purposes that such notice was valid).

iv) It therefore appears to follow that Citi's inability to deliver the metal (even if established) would be caused by the occurrence in relation to it of a Termination Event, preventing Citi from utilising the alternative performance options set out in clause 7.2(B).

83. Mr Toledano argued that the Termination Event was Mercuria's opinion that the events in question could reasonably be expected to have a material adverse effect on Citi's ability to comply with its obligations and that the forming of that opinion did not cause Citi's inability to delivery. I do not agree. The natural and ordinary meaning of clause 10.3(A)(3) (and the commercial sense of the provision) is that the "events or series of events" are the "Termination Event", qualifying as such because of the opinion which Mercuria formed in relation to them. Further, and in any event, the reference to Citi's inability to deliver being caused by a Termination Event can only be understood, in relation to a clause 10.3(A)(3) Termination Event, as referring to the events which gave rise to Mercuria's opinion, not the opinion itself.
84. I therefore find that Citi is not presently entitled to utilise the alternative options set out in clause 7.2(B) of the Master Agreements.
85. Mercuria pleaded in its Reply that Citi could not in any event rely on clause 7.2(B) because, by purporting to deliver the same metal to Mercuria on 22 July 2014, Citi had made a binding and irrevocable election to deliver metal rather than to rely on the alternative option provided by clause 7.2(B). In an annex to its skeleton argument for trial, Mercuria indicated that it was not pursuing the above contention, but in closing argument Mr Dunning attempted to resurrect the point. In my judgment the decision to abandon the point was the right one. As clause 7.2(B) arises where Citi is "unable" to deliver the same metal as it had received, an attempt to deliver that metal cannot be construed as an irrevocable election not to rely on the clause if that attempt fails. Indeed, the clause would seem to be designed to provide a solution where an attempted delivery proved unsuccessful.

C. Mercuria's claim in respect of Transaction 6

86. The consequence of my finding above in relation to delivery is that Citi did not make valid delivery to Mercuria of the metal for which Mercuria paid on 3 June 2014. Mr Toledano 'queried' whether a letter from GKE, the relevant warehouse operator, to Mercuria on 4 June 2014 might constitute an attornment, but in my judgment that letter stated no more than that GKE would re-issue warehouse receipts to Mercuria if provided with proper authorisation to do so.
87. Mercuria claims restitution of the price paid on the basis that there has been a total failure of consideration, alternatively damages for non-delivery.
88. Citi disputes Mercuria's entitlement to restitution of the purchase price on the ground that consideration has not wholly failed because, on the face of matters, title to the metal passed to Mercuria on payment of the price. Although there may be uncertainty as to the status of the metal, Citi contends that it is for Mercuria to plead and prove that it did not acquire good title if it is to make good its claim: this Mercuria has not done.
89. Whilst a failure to pass title to goods sold is regarded as a total failure of consideration, so is a failure to deliver the goods, provided the buyer has terminated the contract. Benjamin para 17-090 states as follows:

"Where, after the buyer has paid the price (or part of it) to the seller, the seller fails to deliver the goods or the buyer justifiably rejects them, he may either sue for damages, or for restitution of the money paid to the seller. If he sues for damages, the assessment should take account of the amount paid to the seller, but he will have to prove his actual loss, and he will be subject to all the rules on damages, such as remoteness of damage and the rules of mitigation. If he sues for restitution he can avoid the rules on damages, since his claim is for the return of the precise sum of money which he paid to the seller, but he must terminate the contract."

90. It follows that it was open to Mercuria to reclaim the purchase price it had paid in respect of Transaction 6, but only if it had treated Citi's failure to deliver as a repudiatory breach and accepted that breach, thereby terminating Citi's ongoing obligation to deliver the metal and relinquishing Mercuria's title to the metal in question (if it existed). However, although Mercuria points out that it paid the price due in respect of Transaction 6 without prejudice to its rights, it has not asserted that it has terminated the contract: indeed, the evidence is that Mercuria has been attempting to obtain the metal from GKE. In those circumstances I find that Mercuria is limited to a claim for damages for non-delivery, the assessment of which damages will take account of the fact that Mercuria has paid the price to Citi.

D. Mercuria's claim for non-delivery in respect of the remaining 17 Forward Sales

91. Mercuria further claims damages for non-delivery by Citi on the completion date of each of the Forward Sales, relying on the occurrence of a Termination Event (as set out in the 11 July Notice) as imposing an obligation on Citi to deliver the metal before Mercuria was bound to pay the purchase price.
92. However, such an argument reads too much into clause 10.3(B) of the Master Agreements. Whilst the effect of a Termination event is that Mercuria may refuse to pay the price due under a Forward Sale until Citi has made irrevocable and unconditional delivery, the suspension of Mercuria's obligation to pay does not impose an obligation on Citi to deliver, let alone to deliver by any particular date. It follows that, although Citi has not made effective delivery in respect of the 17 remaining Forward Sales, it is not in breach of any obligations in that regard.

The issues in relation to the BFE Notices

(E) The validity of the BFE Notices

(i) Whether Citi held the "reasonable opinion" required by clause 9.1(C)

93. Prior to the trial Citi abandoned its assertion in the BFE Notices that a Bring Forward Event had occurred under clause 9.1(D) of the Master Agreements. Therefore the issue in relation to the BFE Notices' validity turns primarily on whether, in the reasonable opinion of Citi, the Storage Facilities were no longer able to safely or satisfactorily store the metal, a Bring Forward Event under clause 9.1(C).
94. By the stage of closing arguments, it was common ground that this issue involved just two questions: (a) whether Citi held the relevant opinion and (b) whether that opinion was reasonable.

(a) Citi's opinion

95. The BFE Notices were contained in letters from CBNA and CGML dated 9 June 2014, each signed by an authorised officer of the relevant company. Each expressly stated that Citi "reasonably believes that each relevant Storage Facility is no longer able to safely or satisfactorily store the Metal".
96. Mr Dunning accepted that those letters in themselves constitute evidence that Citi held the required opinion. He further emphasised that Mercuria accepted that Citi did have an opinion and that Mercuria did not contend that Citi's opinion was held in bad faith. Mr Dunning's case was that, on the totality of the evidence, Citi did not in fact hold the opinion required by clause 9.1(C).
97. Citi relied primarily on Mrs Baker's evidence to rebut the suggestion that it did not hold the requisite opinion. She gave evidence that there were four telephone conference calls during which Citi personnel discussed the situation at the Chinese ports and the issue of BFE Notices: two on Friday 6 June, one on Saturday 7 June and a final call on Sunday 8 June 2014. The BFE Notices were issued the following day: although Mrs Baker saw drafts of the notices (in which privilege has been claimed) she did not see the final version.
98. The Citi personnel involved in all the calls, in addition to Mrs Baker, included Jason Tudor (Global Head of Metals Trading and Head of Commodities for Asia, based in Singapore), James Turrell (Director of Global Commodities, based in London) and Belinda Ellington (Head of Commodities Legal for EMEA, based in London). John Young (Global Head of Business Development, Global Commodities) participated on all but the first of the calls on 6 June.
99. Much of the discussion during the calls is protected by legal professional privilege (and indeed external lawyers participated in the call on Sunday 8 June) and the notes taken are therefore heavily redacted, including the entirety of the note of the first call on 6 June. Nevertheless, the unredacted sections of the notes record the following:

i) In the second call on 6 June reference was made to the problems at Penglai referred to above and that Impala was "not in the port". It was stated that "All the above reflects the need to issue BRING FORWARD".

ii) In the call on 7 June reference was made to the fact that Mr Tudor had spoken to Mercuria and "Explained rationale for B/F, incl info gathering not easy, who [Mercuria] bought from, partial info". Mrs Baker asked "what would Citi sell back". Mr Tudor stated "we are definitely doing the right thing in sending" and "only way to bring them to the table".

iii) In the call on 8 June Mr Tudor asked whether anyone thought Citi should not issue the BFE Notices and no-one disagreed.

100. Mrs Baker's evidence in her witness statement was that the inability of the warehouse operators to confirm what metal (if any) they held and their inability to afford Citi the option of inspecting or taking delivery of the metal caused her to believe that the storage facilities at Qingdao, Penglai and Shanghai were not able to satisfactorily store the metal. She further understood that the other members of the Citi team participating on the conference calls shared that belief, which is why they all approved the issuing of the BFE Notices. When cross-examined, Mrs Baker maintained that evidence in relation to Qingdao and Penglai (and I accept her evidence in that regard), but gave the following evidence in relation to Shanghai:

"Q: There was absolutely no question at all that the facilities in Shanghai were able to safely and satisfactorily store the metal?

A: Technically you are correct, my Lord, yes.

Q: Not just technically correct, but I am correct in substance and commercially. You knew that there was no problem at all with the storage facilities at Shanghai?

A: Yes, there was no problem with the storage facilities in Shanghai.

Q: And you knew that?

A: I did know that, yes.

Q: And all of your colleagues knew that?

A: Yes, correct, my Lord."

101. Citi contends that Mrs Baker's evidence as to her own opinion and that of her colleagues demonstrates that the relevant opinion-formers at Citi (those who discussed the situation in China in detail and determined what was or was not satisfactory) did indeed have the requisite opinion expressed in the BFE Notices, at least in relation to the Storage Facilities at Qingdao and Penglai.
102. Mr Dunning put forward three arguments as to why, despite Mrs Baker's opinion in relation to Qingdao and Penglai, Citi did not hold the relevant opinion.
103. The first argument is that Mrs Baker was too junior to be the person with the operative opinion for these purposes. Mr Dunning contended that the relevant personnel were the senior management dealing with the matter, consisting of James Forese (CEO, Institutional Clients Group and member of the Citigroup Operating Committee, based in New York), Stuart Staley (Head of Global Commodities, based in London), Mr Young and Mr Tudor. There is reference in an email of 8 June to Mr Forese having authorised the sending of the BFE Notices on 6 June.
104. Mr Dunning points to correspondence between those personnel over the same weekend of 6-9 June, highlighting that there was no consideration at all of the requirement of clause 9.1(C). Instead, the senior management were focused on the question of the tactical approach to dealing with Mercuria, referred to by Mr Tudor in the meeting notes above, but best evidenced by Mr Staley's email to Mr Forese on Sunday 8 June in the following terms:

"The upshot of the Bring Forward Notice is that it is a tactic designed to force them to engage and cooperate to resolve the issue – which to date they have been completely unwilling to do. It doesn't commit us to a course of action, as all the way along the line we have the ability to delay acting while reserving our rights for later dates."

105. An email from Mr Tudor later the same day, just before the notices were served in Singapore, reported that he too had spoken to Mr Forese and that Mr Forese "understands that this is a tactic designed to force them to engage".
106. Mr Dunning submitted that these documents reveal that Citi's senior management dealing with the matter did not hold the opinion expressed in clause 9.1(C), but were engaged in a cynical (and commercially improper) exercise of applying pressure to Mercuria, using the BFE Notices merely as a tool. How Mr Dunning reconciled that submission with his clear acceptance that Citi had an opinion and that it was not held in bad faith is not entirely clear to me.
107. Mr Toledano objected to Mercuria taking a point on whether Mrs Baker's opinion was to be attributed to Citi. Citi had set out in Further Information provided at Mercuria's request that the relevant opinion had been formed by a core group, including Mrs Baker. It had also indicated in its Case Management Information Sheet that its proposed witnesses were Mrs Baker and Mr Dimou (the latter not being said to be part of the "core group"). Citi further asserted that no issue of attribution arose. At no time until service of its skeleton argument for trial did Mercuria suggest that it would take a point on attribution, no such issue having been pleaded or identified in the lengthy Agreed List of Issues. Mr Toledano argued that Citi was substantially prejudiced by the attempt to raise attribution for the first time at trial, as it was then unable to consider calling other witnesses, such as Mr Forese, Mr Staley or Mr Tudor, to deal with the issue.
108. Mercuria's answer appears to be that the availability of an attribution argument only became apparent when Citi provided further disclosure of transcripts and emails involving Mr Forese, Mr Staley and Mr Tudor about 10 days before the trial. However, it must have been clear to Mercuria from an early stage that Mrs Baker was relatively junior and that it was her superiors who authorised the sending of the BFE Notices. The further disclosure made by Citi may have caused Mercuria to consider that it had an argument that the senior management did not hold the relevant opinion, but it did not change the question of whether Mrs Baker's role was such that her opinion was to be attributed to Citi. In my judgment Mercuria is not entitled to take the point at this late stage.
109. But in any event, I see no merit in the argument for the following reasons:

i) Citi's motivations for serving the BFE Notices, including the tactical implications and the commercial impact, are an entirely separate question from whether Citi held the reasonable opinion required by clause 9.1(C). The fact that Mr Forese, as the senior executive, was considering such matters is neither surprising nor (in my judgment) in any way improper. It does not entail that either he or the other members of the relevant senior management held an opinion contrary to that expressed in the BFE Notices.

ii) Even if Mr Forese made the ultimate decision to sanction the sending of the BFE Notices (as it appears he did), there is no reason why he could not rely upon and adopt the opinion of those personnel who had detailed dealings with the problems. The fact that Mr Forese is not recorded as expressing an opinion in relation to clause 9.1(C) does not assist Mercuria in showing that Citi did not hold the required opinion.

iii) In any event, members of the senior management identified by Mercuria as being the relevant opinion-formers (Messrs Tudor and Young) were involved in the telephone conference calls with Mrs Baker and included within her evidence as to the opinion which was formed. It is noteworthy that, during the 8 June call, Mr Tudor referred to the fact that Mr Forese had "consented to sending the notice", but nevertheless proceeded to ask whether anyone thought the BFE Notices should not be issued. The inference I draw is that, whilst Mr Forese made the decision to send the notices in principle, it was subject to the views of those dealing with the matter "on the ground" and to legal advice. This is confirmed by Mr Forese's email to Mr Staley on 7 June, stating that "Letter "feels" ok to me. Will opine further once various parties have had a chance to review".

iv) It follows that I am satisfied that Citi's opinion expressed in the BFE Notices was indeed held by Citi, being the opinion formed by Mrs Baker and her colleagues. But in any event, there is nothing to demonstrate that the opinion which Citi stated by an authorised officer in the BFE Notices was not in fact held by Citi.

110. Mr Dunning's second argument was that, as Citi did not have the requisite opinion in relation to Storage Facilities in Shanghai (relying for these purposes on Mrs Baker's evidence in cross-examination), the BFE Notices were invalid. Mr Dunning submitted that there is no basis advanced by Citi for "severing" the BFE Notices so that they remain valid in respect of the Qingdao and Penglai transactions.
111. However, clause 9.1 is concerned with the occurrence of Bring Forward Events in relation to a Transaction and provides that service of a BFE Notice will bring forward the Sale Date under such Transaction. It is therefore apparent that a BFE Notice must be given in relation to a specific transaction. On that basis, the BFE Notices can only be construed as constituting separate notices under clause 9.1(C) in respect of each transaction set out in the attached schedules, albeit that the notices are contained in just two documents. I see no need for Citi to "sever" the notices: the fact that the BFE Notices are invalid or ineffective in respect of certain transactions does not entail that they are ineffective in relation to others. It follows that, even if (which I need not decide) the BFE Notices were invalid in relation to the Shanghai transactions, the validity of the notices given in respect of the other transactions was unaffected. It is noteworthy that, when Citi "suspended" the BFE Notices in relation to the Shanghai transactions on 16 June, Mercuria did not suggest that Citi was not entitled to do so.
112. Mr Dunning's third argument is that the opinion that Mrs Baker and the "core group" formed was, in any event, not the required opinion. He submits that the opinion must relate to the ability of the Storage Facility itself to store the metal in a physical sense, whereas Mrs Baker's concerns related to matters such as (i) dealings by third parties with documents which might affect Citi's title to the metal and (ii) the prevention of access to the facilities by outside agencies. Those matters, Mr Dunning argued, have no effect on the safe and satisfactory storage of the metal.
113. In my judgment that is far too narrow a construction of clause 9.1(C). Whether storage is satisfactory plainly must include issues such as whether the goods can be accessed for inspection and delivery obtained from the facility: no matter how "safely" goods may be stored, there is nothing satisfactory about storage which results in the owner losing the usual incidents of ownership in respect of his goods. Indeed, it is apparent from the remainder of clause 9.1(C) (dealing with insolvency proceedings against the Storage Facility) that safe physical storage is not the sole issue.
114. I therefore find that Citi did hold the opinion stated in the BFE Notices.

(b) Whether Citi's opinion was reasonable

115. The parties differ as to the proper construction of the term "in the reasonable opinion of Citi".
116. Citi contends that the required opinion formed by Citi will fall within the clause unless it is unreasonable in the Wednesbury sense, that is, unless it is an irrational opinion that no reasonable party in the position of Citi could hold. Citi submits that similar clauses in banking and finance documents have been construed in this sense:

i) In Peregrine Fixed Income Ltd v Robinson Department Store Public Co Ltd [2000] CLC 1328 the issue was the meaning of a clause in a 1992 ISDAMA which provided for a Settlement Amount to include "Loss" if a Market Quotation could not be determined or "would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result". The question was whether the defendant had breached the agreement on the grounds that it did not have a reasonable belief as required by the clause. Moore-Bick J stated, at para 39:

"Leaving aside cases where there is or may be a lack of honest belief, when the court is asked to decide in a case of this kind whether a person has acted in breach of contract it should in my view adopt a similar approach to that taken in the well-known case of Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223. It should not regard any act done by him honestly and in good faith as unjustified or involving a breach of contract unless it is clear that the belief in which he acted was flawed in one of the ways indentified in that case. Mr Hapgood submitted that the established approach to judicial review of discretionary decisions represented by the Wednesbury case was the proper approach in a case of this kind and Mr Milligan did not disagree."

ii) In Barclays Bank Plc v Unicredit Bank AG [2014] 1 CLC 342 Barclays, as the Guarantor in respect of credit default swaps, was required to determine certain matters "in a commercially reasonable manner". The Court of Appeal, whilst emphasising that it was a matter of construction in the particular contract, held that the standard imposed was the Wednesbury standard.

117. Citi further relied on Socimer International Bank Ltd v Standard Bank London Ltd [2008] 1 Lloyds Rep 558, a case in which banks had been trading with each other in securities under the terms of an umbrella agreement, which entitled the seller to determine the value of certain assets. The Court of Appeal held that the seller's discretion to determine the value was limited, as a matter of necessary implication, by concepts of honesty and rationality. At paragraph 124 Longmore LJ stated as follows:

"… a decision-maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria."

118. Citi submits that the term 'reasonable' should be construed in this case in the same sense as it was read in Peregrine and Barclays v Unicredit. Further, although Socimer was not a case of an express provision, the reasoning of the Court of Appeal recognises that the concern in respect of a unilateral discretion is that it should not be abused. Mr Toledano submits that that is the plain purpose and intent of the word "reasonable" in clause 9.1(C). He submits that the provision is designed to enable Citi to make a unilateral decision to protect itself against potential threats to its metal, likely to be a situation of some urgency where the factors and risks are unclear, the key factor being Citi's opinion in that regard. Further, clause 9.2 requires Citi to give notice of its relevant opinion immediately it is formed. In those circumstances, Citi argues, it would be inconsistent with the intended purposes and operation of the clause that the validity of the BFE Notices should be subject to an analysis of whether Citi's opinion was objectively reasonable. All that can have been intended is that Citi's opinion was not irrational or capricious.
119. Mercuria's argument to the contrary is that the relevant words should be construed in a straightforward manner, requiring Citi to prove that its opinion was, in Mr Dunning's words, "positively objectively reasonable". Mr Dunning submitted that such a requirement not only gives effect to the express language, but is the obvious and natural meaning given the seriousness of the consequences for Mercuria of Citi serving BFE Notices. He further pointed out that (i) Peregrine was a case where there was no argument as to the applicable test (ii) the Court in Barclays v Unicredit stressed the need to construe each particular contract and (iii) the decision in Socimer concerned what term should be implied, not the construction of an express term.
120. In my judgment Citi's construction of the clause is to be preferred for the reasons Mr Toledano advanced. The parties agreed that Citi should have the right to trigger this particular Bring Forward Event based on its unilateral opinion. Mercuria's construction would largely remove the benefit of that right and would give rise to considerable uncertainty and argument as to whether the event had indeed occurred.
121. But in any event I am satisfied that Citi's opinion (in relation to the Storage Facilities at Qingdao and Penglai) was not only rational, but was also objectively reasonable. Citi was aware of the likelihood that frauds or other criminal acts had taken place in relation to the metal, as a result of which it appeared that significant quantities of its metal could not be accounted for in the Storage Facilities. It was unable to ascertain whether this was a physical problem or a documentary problem (or both) because it was unable to access the facilities for the purposes of identifying and inspecting its goods. In my view it was entirely reasonable for Citi to form the opinion that the Storage facility was unable to satisfactorily store the metal in such circumstances. Indeed, Mercuria's own 11 July Notice was based on the assertion that the problems at Qingdao and Penglai could reasonably be expected to have a material adverse effect on the ability of Citi to comply with its obligations: Mercuria relied on the state of uncertainty created by the inability to gain physical access to the warehouses to ascertain what was there and the inability to obtain delivery. Such matters seem to be a clear acceptance that problems relating to the storage of the metal are highly prejudicial to Citi, fully justifying Citi's opinion.
122. Mercuria further contends that consideration of whether Citi's opinion was reasonable must be limited to the matters expressly stated in the BFE Notices. I see no basis for such an implied restriction in circumstances where Citi is under no obligation to state any reasons for forming its opinion and where notices can be expected to be given urgently and immediately an opinion is formed. But in any event, I am satisfied that the BFE Notices referred to sufficient matters, in particular the possibility of fraud or criminal acts at the warehouses and the prevention of access, to support the reasonableness of Citi's opinion, no matter which test is applied.
123. I therefore find that Citi's opinion was reasonable.

(ii) Whether the BFE Notices were vitiated by "uncertainty"

124. Mercuria also argues that the BFE Notices were invalid because of the uncertainty which existed at the time as to the existence of and Citi's title to the metal in Qingdao and Penglai. The argument seems to be that, construing the BFE Notices in context, Citi was purporting to activate "BFE machinery" under the Master Agreements on the basis that, on the accelerated dates, it would sell back to Mercuria the same metal that Mercuria had sold to Citi under the sale transaction. Mercuria then argues that, as Citi knew that there was uncertainty as to whether it had title to that metal (if it existed), the BFE Notices were based on a false premise and therefore invalid.
125. I find that argument difficult to follow. Clause 9.2 of the Master Agreements does not give either party the option of deciding whether to serve a BFE Notice, but imposes an obligation on both of them to do so immediately upon becoming aware of the occurrence of a Bring Forward Event. The sole effect of the notice is to bring forward the Sale Date of the Forward Sale Transaction: Citi's obligation to pass good title to and deliver Equivalent Metal is not otherwise altered in any way. In those circumstances I can see no basis for construing the BFE Notices as giving rise to any representation, warranty or obligation above and beyond those already arising under the Master Agreements. Neither can the BFE Notices be construed as removing Citi's right to deliver Equivalent Metal on the accelerated Sale Date, even if that is neither of the parties' expectation.
126. Further, the very nature of the Bring Forward Events set out in clause 9.1 (including that the quality of the Metal no longer meets the Minimum Quality) entails that it is likely that the occurrence of such an event will adversely affect Citi's ability to perform its obligations by delivering the same metal as Mercuria delivered to Citi: it is precisely because of that likely effect that both parties are under an obligation to give immediate notice under clause 9.2.
127. I therefore find that the BFE Notices were valid and effective.

F. Whether the 11 July Notice affected Mercuria's existing payment obligations

128. Clause 10.3(B) of the Master Agreements provides that, upon the occurrence of a Termination Event with respect to a party, while that event is continuing the other party is not obliged to make "any payments" until corresponding delivery has been made. Mercuria contends that the effect of this clause is that, once a Termination Event occurred in relation to Citi (declared by the 11 July Notice), Mercuria's obligation to pay the prices in respect of the Forward Sales brought forward to 11 June 2014 by the BFE Notices was suspended pending delivery of the metal. Mr Davies, who argued this point for Mercuria, submitted that it is impermissible to read into the clause an implied limitation that it does not apply to debts already accrued.
129. I do not accept that contention. The plain and obvious meaning of the clause is that the "other party" may refuse to make further payments or deliveries as they fall due unless it has received the corresponding consideration. Far clearer wording would be required, in my judgment, if the clause was to suspend accrued debts, no matter how long incurred and what steps had been taken in relation to those debts in the meantime. It would encourage parties to allege the occurrence of Termination Events, not to protect itself against future exposure, but to avoid or delay payment of properly due debts.
130. I am fortified in that view by the fact that the Master Agreements are similar in many respects to the ISDA Master Agreement ("the ISDAMA"), both in terms of contractual structure and wording. Indeed, in several places it appears that the Master Agreements have adopted and adapted wording from the ISDAMA. Section 2(a)(iii) of the ISDAMA is in similar terms to clause 10(3)(B) of the Master Agreements, providing as follows:

"(iii) Each obligation of each party [to make payment or delivery] is subject to (1) the condition precedent that no Event of Default … with respect to the other party has occurred and is continuing, (2) the condition precedent that no early Termination Date in respect of the relevant Transaction has occurred or been effectively designated … "

131. The Court of Appeal in Lomas v JFB Firth Rixson Inc [2012] 1 CLC 713 held, albeit obiter, that section 2(a)(iii) only has effect in relation to obligations which arise after the relevant default by the counterparty. That approach was followed by Andrew Smith J in Credit Suisse International v Stichting Vestia Groep [2014] EWHC (Comm) 3103 at para 336.
132. Mr Davies argued that the provisions are significantly different, Section 2(a)(iii) of the ISDAMA imposing a condition precedent, whereas clause 10(3)(B) has a suspensory effect. In my judgment that is a distinction without a difference for these purposes and has no bearing on whether the obligations affected by the condition or suspension include accrued obligations. I am satisfied that the approach of the Court of Appeal and Andrew Smith J to Section 2(a)(iii) applies equally to clause 10.3(B).
133. I therefore find that the service of the 11 July Notice did not suspend Mercuria's accrued payment obligations that had been brought forward to 11 June 2014 by the BFE Notices. V

G. Citi's claim for the price

134. In paragraph 62(a) of it skeleton argument for the trial, Citi made the following concession:

"… if Citi has not, and could not, make good delivery then Mercuria has a defence of circuity of action to Citi's debt claim for the Forward Sale Settlement Amounts. That is because, upon Mercuria's payment of the Forward Sale Settlement Amounts, Citi would (under clause 6.3(B)) be obliged to make delivery to Mercuria, and if it failed to do so Mercuria would have a counterclaim for the price paid."

135. That was an acceptance of the maxim "frustra petis quod mox es restiturus", loosely translated by Geoffrey Lane LJ in Post Office v Hampshire C.C. [1980] 1 QB 124 at 134 as "it is no good trying to get something which immediately afterwards you are going to have to hand back".
136. Citi's sought to withdraw that concession in closing argument on the basis that a defence of circuity of action only arises if the amount of the claim and the cross-claim to which it automatically gives rise are identical, referring to Aktieselskabet Ocean v B. Harding and Sons [1928] 2 KB 371. Mr Toledano argued that, contrary to the concession above, Mercuria's cross-claim would not be for restitution of the price, but only for damages for non-delivery. Such damages would take into account the fact that Mercuria had paid the price, but would not be in the exact amount of the price.
137. However, for the reasons set out in paragraphs 89 to 90 above, failure to make delivery of goods amounts to a total failure of consideration, entitling the buyer to reclaim an advance payment of the price (and not merely to damages), provided the buyer terminates the contract. If there is any doubt that a claim for repayment of the price would necessarily arise, no doubt Mercuria will provide confirmation (and if necessary an undertaking) that it would terminate the transaction when (after Mercuria has paid the price) Citi fails to make valid delivery. Granting Citi judgment for the price would result, almost immediately the judgment is satisfied, in an unanswerable cross-claim in the very same amount.
138. For those reasons I am satisfied that Citi's original concession was rightly made and that, given my findings on the issues of delivery, it is not entitled to judgment for the price of the metal.
139. However, the fact that Mercuria has a defence to the claim for the price does not entail that Mercuria is not obliged to pay the price; Mercuria is in breach of contract in that regard: the defence is based on the need to avoid a circuity of actions, predicated on there being a claim and a cross-claim in existence, not upon the claim having been extinguished.

Termination issues

H. Citi's right to terminate the Master Agreements

140. Citi claims to have the right to terminate the Master Agreements (which it has not yet exercised) both as a matter of contract and common law.
141. As a matter of contract, Citi claims to be entitled to designate an Early Termination date under clause 10.3(C) of the Master Agreement because Termination Events have occurred in relation to Mercuria as follows:

i) Mercuria committed a material breach by failing to pay the price due in respect of the Forward Sales on 11 June 2014 (being the date to which those Sales were brought forward by the BFE Notices). As Citi gave notice of that breach on 12 June, requiring it to be remedied within one Banking Day (the clear effect of the letter, even though it was worded as though it was the failure to remedy that would result in a material breach), Mercuria's failure to do so amounts to a Termination Event within clause 10.3(A)(5); and

ii) Mercuria "repudiated" Confirmations by way of failing to purchase the Metal as provided under a Transaction, amounting to a Termination Event within Clause 10.3(A)(7).

142. Mercuria does not appear to dispute that clause 10.3(A)(5) would apply, but suggests that Citi has not purported to activate the procedure. However, Mercuria has not explained why Citi's letter of 12 June 2014 did not activate the procedure and I am satisfied that it did.
143. Mercuria contends that it cannot be taken to have repudiated the Confirmations in circumstances where there was a bona fide dispute as to its obligation to pay the price. However, it is clear that clause 10.3(A)(7) treats failing to complete a purchase as a "repudiation": I am satisfied that a Termination Event arose under this clause also.
144. As for the common law right to terminate, Citi contends that Mercuria's failure to pay the price in respect of all of the outstanding transactions in relation to the Qingdao and Penglai transactions on 11 June 2014 and thereafter amounted to a clear repudiatory breach of the Master Agreements, which it is now entitled to accept.
145. Mercuria argues that it did not repudiate the Master Agreements in circumstances where it raised a bona fide dispute as to the validity of the BFE Notices and brought that dispute to court for resolution. It claims that it was not evincing an intention not to be bound by the Master Agreements, but merely seeking to clarify and enforce what it believed to be their terms, albeit mistakenly (as I have found above). Reliance is placed on Woodar Investments Ltd v Wimpey Ltd [1980] 1 WLR 277 HL, in which a contracting party who served a purported but invalid notice of rescission was held not to have repudiated the contract.
146. However, the finding in Woodar was that a bona fide but mistaken reliance on a term of a contract to terminate that contract did not manifest an intention to abandon the contract, and so was not a repudiation. In the present case it is not merely a question of whether Mercuria evinced such an intention by way of an anticipatory breach, but whether its actual breach of contract in failing to make payments when due was a repudiation. The distinction has been recognised in Dalkia Ulities Services Plc v Celtech International Ltd [2006] 1 Lloyds Rep 599. I find that Mercuria's actual breach in failing to pay some US$272m was a repudiation of the Master Agreements.

I. Whether Citi lost the right to terminate

147. Mercuria relies upon various subsequent actions of Citi and the effluxion of time as amounting to a waiver of any right to terminate and the affirmation of the Master Agreements.
148. As for the contractual right to terminate, Citi relies upon the "No Waiver" provision in clause 10.12(B) of the Master Agreements and its numerous express reservations of its rights after 12 June 2014, including the right to designate an Early Termination Event (letters dated 16 June, 23 June and 7 July 2014). Further, Mercuria sought confirmation at various points that Citi would not exercise any right to terminate without giving notice to Mercuria, confirmation which Citi provided. In a schedule to a Consent Order in these proceedings dated 2 October 2014 the parties agreed that neither party would seek to terminate the Master Agreements at common law or contractually pending judgment in these proceedings and that the giving of and compliance with the undertaking would not constitute or evidence an affirmation. I am informed that, on 14 January 2015, the parties agreed to extend this agreement pending any consequential hearing. In my judgment, such matters make it impossible to find that there has been a clear and unequivocal election by Citi to abandon its right to terminate: see Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyds Rep 391 per Lord Goff at 398.
149. In relation to the common law right to terminate, I can see more force in Mercuria's contention that subsequent actions of Citi amounted to an affirmation of the Master Agreements. It is difficult to see how Citi can claim to have made delivery under terms of the Master Agreements on 22 July 2014 without thereby affirming that those agreements were on foot, even if it purported to reserve its rights in so doing. However, there is no suggestion that Citi has waived its entitlement to the price due in respect of the Forward Sales, which sums remain due and owing and Mercuria's failure to pay is a continuing repudiation of the Master Agreements.
150. I therefore find that Citi has not lost its right to terminate the Master Agreements as a matter of contract or at common law.

J. Whether Citi's inability to deliver entails that it cannot terminate

151. On the basis of my findings above, Citi has a continuing right to terminate the Master Agreements and is not itself under an obligation to deliver metal to Mercuria. The question which arises is whether that right is affected by the fact that, if Mercuria had made payment, Citi (if my finding above is correct) would not have been able to deliver the corresponding metal and therefore cannot claim the price.
152. Benjamin on Sale of Goods, at para 9-016 and 9-017 (passages not cited by the parties), considers the question of whether it is a principle of law that a buyer cannot justify his anticipatory refusal to accept goods under a contract on the ground that, if he had not refused, the goods when delivered would not have been in accordance with the contract or the seller would have been otherwise unable to perform. The author concludes, on the basis of the authorities, that in cases where the repudiation is accepted by the seller:

"If the seller brings an action against the buyer for the price of the goods or for damages for non-acceptance, the buyer cannot escape liability by showing that, if he had not repudiated, there would have been no performance by the seller at the time fixed for performance or that the performance would have been defective. The future inability of the seller to perform the contract in accordance with its terms is irrelevant since his election to treat the contract as repudiated brings to an end all primary obligations of the parties which have not yet fallen due for performance at the time of acceptance of repudiation."

153. The main debate in the authorities does not concern the entitlement of the seller to terminate in such cases, but whether his inability to have performed his obligations, had the contract continued, is relevant to his remedies. These authorities were considered in detail in The Glory Wealth [2013] 2 Lloyds 653. Teare J concluded (para 81) that the court must have regard to the compensatory principle. At paragraph 85 he stated that "The assessment of loss necessarily requires a hypothetical exercise to be undertaken, namely, an assessment of what would have happened had there been no repudiation".
154. However, whilst Teare J found that certain earlier authorities should not be applied in assessing the damages of an innocent party who would not have been able to perform, there was no suggestion that such an innocent party would not be entitled to accept the other party's repudiation.
155. In my judgment there is no reason to depart from the logical principle, stated by Benjamin, that a party's accrued right to terminate (whether as a matter of contract or common law) is not affected by whether or not he could himself perform subsequent obligations. That factor is relevant only to the question of compensation.
156. I should add that the above reasoning would not appear to be affected in any way by the fact that Citi's claim for the price of the metal (a claim made on the basis that the Master Agreements and the Transactions remain in existence) cannot succeed because of a circuity of action defence, as discussed above.
157. I therefore find that Citi is entitled to exercise its continuing rights to terminate the Master Agreements.

Conclusion

158. In summary, I have found that:

i) Citi's tender of endorsed warehouse receipts was not good delivery of metal to Mercuria for the purposes of the Master Agreements. Citi is therefore not entitled to judgment for the unpaid price of that metal, Mercuria having a defence by way of circuity of action. Neither is Citi entitled to make delivery pursuant to clause 7.2(B) by assigning its rights to the metal to Mercuria.

ii) Citi is liable to Mercuria for damages for failure to deliver the metal due in respect of Transaction 6, but is not liable to reimburse the price because Mercuria has not terminated the transaction. Citi is not liable for damages for non-delivery in respect of the remaining 17 transactions because it was not under an obligation to make delivery.

iii) The BFE Notices were valid and the payment obligations to which they gave rise have not been suspended by virtue of the 11 July Notice. Mercuria is in continuing breach of those obligations.

iv) Citi is entitled to terminate the Master Agreements both as a matter of contract and common law. Those rights have not been lost by waiver or affirmation and are unaffected by Citi's inability to deliver the metal.

159. I am grateful to counsel for their detailed written and oral submissions. I invite them to seek to agree the terms of an order reflecting the above findings.