Commodities trader Mercuria's bid to have a tanker freight benchmark declared invalid would have "highly destabilising effects" on global shipping markets, lawyers for the Baltic Exchange said on Monday at the start of a high court trial.
Mercuria says the exchange should have suspended the TD3C benchmark crude tanker freight rate, which covers Middle East-to-China crude shipments, in early March because of the disruption caused by the US-Israel war with Iran.
It launched its legal challenge in April to seek declarations from the Baltic Exchange that the assessments published since then are invalid.
"Mercuria is inviting this court to dissolve the prices that have been used in more than eight months of trading, affecting an indeterminate class of third parties," lawyers for the Baltic outlined in their opening defence submission at the London high court, adding that such a claim is "without precedent".
The TD3C Baltic Exchange benchmark freight assessment covers cargoes of 270,000 tonnes from the Middle East to China and Mercuria said it ceased to reflect the physical market after the war began, placing the Baltic in breach of the Benchmarks Regulation.
"The input data did not represent accurately and reliably the market or economic reality that the benchmark is intended to measure," Mercuria said.
The Baltic disputes that the route lacked fixtures. It also said that it avoided knee-jerk reactions and repeatedly engaged with and consulted market participants and its panelists, which it says remained "willing and able to assess" rates.
Mercuria alleges that the Baltic did not suspend the assessment because it wanted to keep the freight derivatives market active, and to avoid the risk of the Intercontinental Exchange replacing TD3C with an index maintained by a competing provider, SP Global Platts.
Mercuria is not alleging bad faith or dishonesty, according to the particulars of its claim.
The Baltic says Mercuria’s contract with it limits remedies to damages, and does not allow declarations, although Mercuria disputes this.
Mercuria has withdrawn its alternative case that the benchmark should be calculated from comparable routes and is only seeking suspension of the benchmark.
It also dropped references it made in its initial court filing to losses of hundreds of millions of dollars, though its opening submissions still gave an illustrative figure of about $13.8 million a month in hedging losses for a single vessel.
(Reporting by Robert Harvey in London; editing by Barbara Lewis)