Mercuria Gets October UK Trial in Multibillion Dollar Hormuz Spat

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(Bloomberg) — Commodity trader Mercuria Energy Group Ltd. was granted an early trial over an alleged distortion to the world’s benchmark oil tanker rate that it argues is costing the company hundreds of millions of dollars.

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A London judge passed an order on Friday that the case would be listed for trial starting October 26. While it’ll be an expedited hearing, the company had asked that part of the case would begin in July, before then requesting a full hearing in September.

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The 282-year-old Baltic Exchange is a cornerstone of the global shipping industry, publishing rates that help set the price of freight as well as underpinning billions of dollars in derivatives. The lawsuit centers on the world’s main oil tanker rate, which is based on the cost of hiring a giant supertanker from inside the Persian Gulf. Since the Iran war began, very few ships have crossed Hormuz, meaning the Baltic Exchange had to decide how to fairly assess the rate. 

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“It seems to be that there is a wider market concern in relation to the relevant benchmark,” Judge Christopher Butcher said in court. The issues in the claim are not just about damages “but for the purposes of obtaining the legal position.” The timing of the trial will allow the court to deliver a verdict by the end of this year or early next, he added.

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The Baltic Exchange told brokers in March that they effectively needed to put a price on owners’ willingness to put their ships and crews at risk when assessing the route. That means the rate has remained elevated throughout the war, even as earnings on other tanker routes have eased. Mercuria argued that value no longer accurately represents the market it is intended to measure. 

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“We are not here to extract money from the exchange. We have a concern which is a market concern,” David Wolfson, a lawyer for Mercuria said. “A declaration is enough for us commercially.”

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The commodity trader said it estimates that its own losses are in the hundreds of millions of dollars and are racking up each day the benchmark remains unchanged. It said the wider financial market impact of the claim runs into the billions of dollars. On Thursday the rate was assessed at about $400,000 a day, almost double where it was before the war began.

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Lawyers for Baltic said that Mercuria’s claim is “misconceived” and argued that it wasn’t for the court to scrutinize the benchmark but for the market’s regulator, the Financial Conduct Authority. 

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The issues fall in the domain of FCA and it is a “strange and startling suggestion” that the High Court should scrutinize the workings of a commercial exchange, James McClelland said during the hearing. “This is not a case calling out of for judicial guidance.”

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