A dispute over how the costs are set for shipping oil from the Middle East to China is at the centre of a High Court battle.
The case centres around the shipping route known as TD3C, which is set by the Baltic Exchange. It tracks the cost of transporting oil from Ras Tanura in Saudi Arabia, the world's largest offshore oil loading terminal, and Ningbo, China, which goes through the Strait of Hormuz.
Due to the Iran war, rates on the route went up from $600,000 a day compared to more typical rates of between $40,000 and $100,000.
Energy giant Mercuria has begun a court case to force the Baltic Exchange to use a different route to set the benchmark, arguing it has a duty to use one that reflects the situation on the ground.
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 dispute has now made its way to the High Court in London and, in Mercuria’s written submission, barrister David Wolfson outlined the impact of the Baltic Exchange’s continued use of the benchmark.
“Baltic’s [alleged] breaches of duty have caused losses and exposures to Mercuria and its affiliates estimated in the hundreds of millions of US Dollars, with the exposure continuing each day the benchmark remains unchanged,” said Mr Wolfson.
“The wider financial market impact of the issues raised by the claim are in the billions of US Dollars, and increases with each new daily assessment.”
The Baltic Exchange has previously said it is "confident that it has met and continues to meet all its statutory, contractual and regulatory obligations in the production of the TD3C benchmark".
The rate has remained elevated throughout the war, even as the cost of other tanker routes have eased.
Switzerland-based commodity trader Mercuria argued that the benchmark value no longer accurately represents the market it is intended to measure. They have previously suggested the benchmark should be calculated using other routes including from Oman.
“We are not here to extract money from the exchange. We have a concern which is a market concern. A declaration is enough for us commercially,” said Mr Wolfson.
Lawyers for the Baltic Exchange 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.
Its barrister James McClelland told the hearing that the issues fall in the domain of FCA and it is a “strange and startling suggestion” that the High Court should scrutinise the workings of a commercial exchange. He added that “this is not a case calling out for judicial guidance”.
Mercuria asked Judge Christopher Butcher for an early trial to resolve the matter and he passed an order on Friday that the case would be heard starting October 26.
“It seems to be that there is a wider market concern in relation to the relevant benchmark,” Judge 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.
