The Claimant, Molton Street, negotiated with the First Defendant, Shooters Hill, to purchase bonds held by a New York hedge fund. Both Molton Street and Shooters Hill were small London-based brokers. Although negotiations were carried out between the two London brokers, Shooters Hill was not sufficiently capitalised to trade as principal on the deals it negotiated. As such it had an arrangement with the Second Defendant, Odeon - a broker based in New York, which meant that for buy and sell transactions negotiated by Shooters Hill, Odeon would step into its shoes as contracting party with the buyer and seller and they would share the profit.
Molton Street was aware of the arrangement between Odeon and Shooters Hill, confirmed the transaction with Odeon and requested a trade ticket from Odeon. Odeon’s emails and trade ticket contained a disclaimer that trades could not be considered “good trades” without express consent of the principals. After being told by its seller that the bonds would not be delivered, Odeon cancelled the contract. This transaction was one of a chain and Molton Street had already contracted to sell the bonds on to Morgan Stanley before it had received them.
Molton Street brought a claim against Odeon for wrongfully terminating the contract and claimed damages together with an indemnity against its liability to Morgan Stanley. The claim against Shooters Hill was compromised and only the claim against Odeon remained to be decided at trial.
A number of issues were in dispute, including the proper law of the contract, which contained no governing law clause. The parties agreed that this issue was to be decided with reference to Article 4 of Regulation (EC) No 593 on the law applicable to contractual obligations (“Rome I”). Odeon asserted that New York law applied either as the residence of the seller of ‘goods’ (pursuant to article 4.1(a) of Rome I) or, failing that, as the residence of the party required to effect characteristic performance of the contract, i.e., to transfer the bonds (article 4.2). Molton sought to rely on the “escape clause” at Article 4.3 of Rome I to assert that English law applied as it was clear the contract was manifestly more connected with England.