Reed Smith Client Alerts

In a recent case, the English High Court (Court) was asked to restrain two well-known price reporting agencies (PRAs) from publishing price-related data which was, strictly, protected by contractual obligations of confidentiality, but which had routinely become available to the PRAs during the past five years, and which were also available via widely accessible social media sources.

Importantly, due to the services which they provide, the PRAs constituted ‘publishers of journalism’. As a result, in addition to the obvious issues of commercial confidentiality, the Court was required to consider issues around freedom of expression under Article 10 of the European Convention on Human Rights and Section 12 of the Human Rights Act 1998.

From a legal perspective, the judgment provides a helpful reminder of the high threshold test which a party seeking an order to restrain the publication of confidential information pending trial must satisfy when issues of freedom of expression are in play.

From a wider perspective, however, it also provides an interesting insight into:

  1. the tension between the bilateral duties of confidentiality which most producers, traders and consumers continue to take for granted in their commercial relationships, and the increased importance of price reporting data to those same market participants, where such reporting by necessity relies on the sharing of actual pricing information; and
  2. the (limited) circumstances in which sharing information about price may be deemed to contribute to, rather than inhibit, competition in the commodities markets.

Background: the development of index-based pricing for iron ore

This case relates to the alleged confidentiality of one element of pricing of iron ore sold under long-term iron ore sales contracts (LTCs).

Over the last decade the pricing of physical seaborne iron ore has gone through an evolution.

Previously, pricing relied on annual benchmark negotiations between major producers and end users. In recent years, however, this model has been abandoned, and the market has moved towards a more dynamic, market index-based pricing.

These iron ore price indices, and the sophisticated methodologies which underpin them, have been developed by competing PRAs over several years. Over time, these PRAs have refined the methodologies used, and the resulting indices are generally considered to reflect actual supply and demand dynamics on a considerably more contemporaneous basis than the previous annual benchmark pricing model ever could. As such, many market participants have come to consider the availability of these price indices to be a positive development in the market. Index-based pricing has the effect of reducing instances of contractual non-performance which had previously been more common when there was significant divergence between (i) the agreed LTC benchmark price; and (ii) the prevailing spot price for iron ore.

However, the existence of these price indices is reliant on market participants reporting actual normalised spot prices achieved for iron ore cargoes to PRAs, which the PRAs then ‘aggregate’ in order to establish average prices for the relevant period. As such, the indices can be said to rely on significant market participants – in particular, major producers – positively embracing transparency in pricing and continuing to cooperate in the reporting process.

There are now a number of different iron ore market price indices in existence, the methodology of each of which reflects, to some degree, actual spot sales achieved in any given month for iron ore (i) with similar physical characteristics (e.g., percentage of ferrous content and the size grade), and (ii) sold for seaborne delivery to the most popular iron ore delivery ports (e.g., CFR Qingdao, China).

Electronic platforms for the spot sale and purchase of physical iron ore have also come into existence over that same period, and the volume of iron ore traded over such platforms has grown significantly.

The actual normalised sales prices achieved over such platforms, and a variety of other data points, are also commonly reported to PRAs. These data points assist to create the transparency and liquidity necessary to underpin the price indices and to give the market confidence in their accuracy as a reflection of the supply/demand dynamic in real time.

Market confidence has grown sufficiently over the years such that index-linked pricing now forms at least a significant part of the pricing mechanism applicable under most long-term contracts between major suppliers and their largest customers.

Another common element of the pricing formulae for long-term iron ore sales is (depending on the particular product and index utilised) a premium or, more commonly, a discount applied per dry metric tonne unit (DMTU) against the applicable index. This discount may be calculated by producers based on a multitude of factors.

It is this discount, and its alleged confidential nature, which formed the basis of the case at hand, in which Fortescue Metals Group Ltd. and its subsidiary, Chichester Metals Pty. Ltd. (together, FMG) sought to prevent the publication of discount data by two PRAs, Argus Media Limited and S&P Global Inc. (together, the Defendants).