Bank of India v Svizera Holdings BV
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 20 December 2013 |
| Neutral Citation | [2013] EWHC 4097 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2011-1542 |
| Date | 20 December 2013 |
2013 EWHC 4097 (Comm)
THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Hamblen
Case No: 2011-1542
Mr N Yeo (instructed by TLT LLP) for the Claimant
The Defendant was not represented
Hearing dates: 10 and 11 December 2013
Introduction
The Claimant ("BoI") claims from the Defendant ("Svizera") USD6,299,789.31 (plus interest) allegedly due to it under a restructured interest rate swap (the "Restructured Swap") entered into on 29 February 2008 between BoI and Svizera, a company incorporated in the Netherlands which is a wholly owned subsidiary of an Indian company, Maneesh Pharmaceuticals Limited ("MPL").
The Restructured Swap incorporates the terms of the 1992 ISDA Master Agreement (Multicurrency – Cross Border). As interest rates have remained low, certain payments have allegedly fallen due under the Restructured Swap from Svizera to BoI, and, remaining unpaid over an extended period, BoI purported to exercise its contractual rights under the Restructured Swap to "close out" the Restructured Swap and to crystallise an amount due on close out. This amount, along with contractual interest, is the claim made in these proceedings.
There is no dispute about the closing out of the Restructured Swap or the calculation of the close out amount. However, Svizera contends that the Restructured Swap never became binding on it due to non-fulfilment of an alleged condition precedent.
The Restructured Swap restructured an earlier swap made between the parties (the "Original Swap"). Both Swaps relate to the interest due under a Term Loan Facility (the "Facility") granted by a syndicate of banks (including BoI) and arranged by Barclays Bank plc ("Barclays").
Svizera's case is that the Facility was subject to an express alternatively an implied condition precedent that Barclays would enter an Indian rupee/US dollar currency ("INR/USD") swap with Svizera and/or MPL, which it is common ground was not entered (the "Currency Swap"). It is alleged that this express alternatively implied condition precedent also applied to the Restructured Swap and that accordingly it never became binding. Further or alternatively, it is alleged that there was an agreement to arrange the Currency Swap to which BoI was party and that BoI is liable for all loss and damage allegedly resulting from the failure to arrange the Currency Swap which can be set off in diminution or extinction of the claim.
Factual background and the parties' claims
BoI is a company incorporated under the laws of India with a branch registered in England and Wales.
Svizera is a company incorporated under the laws of the Netherlands, but whose business is carried out (at least to a significant degree) in India.
Subject to Svizera's case that no binding contract was made, on or about 23 October 2007 the parties entered into the Original Swap. This was an interest rate swap with a combination of a cap and floors, with an "effective date" of 25 October 2007. The terms of that contract were set out in a Terms Sheet executed by Svizera on 23 October 2007, and which incorporated the terms of the 1992 ISDA Master Agreement. That master agreement was executed by the parties on 29 October 2007 and dated as of 29 October 2007 (the "Master Agreement"), along with a Schedule executed on the same date and dated as of the same date (the "Schedule").
On or about 29 February 2008 the parties agreed to restructure the terms of the Original Swap, and, subject to Svizera's case that no binding contract was made, entered into the Restructured Swap on the terms set out in a term sheet (the "Term Sheet") dated 29 February 2008. The Restructured Swap incorporated the terms of the Master Agreement and Schedule, except to the extent they are inconsistent with the Term Sheet.
The Original Swap and the Restructured Swap were entered into in relation to Svizera's floating interest rate obligations under the Facility. This was a US$45,000,000 term loan facility dated 24 September 2007 which, subject to Svizera's case that no binding contract was made, was entered into by Svizera as borrower and a number of lenders, including BoI.
Under the Facility, the Defendant was obliged to pay the lenders a floating interest rate equal to LIBOR plus a margin of 2.15%.
In summary, the terms of the Restructured Swap provided Svizera with interest rate protection in case LIBOR exceeded 6.00% pa. (under the Original Swap, the protection was only provided when LIBOR exceeded 7.00%). In those circumstances, BoI would effectively meet Svizera's interest rate obligations under the Facility (including the margin of 2.15% pa), and in return Svizera would pay BoI 6.00% pa plus a margin or spread of (at all material times) 3.50% pa – effectively swapping Svizera's floating interest rate commitment for a commitment to pay 7.35% pa (being the 6.00% pa plus the difference in the margin (or spread) payable under the Restructured Swap of 3.50% pa and the margin payable under the Facility of 2.15% pa).
If LIBOR was equal to or less than 6.00% pa, but greater than a lower "barrier" (as defined) then Svizera's total interest rate commitment would effectively be to pay that floating interest rate plus 2.15% margin (the margin under the Facility) along with an additional margin of 1.35% (being the net effect of Svizera paying BoI the margin (or spread) payable under Restructured Swap of 3.50% pa and the BoI paying Svizera the margin payable under the Term Loan Facility of 2.15% pa).
If, however, LIBOR was below the lower "barrier", then while BoI agreed to pay Svizera the floating interest (plus margin) due under the Facility, Svizera agreed to pay BoI 5.00% pa plus a margin or spread of (at all material times) 3.50% pa, effectively putting a "floor" on the amount of interest Svizera had to pay in relation to the Facility equal to 6.35% pa (being 5.00% pa plus the difference in the margin (or spread) payable under Restructured Swap of 3.50% pa and the margin payable under the Facility of 2.15% pa).
So far as material, the terms of the Restructured Swap were as follows:
(1) The notional amount (the "Notional Amount") was:
i. from 25 October 2007 to (but excluding) 28 March 2010, US$45,000,000;
ii. from 28 March 2010 to (but excluding) 28 September 2010, US$42,750,000;
iii. from 28 September 2010 to (but excluding) 28 March 2011, US$40,500,000; and
iv. from 28 March 2011 to 9 September 2011 (the Early Termination Date designated as described below), US$30,375,000.
(2) The relevant "barrier" below which Svizera's interest rate commitment was subject to a "floor" (the "Barrier") was as follows:
i. at all material times to (and including) the payment date on 28 June 2010, 3.50%; and
ii. for payment dates on 28 December 2010 and 28 June 2011, 4.00%.
(3) On 28 June and 28 December of each material year, BoI was obliged to pay to Svizera a sum calculated by applying a rate equal to the aggregate of 2.15% pa and the US dollar LIBOR rate as appears on Telerate page 3750 ("USD-LIBOR-BBA") to the relevant Notional Amount for the relevant six month period (calculated on the basis of the actual number of days divided by 360).
(4) On 28 June and 28 December of each material year, and if USD-LIBOR-BBA is less than or equal to the Barrier, Svizera was obliged to pay BoI a sum calculated by applying a rate equal to the aggregate of 5.00% pa and 3.50%pa to the relevant Notional Amount for the relevant six month period (calculated on the basis of the actual number of days divided by 360).
(5) On each date due for payment, amounts due from BoI to Svizera and Svizera to BoI would be netted off (Section 2(c)(ii) of the Master Agreement and Part 4 paragraph (i) of the Schedule).
(6) If a party defaults in the performance of any payment obligation, it is required to pay interest prior to the effective designation of an Early Termination Date (as described below) on the basis of daily compounding at a rate per annum equal to the cost (without proof or evidence of actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum (Sections 2(e) and 14 of the Master Agreement).
(7) Upon the occurrence of a failure by one party to pay the other which is not remedied on or before the third New York business day after notice of such failure is given by the payee, the payee may, by not more than 20 days notice to the other party specifying the relevant default, designate a day not earlier than the day such notice is effective as an Early Termination Date, and the Early Termination Date will occur on the date so designated (Sections 5(a)(i), 6(a) and 6(c) of the Master Agreement; General Terms of the Term Sheet).
(8) Upon effective designation of an Early Termination Date, the principal payment obligations under the Restructured Swap cease to be required to be made and instead a "close out" payment is calculated and is required to be made (Sections 6(c) and 6(e) of the Master Agreement). For the purposes of calculating the "close out" payment the parties agreed that the "Second Method" and "Market Quotation" was to apply (Section 6(e) of the Master Agreement and Part 1, paragraph (f) of the Schedule).
(9) BoI was designated as the Calculation Agent (Part 4, paragraph (e) of the Schedule).
(10) The governing law of the Restructured Swap, as modified by the Term Sheet, was expressed to be English law. Pursuant to Section 13(b)(i) of the Master Agreement, the parties thereby agreed to submit to the jurisdiction of the English courts.
At all material times on and from 29 December 2009, USD-LIBOR-BBA was below the Barrier.
Subject to Svizera's case that no binding...
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