Bear Stearns Bank Plc v Forum Global Equity Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ANDREW SMITH |
| Judgment Date | 05 July 2007 |
| Neutral Citation | [2007] EWHC 1576 (Comm) |
| Docket Number | Case No: 2005 1083 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 July 2007 |
[2007] EWHC 1576 (Comm)
Mr Justice andrew Smith
Case No: 2005 1083
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Christopher Harrison (instructed by Simmons & Simmons) for the Claimant
Paul Greenwood (instructed by Masseys LLP) for the Defendant
Hearing dates: 14, 15, 16, 20, 21, 22, 23, 24 and 25 May and 28 June 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Andrew Smith:
The main issue in this case is whether the claimants (to whom I shall refer as “Bear Stearns”) concluded a contract with the defendants (to whom I shall refer as “Forum”) that Bear Stearns would acquire from Forum some distressed debt by way of notes issued by companies in the Parmalat group. Bear Stearns say that such a contract was concluded on 14 July 2005 in a telephone conversation between Mr. Francesco Franzese (for Bear Stearns) and Mr. Paolo Pasquali (for Forum), or at any rate that it had been concluded by some time in October 2005. They also say that if no contract was made, nevertheless Forum are precluded from denying it because of an estoppel by convention. Forum deny the contract and deny that they are subject to any estoppel.
Originally Bear Stearns sought an order for specific performance of the contract, but they no longer pursue that claim. They seek damages based upon the value of shares which were issued in the administration of the Parmalat group. The damages claim gives rise to two issues between the parties:
i) Whether the assessment of damages should bring into account a contract between Bear Stearns and Morgan Stanley whereby Bear Stearns sold on to Morgan Stanley half of their interest in the notes.
ii) Whether damages are to be assessed by reference to the value of the shares when Forum declined to proceed with the sale in October 2005 or whether they should be assessed by reference to their value in August or September 2006 when Bear Stearns learned that Forum had disposed of the shares, and as a result abandoned their claim for specific performance.
The market in distressed debt
The economic conditions in Europe in the 1990's encouraged the development of a market in “distressed” corporate debt, which was subject to a default of some kind and which was bought and sold at a discount from its face value. From the start European-based traders concentrated on buying debt from original buyers and looking to sell it to investment banks and money managers in the United States, including Bear Stearns.
In 1995 the United States organisation, the Loan and Syndications Trading Association (“LSTA”), issued recommended best practice for loan trading, including standard terms and conditions and standard documentation and forms. The Loan Market Association (“LMA”) was formed in London in December 1996, its aims being, among others, to standardise and simplify the sale of loan assets and to establish standard settlement practices, and the LMA too issued standard terms and conditions, documentation and forms. The Asian Pacific Loan Market Association (“APLMA”) based in Hong Kong is directed to trading in the Far East.
Bear Stearns say that relevant in this case are some LMA standard terms entitled “Standard Terms and Conditions for Distressed Trade Transactions (Bank Debt/Claims)”, and I refer to the October 2001 version of them (the “LMA terms”), which was current at all times between July and October 2005. The LMA terms themselves state that they apply to “a distressed trade transaction in respect of which they are incorporated by reference”, and a distressed trade transaction is said to be:
“A transaction for the sale or participation of a loan or other form of credit, or participation in a credit facility or a claim in relation to any of the foregoing, which the parties to a transaction, by applying these Conditions, designated as a distressed loan or other form of credit or claim at the time of trade”.
The LMA terms, like those of the LSTA, provide that prima facie a contract is concluded upon oral agreement of its terms. This is hardly surprising given that trades are made in a fluctuating market: there can be considerable movement in the market while documentation for a deal is being agreed. Thus Clause 2 of the LMA terms provides under the heading “Contract Point” that:
“A binding contract for the sale or participation by the Seller to the Buyer of the Purchased Asset shall, unless otherwise specified in the Agreed Terms, come into effect between the Buyer and the Seller upon oral agreement of the terms on the Trade Date and shall be documented and completed in accordance with [specified conditions]. The Seller and the Buyer acknowledge that events occurring subsequent to the Trade Date shall not relieve the parties of their obligations under the Confirmation”.
The expression “Agreed Terms” is defined as “the terms agreed between the Buyer and the Seller in relation to the transaction, as evidenced by the Confirmation”.
Clause 3 of the LMA terms deals with recording agreements in written confirmations. It provides:
“Unless otherwise specified in the Agreed Terms the Responsible Party [who, in this context, is the party who is responsible for preparing the Confirmation as agreed between the Seller and the Buyer on the Trade Date] shall send to the Other Party a form of Confirmation, duly completed, signed on behalf of the Responsible Party and in the form most recently published by the LMA, not later than the second business day after the Trade Date and the Other Party shall sign, and return to the Responsible Party, the Confirmation not later than the fourth business day after the Trade Date. The Other Party shall immediately and, in any event, not later than the close of business on the third business day after the Trade Date, raise with the Responsible Party any disagreement with any of the terms of such confirmation”.
Thus the LMA terms contemplate that a “Confirmation” should pass between the parties after a trade has been agreed. As clause 3 indicates, the LMA publishes standard forms of Confirmation. They provide for confirmation of the details of the agreement, including for example the settlement date and the “form of purchase” (that is to say, whether it is to be completed by way of a transfer of the asset or in some other way) and other matters, some relatively minor such as the parties' process agents and who is to prepare the documentation. The standard form is not intended to be prescriptive: the form itself states that it should be used as a starting point for negotiation.
Clause 4 of the LMA terms is concerned with transactions that are subject to conditions and (to paraphrase sufficiently for the purposes of this judgment) requires the parties to seek to ensure that they are fulfilled and envisages that if necessary the settlement of the deal will be postponed to achieve this.
There is no express requirement in the LMA terms that a settlement date must be agreed before a deal is binding, and clause 8 provides for a settlement date twenty business days after the trade date in default of the parties agreeing otherwise.
The LMA published a “User Guide”, the purpose of which was stated to be “to assist users in their use of the package of standard form documentation for distressed trading…”. In July 2005, it contained the following passages:
i) “…it is not expected that the Standard Terms and Conditions will themselves be amended. If there are any changes to be made these should be set out in the Confirmation. Users must ensure that any proposed changes … are clearly highlighted to their counterparty before the trade is entered into, otherwise they will be bound by the standard (i.e. unamended) forms”.
ii) “…the Confirmation is designed to record the terms of the actual trade which takes place on an oral agreement as to its terms. It is therefore expected that users will agree, at the time of the oral trade, all of those matters which are required in order to complete the Confirmation. Having the form of Confirmation to hand (or on screen) and filling it in during the course of the oral trade would therefore appear to be the safest option”.
A further document, which is published by the LMA together with the LSTA, is a Comparative Study of the standard distressed trade documentation produced by the LMA and the LSTA. It is the work of Clifford Chance LLP and Hunton & Williams LLP, and is dated January 2007. I was referred to these passages about trading covered by the LMA regime:
i) The Confirmation is described as “the core document setting forth the terms and conditions by which the Seller and the Buyer have agreed to be bound, and together with any additional transfer document called for in the Form of Purchase is meant to be read as an integrated whole”.
ii) “Assuming the material points of a trade are agreed at the point of a telephone trade (i.e. name and amount of debt, price, Interest Convention, Form of Purchase and LMA terms), an LMA trade will be binding at the point of oral agreement of the terms”. (“Interest Convention” refers to the manner in which Accrued Interest will be accounted for between Buyer and Seller. It is not contended that this has any significance in this case.)
iii) “Key information that will always need to be included [in the Confirmation] will be the pricing information, the Interest Convention (which will determine entitlement to interest and Recurring Fees) and Form of Purchase. The Form of Purchase falls into two categories: (1) a Legal Transfer (meaning that the Seller transfers legal and...
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