Jp Morgan Chase Bank (formerly Known as The Chase Manhattan Bank)(a Body Corporate)and Others v Springwell Navigation Corporation (a Body Corporate) and by Counterclaim
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE GLOSTER, DBE,Mrs Justice Gloster |
| Judgment Date | 25 July 2008 |
| Neutral Citation | [2008] EWHC 1793 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2001-404 |
| Date | 25 July 2008 |
[2008] EWHC 1793 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Gloster, Dbe
Case No: 2001-404
Mark Hapgood Esq, QC, Adrian Beltrami Esq QC,Ms Catherine Gibaud and James MacDonald Esq (instructed by Clifford Chance LLP) for JP Morgan Chase Bank and other JP Morgan Chase entities
Michael Brindle Esq, QC, Andrew Baker Esq, QC, Nicholas Lavender Esq QC and Jonathan Davies-Jones Esq (instructed by Reed Smith Richards Butler LLP) for Springwell Navigation
Hearing dates: 17 th-19 th April 2007; 23 rd-25 th April 2007; 2 nd-3 rd May 2007; 8 th-10 May 2007; 15 th-18 th May 2007; 21 st-24 th May 2007; 4 th-8 th June 2007; 11 th-14 th June 2007; 18 th-21 st June 2007; 26 th-28 th June 2007; 2 nd-5 th July 2007; 9 th-12 th July 2007; 16 th-19 th July 2007; 23 rd-27 th July 2007; 30 th-31 st July 2007 1 st—3 rd August 2007; 24 th-28 th September 2007; 8 th-12 th October 2007; 15 th-17 October 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.
Section I: The Post-Default Claims 3
Introduction 3
Key Issues arising on the Post-Default Claims 4
Section II: The Failed Notes and their terms 5
Section III: Relevant background relating to the Post-Default Note Claims 17
Introduction 17
The pre-default position in Russia 17
The Russian Default Measures 18
The impact of the default on the market 23
Dealings between Springwell and Chase in the aftermath of the crisis 24
The first GKO exchange offer 28
The second GKO exchange offer 32
Post-exchange events 38
Chase's actual performance in respect of the Failed Notes 40
Section IV: The Payment Claim – issues 51 and 52 41
The respective arguments of the parties 41
Springwell's arguments 41
Chase's arguments 45
Analysis in relation to Issues 51 —53 46
Estoppel 56
Conclusions 57
Section V: The Account Claim – Issues 55 —58 58
The Sberbank Local Forwards 58
The CMBI Forwards 59
Conclusion 60
Section VI: The Damages Claim – Issues 59 —61 60
Introduction 60
The scope of Chase's duty of care, and the meaning of gross negligence 61
Wilful Misconduct 65
The CMBI Forwards 65
The Damages Claim in relation to the non-CMBI risk forwards 65
The Damages Claim in relation to the CMBI risk forwards 67
Springwell's arguments 67
Chase's arguments 69
Analysis 69
Chase's conduct during the Moratorium 70
The allegation that Chase should have set up separate CMIL and CMBI negotiating teams 72
The allegation that CMSCI/CMIL acted with wilful misconduct or with gross negligence in declaring force majeure 74
The allegation that Chase was guilty of wilful misconduct or gross negligence in failing to place roubles in the S-Account 78
The Damages Claim in relation to the two VTB forwards 78
Conclusion in relation to the Damages Claim 78
Section VII: The Custody Fees Claim – Issues 47 —50 79
Introduction 79
Analysis of the Evidence 81
Reliance 82
FS's Authority 83
Legal consequences of the representation 84
Conclusion in relation to the Custody Fees Claim 84
Postscript 84
Mrs Justice Gloster:
Section I: The Post-Default Claims
Introduction
This judgment follows on from my earlier judgment in this matter, handed down on 27 May 2008 (“the first judgment”). The first judgment sets out the parties and the necessary factual background for the purposes of this judgment. Definitions used in this judgment are the same as those used in the first judgment. This judgment deals with the Post-Default Claims made by Springwell, namely those arising out of the events of, and subsequent to, 17 August 1998 (the date of the Russian default) and their consequences.
The first category of Post-Default Claims is the Custody Fees Claim. Under this head, Springwell claims reimbursement or damages in respect of custody fees allegedly wrongly charged by Chase between March 2000 and March 2001 for holding collateral, in respect of a term loan granted by CMB to Springwell, in safe custody in Jersey. This claim is relatively minor in comparison to the other claims in this case; it is for $445,472.13 plus interest1. Because of its lesser significance, I shall deal with it after my consideration of the second category of Post-Default Claims, namely the Post-Default Note Claims.
The Post-Default Note Claims comprise the following:
i) a claim that CMSCI was and remains obliged to pay Springwell the full amount of the Principal Amount plus Interest (as defined in the Note) allegedly due under the eleven GKO-Linked Notes (referred to as “the Failed Notes” or simply “Notes”), which Springwell held as at 17 August 1998; in aggregate this claim amounts to some $95,259,716 (“the Payment Claim”) 2; this claim is made on the alleged basis that, because Chase failed to exercise options available to it under the terms of the Notes, the Redemption Amounts (as defined in the Notes) were due in sums equal to the Principal Amounts plus interest;
ii) in the alternative, a claim for a full account of sums received by CMSCI or any affiliate in respect of certain Transactions referred to in the Failed Notes (“the Account Claim”);
iii) also in the alternative to the Payment Claim, a claim for damages in respect of CMIL's failure (acting on behalf of CMSCI) to secure value, alternatively greater value, from Designated Forward Transactions referred to in the Failed Notes between CMIL and CMBI, alternatively VTB (“the Damages Claim”).
The Post-Default Claims arise independently of the Pre-Default Claims. Thus the fact that I have held that Chase is not liable in respect of any of the Pre-Default Claims does not affect the outcome of the Post-Default Claims. Likewise, given my decision
in relation to the Pre-Default Claims, no issue arises as to whether, as Chase contended, quantum in relation to the Pre-Default Claims should be affected by the outcome of the Post-Default Claims.Key Issues arising on the Post-Default Claims
The List of Issues sets out the following issues arising on the Post-Default Claims:
“4.1 Custody Fees
47. Did Chase by FS and Springwell by SP agree in the course of negotiating the Term Loan Agreement and the provision of collateral in relation to it that no custody fees would be charged to Springwell? What, in any event, was the scope of FS's authority?
48. If so, did Springwell enter into the Term Loan Agreement, Nominee Agreement and Security Interest Agreement in reliance upon FS's statement that no custody fees would be charged?
49. In the light of paragraphs 47 and 48 above
(1) Was there an agreement binding Chase that custody fees would not be charged to Springwell; or
(2) Is Chase estopped from asserting that it was entitled to deduct custody fees?
50. In the light of paragraphs 47 to 49 above, to what, if any, relief is Springwell entitled in respect of the custody fees charged to it in 2000/2001?
4.2 The Post-Default Note Claims
4.2.1 Payment Claim
51. What is the effect, upon CMSCI's obligations under the Failed Notes, of a failure of the GKOs, Designated Forward Transactions or (where applicable) Local Forwards to perform on their due dates?
52. Did the GKO-Related Payments discharge CMSCI's obligations under the Failed Notes?
53. Is Springwell precluded from claiming that anything is due under the Failed Notes because either CMB or Springwell itself became estopped from so asserting?
54. If the Payment Claim is well founded, how should credit be given for the GKO Related Payments (against the claim for the aggregate Note Redemption Amount of US$ 95,259,716 plus interest)?
4.2.2 Account Claim
55. Has Chase properly accounted for the Sberbank settlement, as regards (1) tax, (2) the fact that CMBI was “short” Sberbank NDFs, and (3) interest?
56. If not, what further sum should be paid or other relief granted?
57. Has Chase properly accounted in respect of the Chase Forwards?
58. If not, what further sum should be paid or other relief granted?
4.2.3 Damages Claim
59. What was CMSCI's obligation, under the Failed Notes, in dealing with the Chase and VTB Forwards?
60. Did CMSCI (acting by CMIL) act:
(1) in bad faith or with wilful misconduct or with gross negligence in failing to procure performance or a fair settlement of the Chase Forwards, and/or
(2) with gross negligence in failing to procure performance or a fair settlement of the VTB Forwards?
61. If so:
(1) What (if any) net value should have been realised from the Chase Forwards?
(2) How much more value (if any) should have been realised from the VTB Forwards?
(3) What (if any) sum should be awarded in damages?
Section II: The Failed Notes and their terms
As already described in the first judgment, by 17 August 1998, the date of the Russian Default, Springwell held 11 GKO-Linked Notes in its portfolio, with a total purchase cost of $ 87,837,270 and a nominal maturity, or redemption, amount of $ 95,259,71The Failed Notes were purchased during the period from 23 November 1997 to 21 July 1998. Detailed information relating to the Failed Notes was set out in Appendix I to Springwell's closing submissions...
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