Kaupthing Singer & Friedlander Ltd ((in Administration)) v UBS AG
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Smith |
| Judgment Date | 18 July 2014 |
| Neutral Citation | [2014] EWHC 2450 (Comm) |
| Date | 18 July 2014 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 20121-555 |
[2014] EWHC 2450 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Andrew Smith
Case No: 20121-555
Duncan Matthews QC and Andrew Fulton (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the Claimant
Sonia Tolaney QC (instructed by Herbert Smith Freehills) for the Defendant
Hearing dates: 25, 26, 30 June and 1 July 2014
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.
Introduction
This claim by Kaupthing Singer & Friedlander Limited ("KSF"), brought by their administrators, is in respect of US$65 million that the defendant, UBS AG ("UBS"), is said to have failed to pay under a foreign exchange transaction (the "FX trade") made on 1 September 2008. KSF were to buy US$100 million in exchange for £55,614,723.44, the respective payments to be made on 3 October 2008. The FX trade was made under a Master Agreement on the 1992 ISDA form made on 26 August 2004 (the "Master Agreement"), which was terminated on 9 October 2008 when UBS gave KSF notice of an "Event of Default" after the court had appointed administrators of KSF on 8 October 2008. KSF's case is that they duly made the sterling payment, UBS have paid only $35 million and the rest of the $100 million has not been paid. At the start of the trial, KSF's pleaded case was that "UBS continues to owe KSF the principal sum of $65,000,000 under the FX trade", and the relief claimed was "payment of US$65,000,000" (and interest and costs). Mr Duncan Matthews QC originally presented the claim on the basis that "KSF did not get paid and so UBS' US$65m payment obligation to KSF was never discharged. The claim is as simple as that, albeit that amid the challenges of a hugely complex administration … it took KSF's Administrators some time to piece this all together and to identify that UBS remained liable."
UBS pleaded in defence to the claim inter alia what I shall call the "termination defence": that, once the Master Agreement was terminated on 9 October 2008, no further payments had to be made under the Master Agreement or any transactions made under it. UBS's various other defences to KSF's pleaded claim can be gathered into these groups:
i) That they discharged their obligation with regard to the $65 million by or as a result of a payment (the "Payment") that they made on 3 October 2008 to JP Morgan Chase ("JPMC"), notwithstanding that because of a mistake on their part it was made with instructions that it be credited to the account of Kaupthing Bank hf ("Khf"), KSF's parent company: discharge defences.
ii) That they satisfied their obligation by or as a result of the close-out process under the Master Agreement: the accord and satisfaction defence.
iii) That, because of parties' understanding of their rights and obligations with regard to the FX trade and their conduct and exchanges following the Payment or in the course of the close out process (or both), KSF are precluded (whether through waiver or some form of estoppel) from enforcing the obligation to pay the $65 million: estoppel and waiver defences.
Although the dispute has an international flavour, not least because the Payment was made to JPMC in New York, it was agreed that I should decide all issues in accordance with English law and there was no evidence of foreign law.
The trial
The trial lasted only four days, but it did not run without difficulties. They arose largely from KSF's pleadings and the witness evidence that they sought to present. I must explain a pleading question concerning the termination defence in some detail at the outset (although, as I shall explain, it is not the only issue about pleadings), and for this purpose I must refer to the relevant terms of the Master Agreement. The FX trade was a part of a single agreement with the Master Agreement and other transactions under it: section 1(c) of the Master Agreement provided that "All transactions are entered into in reliance on the fact that this Master Agreement and all confirmations form a single agreement between the parties …". The payments under the FX trade were therefore to be made under section 2(a)(i) of the Master Agreement. Section 2(e) provides for payment of interest at a "Default Rate" if a party defaults in the performance of a payment obligation, the Default Rate being defined by reference to what the payee certifies would be the cost if it funded or were to fund the relevant amount, plus 1% per annum. By section 6(a) of the Master Agreement, if an "Event of Default" had occurred and was continuing with respect to one of the parties, the other party was entitled to give notice specifying an "Early Termination Date in respect of all outstanding Transactions". There is no dispute (and it is admitted by KSF on the pleadings) that UBS did give such notice and that it was effective to specify 9 October 2008 as the Early Termination Date for the Master Agreement. Section 6(c)(ii) of the Master Agreement provides that "Upon the occurrence or effective designation of an Early Termination Date, no further payments … under Section 2(a)(i) in respect of the Terminated Transactions will be required to be made …", "Terminated Transactions" being defined, as far as is relevant, as "all Transactions in effect immediately before the effectiveness of the notice designating [the] Early Termination Date". There was also no dispute that the FX trade was an "outstanding Transaction" (within the meaning of section 6(a)) and a "Terminated Transaction" (within the meaning of section 6(c)(ii)), notwithstanding that, on KSF's case, payment under it had accrued due and indeed was overdue.
In these circumstances, in place of the rights and obligations under Terminated Transactions including the FX trade, the parties' rights and obligations were governed by the formula in section 6(e) of the Master Agreement that the parties had chosen in the Master Agreement, in this case the so-called "Second Method and Loss", supplemented by section 6(d). So far as material, those sections provide as follows:
Section 6(d) –
"Calculations.
(i) Statement: On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(c) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. …
(ii) Payment Date: An amount calculated as being due in respect of any Early Termination Date under Section 6(c) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. …"
Section 6(e) –
"Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". … The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off."
(i) Events of default. If the Early Termination Date results from an Event of Default:—…
(3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Transaction Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party".
(I have included headings in setting out the sections, but they do not affect their construction: section 9(g).)
The expression "Loss" is defined in section 14 of the Master Agreement:
"'Loss' means with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of...
To continue reading
Request your trial
-
AXA S.A. v Genworth Financial International Holdings, Inc.
...as to their respective rights and obligations. Andrew Smith J adopted this statement in Kaupthing Singer & Friedlander Ltd v UBS AG [2014] EWHC 2450 (Comm), where he held that a bank would not be acting honestly (in the sense explained by Blair J) or responsibly if it knew about or even se......
-
The Cultural Foundation (doing business as American School of Dubai) v Beazley Furlonge Ltd (as managing agent for Syndicate AFB 2623/623 at Lloyd's)
...as to their respective rights and obligations. Andrew Smith J adopted this statement in Kaupthing Singer & Friedlander Ltd v UBS AG [2014] EWHC 2450 (Comm), where he held that a bank would not be acting honestly (in the sense explained by Blair J) or responsibly if it knew about or even se......
-
Ted Baker Plc and Another v Axa Insurance UK Plc and Others
...known to him to be under a mistake as to their respective rights and obligations. Andrew Smith J adopted this statement in Kaupthing Singer & Friedlander Ltd v UBS AG [2014] EWHC 2450 (Comm), where he held that a bank would not be acting honestly (in the sense explained by Blair J) or respo......
-
The View From The Bench
...as the courts have repeatedly emphasised: see, for example, Kaupthing Singer & Friedlander Ltd (in administration) v. UBS AG [2014] EWHC 2450 (Comm). What should the court do in such circumstances? One answer might be to exclude the witness statement in whole or in part and to require t......
-
Why Witness Statements Are Not Always The Place For Literary Flourish
...Smith J in his recent judgment in Kaupthing Singer & Friedlander Ltd (in administration) v. UBS AG [2014] EWHC 2450 (Comm) is not the first judge to complain of overly long witness statements. High Court judges have been heard to remark on witness statements which have been lovingly cra......
-
65 Million Reasons Never To Suffer In Silence
...Singer & Friedlander LTD (in administration) v. UBS AG [2014] EWHC 2450 (Comm) The Commercial Court (Andrew Smith J) has recently handed down judgment on an intriguing battle between UBS and Kaupthing Singer & Friedlander Ltd (in administration) (KSF) (the English subsidiary of the ......