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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> BNP Paribas v Wockhardt EU Operations (Swiss) AG [2009] EWHC 3116 (Comm) (03 December 2009) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2009/3116.html Cite as: 132 Con LR 177, [2009] EWHC 3116 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
BNP PARIBAS |
Claimant |
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- and - |
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WOCKHARDT EU OPERATIONS (SWISS) AG |
Defendant |
____________________
Antony White, QC (instructed by Reed Smith) for the Defendant
Hearing date: 18th November 2009
____________________
Crown Copyright ©
Mr Justice Christopher Clarke :
"BNP Paribas and Wockhardt EU Operations (Swiss) AG have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this 2002 Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties or otherwise effective for the purpose of confirming or evidencing those Transactions. This 2002 Master Agreement and the Schedule are together referred to as this "Master Agreement",
Accordingly, the parties agree as follows:-
1. Interpretation
...
(c) Single Agreement. All transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions.
2 Obligations
(a) General Conditions
(i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.
5 Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party of any of the following events constitutes (subject to Sections 5(c) and 6(e)(iv)) an event of default (an "Event of Default") with respect to such party:-
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a) (i) or 9(h) (i) (2) or (4) required to be made by it if such failure is not remedied on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in the case of any such delivery after, in each case, notice of such failure is given to the party;
6 Early Termination; Close-Out Netting
(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions.
(c) Effect of Designation
(i) If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2 (a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h) (ii).
(d) Calculations; Payment Date.
(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(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations, market data or information from internal sources used in making such calculations), (2) specifying any Early Termination Amount payable and (3) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such quotation or market data.
(ii) Payment Date. An Early Termination Amount due in respect of any Early Termination Date will, together with any amount of interest payable pursuant to Section 9(h) (ii) (2), be payable (1) on the day on which 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
(e) Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect of that Early Termination Date (the "Early Termination Amount") will be determined pursuant to this Section 6(e) and will be subject to Section 6(f).
(i) Events of Default. If the Early Termination Date results from an Event of Default, the Early Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of the Close-out Amount or Close-Out Amounts (whether positive or negative) determined by the Non-defaulting Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party less (2) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early Termination 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 the Early Termination Amount to the Defaulting Party.
(v) Pre-Estimate. The parties agree that an amount recoverable under this Section 6 (e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither party will be entitled to recover any additional damages as a consequence of the termination of this Agreement or any Transaction or for any claim arising out of or in connection with this Agreement or any Termination[1].
14 Definitions
"Close-out Amount" means, with respect to each Terminated Transaction or each group of Terminated Transactions and a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be realised under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the Determining Party the economic equivalent of, (a) the material terms of that Terminated Transaction or group of Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of the Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated Transactions.
Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transactions but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early Termination Date as would be commercially reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-of-pocket expenses referred to in Section 11 are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without limitation, one or more of the following types of information:-
(i) quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms of any relevant documentation, including credit support documentation, between the Determining Party and the third party providing the quotation;
(ii) information consisting of relevant market data in the relevant market supplied by one or more third parties including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other relevant market data in the relevant market; or
(iii) information of the types described in clause (i) or (ii) above from internal sources (including any of the Determining Party's Affiliates) if that information is of the same type used by the Determining Party in the regular course of its business for the valuation of similar transactions.
The Determining Party will consider, taking into account the standards and procedures described in this definition, quotations pursuant to clause (i) above or relevant market data pursuant to clause (ii) above unless the Determining Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would produce a result that would not satisfy those standards. When considering information described in clause (i), (ii) or (iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not be a component of the other information being utilised. Third parties supplying quotations pursuant to clause (i) above or market data pursuant to clause (ii) above may include, without limitation, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources of market information.
Without duplication of amounts calculated based on information described in clause (i), (ii) or (iii) above, or other relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider in calculating a Close-out Amount any loss or cost incurred in connection with its terminating, liquidating or re-establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting from any of them).
Commercially reasonable procedures used in determining a Close-out Amount may include the following:-
(1) application to relevant market data from third parties pursuant to clause (ii) above or information from internal sources pursuant to clause (iii) above of pricing or other valuation models that are, at the time of the determination of the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction or group of Terminated Transactions; and
(2) application of different valuation methods to Terminated Transactions or group of Terminated Transactions depending on the type, complexity, size or number of Terminated Transaction or group of Terminated Transactions.
"Terminated Transactions" means with respect to any Early Termination Date .(c ) if resulting from an Event of Default, all Transactions in effect immediately before the effectiveness of the notice designating the Early Termination Date ."
"Transaction" has the meaning specified in the preamble
"Unpaid Amounts" owing to any party means, with respect to an Early Termination date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or 2(d)(i)(4) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date".
(a) unpaid amounts already due under specific forward deals amounting (as at 22 April 2009) to US$1,260,090 ("the Unpaid Amounts") and
(b) a Close-out Amount of US$890,480 ("the Close-out Amount").
The original defence
The amendment
Commercially reasonable
Confirmation No Date Present Value
8047786 10.6.08 $ 168,590
8049387 1.7.08 $ 322,790
8051599 29.7.08 $ 434,800
$ 926,180
Penalty
Approach
" on general principles the court should not be astute to interpret commercial transactions so as to invalidate them, particularly when consequential doubt might be cast on other long-standing commercial arrangements": Perpetual Trustee Co Ltd v BNY Corporate Trustees Services and another; Belmont Park Investments Pty Ltd v Corporate Trustee Services Ltd and another [2009] EWHC 1912 (Ch) per Sir Andrew Morritt, QC.
"It is also desirable that, if possible, the courts give effect to contractual terms which the parties have agreed. Indeed there is a particularly strong case for party autonomy in cases of complex financial instruments " per the Master of the Rolls at para 58 of the Butters appeal [2009] EWCA Civ 1160.
" the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression"; per Dickson J in the Supreme Court of Canada in Elsey v J.G. Collins Insurance Agencies Ltd [1978] 83 DLR 1, p 15. , approved by the Privy Council in Phillips Hong Kong Ltd v AG of Hong Kong [1993] 61 BLR 49, p 58.
Time of the essence
"In Re Olympia & York Canary Wharf Ltd (No 2) [1993] BCC 159 Morritt J, as he then was, considered the authorities relating to the making of time of the essence. From that analysis and other authority I derive the following propositions:
(a) Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But Equity's patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity's interference with the contract. Behzadi v Shaftesbury Hotels [1992] Ch 1;
(b) Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;
(c) Such a notice must state clearly what the other party is required to do and the consequence if he fails i.e. that the contract may be terminated; Afovos Shipping v Pagnan [1982] 1 WLR 848,854C;
(d) If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;
(e) The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council [1978] A.C. 904, 946E 947A; Astea (UK) Ltd v Time Group Ltd http://www.bailii.org/ew/cases/EWHC/TCC/2003/725.html[2003] EWHC 725, TCC, para 147 -
"It remains true, as Lord Roskill has pointed out in Cehave NV v Bremer Handelsgesellshaft m b H (The Hansa Nord) [1976] QB 44, that courts should not be too ready to interpret contractual clauses as conditions But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition. "
Indicators
Conclusion
Note 1 This clause is set out as amended from the standard form by Part 5 (e) of the Schedule. [Back]