Good news for hedge counterparties & lenders:

The recent Videocon Global Limited v Goldman Sachs International case has confirmed that a hedge provider’s delay in giving its counterparty supporting calculations in relation to termination amounts payable to the hedge provider did not render the original termination notice ineffective nor allow the counterparty to get out of paying those amounts.  While the case relates to hedge termination payments, the principles should have broader application to amounts which a lender may need to calculate under a facility agreement.

Facts
Videocon Global Limited (VGL) entered into an ISDA Master Agreement (ISDA) with Goldman Sachs International (GSI) and entered into a currency swap transactions under it. GSI terminated the ISDA and the swap transactions as a result of an Event of Default arising from VGL’s failure to meet margin calls.

This entitled GSI to give notice of an “early termination date” under the ISDA and to calculate the termination amount (or “settlement amount”) payable. GSI provided such notice to VGL on 14 December 2011 - the settlement amount which VGL was required to pay to GSI was £4,000,000.  VGL did not pay and GSI sought summary judgment. 

VGL argued, among other things, that the conditions to VGL making the termination payment had not been met and that the settlement amount was not payable because GSI provided its settlement amount calculations two years after the “early termination date” which was not “on as or soon as reasonably practicable” following the “early termination date” as required under the ISDA.

Decisions
The Court of Appeal found that

  • the 14 December 2011 notice delivered by GSI to VGL stating that the settlement amount as £4,000,000 was adequate “notice of the amount payable” for the purposes of the ISDA, whether or not it contained calculations of that amount;
  • VGL still had to pay the settlement amount to GSI even though GSI’s calculations of that amount were provided late; and
  • VGL could pursue a counterclaim against GSI in damages if the notification and/or late delivery of supporting calculations had caused it loss.

Comment
The Videocon case relates to settlement amounts under an ISDA but the principles should have broader application: for example, to break costs or increased costs which a lender may need to calculate under a facility agreement.

Even though the outcome of the case is positive for hedge providers and lenders, they should still be mindful of providing notices and (if required) supporting calculations in a timely manner.  This is no doubt both good practice and it will also minimise or avoid any potential liability if late delivery would breach the relevant agreement and cause their counterparty or borrower to incur a loss.

If you would like any further information on the case or its application to your financing arrangements, please contact Jonathan Porteous, Head of Banking & Finance at Stevens & Bolton LLP.

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Jonathan Porteous

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