Commercial Court evaluates the mechanism for calculating “close-out amounts” in transactions for derivatives under the 2002 International Swaps and Derivatives Association Master Agreement


In Lehman Brothers Special Financing Inc. v National Power Corporation and another [2018], the Commercial Court was tasked with evaluating the mechanism for calculating “close-out amounts” in transactions for derivatives under the 2002 International Swaps and Derivatives Association Master Agreement (“2002 ISDA”). The 2002 ISDA is a standard market agreement used to set out the standard terms in transactions for derivatives; this replaced the 1992 ISDA Agreement (“1992 ISDA”). The 2002 ISDA is used widely in international markets for sales of derivatives including bonds, stocks and commodities.

In this case, the Court was faced with two challenging questions:

  1. Can a determining party make a second determination of a close-out amount?
  2. Does the 2002 ISDA impose an obligation on the determining party to act in an objectively reasonable manner (as opposed to a “rational” manner as stated under the 1992 ISDA)?

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The Court looks again at the rights of third parties identified in FCA notices

In the recent case of FCA -v- Grout [2018] EWCA Civ 71, the Court of Appeal confirmed the restrictive approach to third party rights pursuant to FCA notices previously laid down by the Supreme Court in Macris -v- FCA [2017] UKSC 19. We previously reported on the Macris decision on its way to the Supreme Court and following the judgment.

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Singularis Holdings Limited – beware of Quincecare

Over 25 years ago, the case of Barclays Bank Plc v Quincecare [1992] 4 All ER 363 established that a bank owes a duty of care to both its customer and third parties to protect against fraud. In summary, a bank will be liable if it has reasonable grounds for believing that a payment it makes will be defrauding the customer.

The case of Singularis Holdings Limited v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch) was significant, as it was the first instance in which a bank was found to have breached a “Quincecare duty”. The recent appeal of Mrs Justice Rose’s judgment in this case was unsuccessful in the Court of Appeal. An brief analysis of the judgment, as well as the associated implications for financial institutions, is detailed below.

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Mastercard, the next instalment. The retailer strikes back

The previous four episodes of the Mastercard saga (as detailed in our previous blog posts) focussed on a number of legal battles between Mastercard and both consumers and retailers.

These disputes have centred on Mastercard’s alleged “uncompetitive” interchange fees and restrictive rules on cross-border acquiring. The latest claim by retailers follows a class action brought on behalf of consumers under the Consumer Rights Act 2015 in relation to the same charges.

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The FCA speaks on building cyber resilience

The FCA’s Business Plan for 2017/18 identified cyber risk as a cross sector priority for the FCA.  In keeping with the FCA’s drive to encourage firms to acknowledge, confront and manage cyber risk,  at the PIMFA Financial Crime Conference  on 25 January 2018, Robin Jones (Head of Technology, Resilience & Cyber, FCA) delivered a warning that along with the benefits of technological innovation come threats of increasingly sophisticated cyber-attacks. The most common are data thefts and attacks on company systems.

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FCA fines a online broker over £1 million for market abuse control failures

On 25 January 2018, the FCA  fined Interactive Brokers (UK) Limited (“IBUK“) just over £1 million for “serious and systemic weaknesses” arising out of poor market abuse controls and failing to report suspicious client transactions during February 2014 to February 2015 (“Relevant Period“).

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The watchdog sniffs out CFDs

The Financial Conduct Authority (“FCA”) has recently turned its attention to firms who may mis-sell contracts for difference (“CFDs”) to customers. The FCA says that it has  a “serious concern” about the market.

On 12 January 2018, following a 12 month review of the CFD market,  the FCA issued an ominous warning in the form of a “Dear CEO” letter addressed to to providers and distributors of CFD products consumers which was headed “resolving failings which may cause significant harm“.

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Look Back In Anger: FCA Enforcement in 2017

During 2017, the FCA imposed fines for misconduct on regulated businesses and individuals totalling over £229,500, 000.

Whilst 2017 did not see a return to the number or size of fines imposed by the FCA in  2014/2015 (when billions of pounds of fines were imposed following interbank rate and FX related misconduct), the year did see a tenfold increase in FCA fines from 2016 (total fines of just over £22 million). And the FCA has said that the era of big fines is not at an end and that if it sees conduct worthy of a big fine then it will vigorously pursue offenders.

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