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Lomas v Firth Rixson: Difference between revisions
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In a significant decision for the derivatives market, the Court of Appeal resolved the uncertainty surrounding the interpretation of the {{1992isda}}. | {{cn}}In a significant decision for the derivatives market, the Court of Appeal resolved the uncertainty surrounding the interpretation of the {{1992isda}}. | ||
===Facts=== | |||
All the appeals in Lomas v JFB Firth Rixson, Inc, concerned the operation of {{isdaprov|Section 2(a)(iii)}} of the {{isdama}}. The first two cases, arising from the collapse of {{tag|Lehman}} Brothers, concerned transactions where the counterparties had opted to withhold payments under section 2(a)(iii). The second two cases considered {{isdaprov|Events of Default}} under [[forward freight agreement]]s (FFAs). Although the FFAs terminated under the {{isdaprov|Automatic Early Termination}} provisions, the appeals considered which amounts should be included in the termination calculations and in particular whether withheld payments under section 2(a)(iii) should be taken into account. | All the appeals in Lomas v JFB Firth Rixson, Inc, concerned the operation of {{isdaprov|Section 2(a)(iii)}} of the {{isdama}}. The first two cases, arising from the collapse of {{tag|Lehman}} Brothers, concerned transactions where the counterparties had opted to withhold payments under section 2(a)(iii). The second two cases considered {{isdaprov|Events of Default}} under [[forward freight agreement]]s (FFAs). Although the FFAs terminated under the {{isdaprov|Automatic Early Termination}} provisions, the appeals considered which amounts should be included in the termination calculations and in particular whether withheld payments under section 2(a)(iii) should be taken into account. | ||
== Decision == | ===Decision=== | ||
'''Section {{isdaprov|2(a)(iii)}}''': Suspension or one time only? | |||
'''Section 2(a)(iii)''': Suspension or one time only? | |||
*The Court of Appeal held that the operation of Section {{isdaprov|2(a)(iii)}} has the effect of suspending (potentially indefinitely) the non-defaulting party's payment obligations. These obligations remain suspended for as long as the Event of Default is continuing, or until the non-defaulting party elects to terminate. | *The Court of Appeal held that the operation of Section {{isdaprov|2(a)(iii)}} has the effect of suspending (potentially indefinitely) the non-defaulting party's payment obligations. These obligations remain suspended for as long as the Event of Default is continuing, or until the non-defaulting party elects to terminate. | ||
*This decision ends a judicial debate that commenced with Flaux J’s decision in {{casenote|Pioneer|Cosco}}. Flaux J held that even if the {{isdaprov|Event of Default}} or {{isdaprov|Potential Event of Default}} ceases to exist, performance does not become due. The obligation is effectively extinguished. Contrastingly, in {{casenote|Pioneer|TMT}}, Gloster J argued that the payment obligation arises as soon as there ceases to be an {{isdaprov|Event of Default}} or {{isdaprov|Potential Event of Default}}. | *This decision ends a judicial debate that commenced with Flaux J’s decision in {{casenote|Pioneer|Cosco}}. Flaux J held that even if the {{isdaprov|Event of Default}} or {{isdaprov|Potential Event of Default}} ceases to exist, performance does not become due. The obligation is effectively extinguished. Contrastingly, in {{casenote|Pioneer|TMT}}, Gloster J argued that the payment obligation arises as soon as there ceases to be an {{isdaprov|Event of Default}} or {{isdaprov|Potential Event of Default}}. | ||