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 {{ | In a significant decision for the derivatives market, the Court of Appeal resolved the uncertainty surrounding the interpretation of the {{1992isda}}. | ||
== Facts == | == Facts == | ||
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*The Court of Appeal resolved the question of whether, if a non-defaulting party’s obligations are suspended under Section 2(a)(iii), it can nevertheless enforce the defaulting party’s obligations under Section {{isdaprov|2(c)}} without giving credit for the suspended obligations. In {{casenote|Pioneeer|Cosco}}, Flaux J had argued that payment netting is not available in these circumstances. Conversely, in {{casenote|Marine Trade|Pioneer}}, Gloster J, held that the payment netting provisions apply to any sums that would be payable in the ordinary course of events. | *The Court of Appeal resolved the question of whether, if a non-defaulting party’s obligations are suspended under Section 2(a)(iii), it can nevertheless enforce the defaulting party’s obligations under Section {{isdaprov|2(c)}} without giving credit for the suspended obligations. In {{casenote|Pioneeer|Cosco}}, Flaux J had argued that payment netting is not available in these circumstances. Conversely, in {{casenote|Marine Trade|Pioneer}}, Gloster J, held that the payment netting provisions apply to any sums that would be payable in the ordinary course of events. | ||
*The Court upheld the approach of Gloster J, holding that it is the payment obligation alone which is suspended. The underlying debt obligation under Section {{isdaprov|2(a)(i)}} remains irrespective of Section {{isdaprov|2(a)(iii)}}. Section {{isdaprov|2(c)}}, however, will only apply to payments falling due on the same date. | *The Court upheld the approach of Gloster J, holding that it is the payment obligation alone which is suspended. The underlying debt obligation under Section {{isdaprov|2(a)(i)}} remains irrespective of Section {{isdaprov|2(a)(iii)}}. Section {{isdaprov|2(c)}}, however, will only apply to payments falling due on the same date. | ||
*Similarly, the Court of Appeal held that where there is an {{isdaprov|Early Termination Event}}, under the definition of {{isdaprov|Market Quotation}} the condition precedent in Section {{isdaprov|2(a)(iii)}} is assumed to be satisfied for all transactions that remain in effect and the {{isdaprov|Defaulting Party}} therefore obtains the benefit of the suspended payments and deliveries in the close-out calculation. The {{ | *Similarly, the Court of Appeal held that where there is an {{isdaprov|Early Termination Event}}, under the definition of {{isdaprov|Market Quotation}} the condition precedent in Section {{isdaprov|2(a)(iii)}} is assumed to be satisfied for all transactions that remain in effect and the {{isdaprov|Defaulting Party}} therefore obtains the benefit of the suspended payments and deliveries in the close-out calculation. The {{1992isda}} therefore provides for netting off of payments, both throughout the life of transactions under section {{isdaprov|2(c)}} and on {{isdaprov|Early Termination}} or {{isdaprov|Automatic Early Termination}} under section 6. | ||
===[[Anti-deprivation]] and [[pari passu]]=== | ===[[Anti-deprivation]] and [[pari passu]]=== | ||
The Court of Appeal held that the operation of Section {{isdaprov|2(a)(iii)}} does not offend the anti-deprivation or pari passu rules. | The Court of Appeal held that the operation of Section {{isdaprov|2(a)(iii)}} does not offend the anti-deprivation or pari passu rules. | ||