No consequential loss - GMSLA Provision
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GMSLA Anatomy™
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There’s a lovely long essay about consequential loss, at the consequential loss page. Consequential losses are not generally available as a measure of damages under a contract (historically they were excluded as a rule; nowadays the common law regard it as a simple question of whether the loss was properly caused and reasonably foreseeable; losses that are consequential in nature may be forseeable, but it will only be in unusual circumstances.
That is the general position. Specifically under the GMSLA consequential loss is expressly excluded because they are, by nature, speculative, indeterminate and not reasonably foreseeable in the context of a stock lending arrangement. By nature, parties to a stock loan do not have in mind the potential profits each other could make with the securities or collateral transferred under the loan: No Lender expects to underwrite the value of the Borrower’s lost opportunity to short if it fails to settle a Loan. Each Loan is designed to be easily cancellable at will by either party. There are specific self-help remedies for settlement failures (e.g.,Buy-Ins). It is hard to see how there could be any expectation that consequential losses would be available for breach, and it helps for the 2010 GMSLA to make that explicit. It reflects the industry expectation, and takes away the temptation, sore for many underoccupied lawyers, to argue that for some special reason — and here one should never underestimate the boundless imagination (or paranoia) of an underoccupied lawyer, particularly during the contract negotiation phase, to confabulate hypothetical special reasons[1] — that consequential loss might be appropriate in some cases.
Subject to Paragraphs 9 and 11
But what of the cagey caveat about Paragraph 9 (Failure to Deliver) and Paragraph 11 (Consequences of an Event of Default)? Search me. There is no obvious exception to the ban on consequential loss in paragraph 9, which talks about Buy-Ins and other self-help remedies which militate pretty hard against consequential damages. Likewise, Paragraph 11 goes to some lengths to articulate and itemise the termination amount calculations, all of which are focused on actually incurred expenses, and there is nothing in there that talks about loss of opportunities — see Paragraph 11.3 in particular.
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References
- ↑ I have seen it argued that a counterparty’s “fraud or wilful misconduct” is such a reason. But why? For what reason would why a contract is breached matter to the measure of damages for that breach?