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Greenclose Ltd v National Westminster Bank

Posted on 30/10/2014 · Posted in Financial Litigation, Interest Rate Swap

The Claimant Greenclose was a family business and the major shareholder and MD, Mr Leach, was described by the judge as an astute and sophisticated businessman who understood the nature of the products offered.

The Claimant was looking for refinancing which the Defendant bank was happy to discuss. They had some concerns about the Claimant’s ability to service the debt so made it clear that an interest rate hedge was going to be a mandatory precondition of any such arrangements. The parties entered into a 1992 ISDA (International Swaps and Derivatives Association) Master Agreement (‘ISDA MA‘) to govern these transactions and a 5 year collar was agreed. This was extendable by the Bank for 2 years, provided the prescribed notice was given to the Defendant. Five years elapsed.

The single biggest problem in communication is the illusion that it has taken place.”
George Bernard Shaw

The Bank had to give notice to extend (section 12 ISDA MA gives 5 effective means of service) by 11 am on 30 December 2011. The decision to extend was taken on 29 December and the Bank first sent a fax early on the 30 December which failed to “send“. An email was then sent to Mr Leach confirming the fax failure and stating that the Bank was exercising its right to extend. Attempts were made to call the Claimant’s office but there was no response so a voicemail was left on Mr Leach’s mobile. Mr Leach argued that he did not read the email or hear the voicemail until the following day i.e. after the deadline for effective notice had passed.

Mrs Justice Andrews noted that a primary reason for the existence of ISDA MA is to achieve “clarity, certainty and predictability” and found that s12 set out a clear procedure by which notices were to be served by one party on the other. It is a comprehensive list and unless terms are specifically varied by the parties, these are the only methods by which notice can be given. The provisions refer to “giving notice TO” rather than serving notice “ON” which the Judge found involves actual communication of the subject matter of the notice to the person who receives it. So an unheard voicemail, or an unread email would not suffice.

In general terms, Mrs Justice Andrews determined that an “email” was not a form of “electronic messaging system” within 1992 ISDA MA as later legislation (2002 ISDA MA) specifically provides that notice may be given by email and the parties had specifically chosen the earlier provisions. The Judge found in favour of the Claimant i.e. that notice had not been effectively served by the Bank.

This case highlights the importance of complying with mandatory clauses contained in standard form contracts intended to be relied on by the market to provide certainty.

Link: Greenclose Ltd v National Westminster Bank Plc [2014] EWHC 1156 (Ch)

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