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MHB-Bank v Shanpark.

Posted on 13/07/2015 · Posted in Expert Witness, Financial Litigation, Investment

Although there are 3 defendants in this action, the facts were all essentially the same in relation to each defendant, and Mr Justice Cooke focussed on Shanpark in his judgement.

Shanpark had entered into a loan agreement with Anglo-Irish Bank (later Irish Bank Resolution Corporation-‘the Bank’). In order to hedge its interest rate risk on loans drawn down under the Loan Agreement, Shanpark had entered into related swaps with the Bank under a 1992 ISDA Master Agreement.

In February 2013 the Bank went into liquidation in Ireland, which constituted an Event of Default. Shanpark repaid all its loans in full in December 2013. However, the repayment constituted an Additional Termination Event under the Master Agreement resulting in an Early Termination Amount (‘ETA‘) becoming due. The amount was not disputed. As part of its winding-up, the Bank had assigned its claim against Shanpark for the ETA to MHB-Bank. MHB-Bank instituted these proceedings for the ETA in June 2014.

Previously (in November 2013) Shanpark had separately sued the Bank for alleged mis-selling of the swaps, and now sought to set-off its unliquidated damages claim for mis-selling, against MHB-Bank’s claim in these proceedings.

All money is a matter of belief. .”
Adam Smith

When the case came before Mr Justice Cooke a number of issues were considered including differences between netting and set-off, as well as the difference between liquidated and unliquidated damages. On the facts before him he decided that a claim for unliquidated damages arising from a breach of agreement with the original contracting party (the Bank) could not be offset against the ETA.

If the Bank had entered into mandatory insolvency set off as part of the insolvency process then the result could have been very different. As it was, it was able to assign the benefit of the ISDA Master Agreement and yet retain the mis-selling liability.

Link: MHB Bank v Shanpark (2015) EWHC 408 (Comm)

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