Socimer International Bank Ltd v Standard Bank London Ltd

This is the trial of a preliminary issue concerning the true construction of the agreement dated 8^th November 1996 (the Agreement) which constituted the Standard Terms for Forward Sale Transactions between the claimant Bank which is in liquidation (Socimer) and the defendant Bank (Standard). The Agreement was an umbrella agreement which governed the making and performance of individual forward sales transactions between Socimer as buyer and Standard as seller of emerging market assets at set future dates and set prices. The emerging market assets were Latin American Debt Instruments of one kind or another and the individual transactions were effected orally but evidenced by documentary Trade Confirmations, as defined in the Agreement.

Socimer’s Liquidator claims that Standard should account to it under clause 14 of the Agreement for the sum of US$ 13,818,543.99 after entered liquidation on 3^rd March 1998 and the concomitant termination of the Agreement on 5^th March 1998 when notice was given to Standard. Socimer argues that, at that date, the value of the Designated Assets (as defined in the Agreement) which were the subject of extant Trade Confirmations exceeded the amounts payable under the Agreement by Socimer. Standard maintains that it was not the liquidation of Socimer, nor notice thereof, which brought the terminating provisions into effect but Socimer’s earlier default in failing to make payments due on 20^th February 1998. For present purposes it matters little which of these dates is the relevant date since the real issue between the parties is the mechanism which operates on events of default under the terms of the Agreement. Standard says that following Socimer’s default, whether by non-payment or entering liquidation, it was entitled to sell the Designated Assets in its discretion over an extended period of time and apply the proceeds against sums owing to it under the Agreement from Socimer. Because of the timing of the sales and the way in which the market moved, following Socimer’s default, the assets were sold for amounts which fell far short of the amounts which Socimer owed Standard at the date when Socimer contends that the Agreement was terminated, so that Standard alleges that Socimer owes money to Standard and not vice versa.

Socimer’s primary business was as an investment bank specialising in emerging market bonds and other instruments, involving trading with its customers on margins. It did this in part by forward selling emerging market assets to such customers. In order to be able to undertake such transactions, Socimer itself had entered into forward purchase and/or re-purchase transactions with other banks such as Standard. Socimer’s relationship with Standard in respect of such trades began in 1994 or earlier and there were various agreements entered into between them during 1994 and 1995 governing such trades. Initially there were documents governing individual deals but on 6^th November 1995, the parties entered into an umbrella agreement to govern future forward sales, and on 8^th November 1996, they agreed that the Agreement in issue would govern. The terms of the critical clause did not change much between the two umbrella agreements.

Under the terms of the Agreement Standard agreed to sell and Socimer agreed to buy such relevant emerging market assets as might be traded from time to time (the “Designated Assets”) at a fixed price payable (defined as the “Forward Value”) on an agreed forward date, generally 90 days following the conclusion of each individual agreement which was evidenced by a Trade Confirmation. That forward date was defined in the Agreement as “the Forward Settlement Date”. Socimer paid a “Downpayment” (as defined) on the making of the trade which represented a percentage of the sum due on the Forward Settlement Date. The market value of the Designated Assets was monitored by Standard by marking the assets (or a group of such assets) “to market”, and if the Downpayment was insufficient as a percentage to cover the Forward Price by the agreed amount (half the remaining equity in the assets or group of assets) Standard could call for Additional Downpayments and Subsequent Additional Downpayments (as defined) in a similar way to margin calls.

The assets which were the subject of the forward sales were usually assets sold by Socimer to Standard as spot sales or were assets purchased by Standard at Socimer’s request. At the Forward Settlement Date, Standard was obliged to sell and Socimer to purchase the Designated Assets concerned at the Forward Value. Socimer was obliged to pay the unpaid amount which was in essence the difference between Forward Value and the Downpayment, Additional Downpayments and Subsequent Additional Downpayments already made. If by the Forward Settlement Date, the market value of the Designated Asset had fallen as against the Forward Value, Socimer was bound to pay the unpaid amount and would suffer the loss in market value of the asset in the meantime. If however the market value of the Designated Asset had risen against the Forward Value, then Socimer would be in profit.

Although Standard maintained that in essence, the Forward Sales Transactions took effect as loans, and that the default provisions had to be considered in that light, Socimer stressed that the parties had deliberately framed their transactions as Forward Sales with real sale and purchase obligations. Moreover, under the terms of the Agreement there is no doubt that Standard retained ownership of the Designated Assets until payment of the unpaid amount by Socimer, who had until then no legal or equitable interest in the Designated Assets at all.

Standard adduced evidence of fact as to the matrix of the Agreement and expert evidence with regard to Forward Sales in the Emerging Markets Debt Market. There were arguments as to the admissibility of some of this evidence but the following was clear from the terms of the Agreement and the evidence given:

The forward sale transactions entailed Standard funding the difference between the Market Value (as defined) of the relevant Designated Assets at inception of the Transaction and the Downpayment (or Additional Downpayments) during the period up to the Forward Settlement Date. Thus, in the circumstances set out in paragraph 5 of this Judgment, Socimer was effectively able to borrow the difference for its own commercial purposes and Standard received remuneration for that in the shape of the Forward Value, payable by Socimer on the Forward Settlement Date which took account of the costs of funding.

By monitoring the value of each Designated Asset, Standard was able to restore the ratio of the value of the Designated Asset to the amount of financing provided by it, by seeking Additional Downpayments and thus maintaining the same level of “security” in the event of Socimer’s failure to pay the Forward Value.

Standard carried out a valuation process, using its reasonable judgment on a daily basis. For liquid assets, the valuation would be carried out on the basis of screen prices for the assets and conversations with various market participants. For more illiquid assets where there were no readily available markets and no screen prices, Standard might have to use its own commercial judgment.

In the case of such illiquid assets, the value placed upon them by Standard was not necessarily that which would be obtained on an actual sale, because of the difficulty of evaluation of such assets and the volatility of the market.

Smaller debts from less developed economies are highly illiquid, are traded infrequently and are known as “exotics”. For debts like these, it would be difficult to find buyers, even in the specialist market for emerging market debt where those involved were almost invariably serious risk takers. Most trading in the global over-the-counter market for emerging market debt instruments has centred on or around 15 to 20 major dealers over the last 10 years and much of this trading takes place through dealers. Exotics would not however be transacted through brokers, nor would prices be available on screens.

Volatility is a hallmark of the market so that market players have to have a high-risk appetite. Many will borrow funds in order to invest in the market. There are a number of ways in which leverage can be achieved by the obtaining of finance, namely:-

Buying an asset spot and obtaining a loan to pay for it.

Buying an asset spot and obtaining finance via a re-purchase (or Repo) agreement.

Purchasing an asset on a basis which allows for the purchase proceeds to be paid on a deferred basis, namely a forward purchase or looked at from the seller’s perspective, a forward sale.

In a forward sale of the kind described above, the risk taken by the seller is essentially twofold: firstly, the counterparty risk, namely the risk of non-payment by the buyer: secondly, the assets risk, namely the risk that the instrument purchased would prove inadequate to satisfy the contractual forward price agreed with the buyer should it default (or indeed any price previously paid by the seller in order to obtain the asset in the first place).

Downpayments and margin calls or demands for Additional Downpayments mitigate the risk. A typical Downpayment on a liquid asset would be 15–25% whereas, in the case of an illiquid asset it could fall within the range of 30-50% of the price payable. Under the Agreement routinely the Downpayment was of the order of 30%.

On highly liquid assets, such as sovereign debt, prices are freely available and monitoring for margin calls is relatively straightforward. With more illiquid assets, however, there is an absence of real prices and the mark-to-market mechanics are difficult to operate. Almost invariably in such circumstances the contractual mechanism provides for the Seller to determine the Market Value and to be able to require additional margin or Downpayments in accordance with that judgment.

There is a difference between the terms usually available for forward buying of liquid assets and more illiquid assets. The former terms are more balanced, as between seller and buyer whilst the latter almost invariably favour the seller whose risk is increased because of the difficulty in realising the debt in the event of default by the buyer.

The expert’s view was that, once a default had occurred, it was essential to the Seller that he was able to access real prices in order to assess whether he had any exposure to loss. The only definitive measure of value was, in his view, the price for which the assets could actually be sold, rather than any prices which were theoretically to be seen on screens or to be gauged by database systems (such as Bloomberg), telephone calls to market professionals, arrangers/ lead managers of the issue in question, research sheets and comparable instruments. The expert opined that if there were no real buyers for the debt in the market and there was therefore no price at which the debt could be sold, it would be necessary to value the asset at zero. With such an Instrument, the Downpayment was likely to be high.

The standard form documentation for forward sales of liquid assets accorded with the PSA/ISMA terms and conditions but these were tailored to individual transactions. Nonetheless, they were more evenly balanced than the terms and conditions which would be expected for forward sale agreements for illiquid assets.

The assets actually traded under the Agreement were those to be expected for an agreement of this kind. They were what was described as a “mixed bag” containing certain assets which were liquid and some which were described as “illiquid”.

Different lists were produced by the parties amounting to 35 or 47 Designated Assets traded under the Agreement, but all save about 8 of these appear to have been sovereign debt instruments which were readily tradeable. Less than 25% could be considered relatively illiquid or exotic. The evidence established that it was the corporate indebtedness which was not securitised which constituted the most illiquid assets whilst the government bonds were the subject of reasonably regular deals.

Of the 8 or so “illiquid” debts referred to, it appears that at least 5 or 6 of these had been sold by the time of the events in question. As at close of business on 30^th September 1998, 2 of the assets which were considered illiquid, namely Socma Americana SA 10.5% Maturing 11/2002 and Brazil TDA-ES with various maturities had not been sold and the unpaid amounts due in respect of them from Socimer totalled just over $ 10M. 4 other assets remained unsold which do not appear to have been particularly illiquid on which the Unpaid Amount (as defined) due ran to the order of US$ 4M.

Some of the Designated Assets were, in market perception, capable of being traded under PSA/ISMA terms and, on the documents, were so traded by Socimer with other counterparties.

Standard maintained that the exotics were not tradeable on these terms.

There was no evidence before the Court to illustrate any common objective on the part of Standard and Socimer in entering into deals on the basis of the Agreement, as compared with the PSA/ISMA terms and conditions. The PSA/ISMA terms contained a detailed set of provisions as to what was to occur on the happening of an event of default. This involved a calculation of the Default Market Value at the Default Valuation Time (as defined in PSA/ISMA type agreements) and the taking of an account for each Transaction on the Re-purchase Date which was deemed immediately to occur. Standard contrasted this with Socimer’s own terms and conditions for its customers which gave it a wide discretion in a fairly one-sided document as to disposal of the assets to ensure that it did not lose out from its customers’ defaults. At the PSA/ISMA end of the spectrum was a valuation procedure, whilst at the Socimer/customer end of the spectrum, there were wide ranging powers of sale which were exercisable by Socimer to recoup losses resulting from customers’ breaches.

Earlier agreements between the parties were produced at the hearing but little was to be gained from this and any comparison between them.

It was against this background that the terms of the Agreement fell to be construed.

The relevant terms of the Agreement are as follows:-

There was nothing between the parties on this but my attention was inevitably drawn to a number of authorities:-

In Rank Enterprises v Gerard [2001] AER 449 Mance LJ at p.452 identified the Court’s essential task as follows:

Lord Hoffman, in his well known judgment in the Investors Compensation Scheme v West Bromwich Building Society [1998] 1 AER 98 described the fundamental change which has overtaken this branch of the law as intended, at pages 912-913, as follows,

In Mannai Investments v Eagle Star [1997] 3 AER 352 Lord Steyn said:-

Lord Hoffman in Mannai specifically dealt with the question of “wrong words”. He observed (at page 375):

In Don King Promotions v Warren [1998] 2 ADR 608 at page 624 Lightman J summarised the position as follows:-

I bear these principles very much in mind and also the need, in any commercial contract, to construe it in the light of commercial and business common sense. The authorities clearly show that the more unreasonable the result, the more unlikely it is that the parties can have intended it and if they do intend it then it is necessary that that intention should be made abundantly clear.

Mr Stephen Auld QC, for Standard argued that the Agreement had to be seen in the light of its underlying purpose, which was to govern what amounted to a series of lending transactions between Standard and Socimer with the result that clause 14 fell to be construed as a clause protecting the “lender” in the event of default by the “borrower” and giving powers to the lender to realise the security to satisfy amounts owing. Thus Standard focused on the sentence which referred to the Seller’s discretion to sell the Designated Assets and the first line of clause 14(a)(bb) where there was reference to application of the proceeds of sale to satisfy the amounts payable to Standard. Standard contended that the Close-out Valuation process which was part of the PSA/ISMA terms was entirely different from the sales process which was envisaged by clause 14 and the accounting between the parties which followed from realisation of the Designated Assets by sale. These processes involve different concepts and different mechanisms and were not to be confused. Where the sub-clause referred to the value of Designated Assets being determined on the date of termination by the Seller, the words used could not bring in a valuation process and were either to be treated as surplusage or to be ignored, as if struck out by a “blue pencil”. The only meaning which could be given to the sentence involved reading the “date of termination” upon which the determination was to be made as the date when the whole process of accounting terminated rather than giving it the same meaning as applied elsewhere in the clause. In reality, Standard could give no real meaning to this clause and required it either to be “blue pencilled” or redrafted in accordance with one of four options which were put before the Court.

The construction advanced by Standard would enable it to hold on to the Designated Assets, following default by Socimer and to sell them at any point in the future, applying the proceeds of that sale to the accounting equation for which clause 14 provided so that the Unpaid Amounts and all additional losses were fully covered. As appeared from a letter of September 1998, the practical effect was that considerable delay could ensue before finalisation of the position and the drop in the market over the intervening period meant that lower prices were obtained than might have been achieved on an earlier sale whilst, in accordance with the terms of the Agreement, Standard could charge Socimer interest at the high default rate for which the Agreement provided on the Unpaid Amounts.

Whilst Standard states that a construction which did not give it the freedom to realise the Designated Assets over a period of time in order to recoup its loss was uncommercial, Mr Richard Millett QC for Socimer maintained that Standard’s construction was uncommercial because it would leave Socimer subjected to continuing uncertainty for an indeterminate period in the future about the extent of any surplus or shortfall between the Unpaid Amount and Designated Assets and about the Designated Assets available to it, after a balance was struck (if any). It would permit Standard to “play the market” in the Designated Assets at Socimer’s expense whilst refraining from striking the equation and in the meantime charging Socimer interest at the default rate. Socimer contended there was no difficulty in treating this clause as a valuation clause because Standard was given a wide discretion in relation to valuation whilst “termination” in the clause meant the same wherever it appeared.

Socimer also contended that there was no problem here about liquid or illiquid assets since the Agreement drew no distinction between one or the other and treated all as capable of having a value to be determined by Standard. With such discretion in valuation, even if Standard was to be treated as a “lender”, it had adequate protection on Socimer’s construction of clause 14 in the event of default by Socimer.

A number of provisions in the Agreement make it clear that valuation of the Designated Assets, following conclusion of a Transaction, lies exclusively in the hands of Standard. Equally, the terms of the Agreement make it plain that such a value is assumed to be capable of assessment on any day. Thus:

Market Value means “on any day and for each Transaction” the value “determined by the Seller in its sole and absolute discretion” for assets of the same description, type, currency and principal amount.

This Market Value, as determined by Standard is then used for calculations for the Mark-to-Market Loss, for the purpose of assessing the need for Additional Downpayments and Subsequent Additional Downpayments. Any calculation made by Standard for that purpose “shall be conclusive and binding on the buyer in the absence of any manifest error”.

The definition of “Unpaid Amount” means “on any day and for each Transaction” the total payable “as determined by the Seller”, taking into account the agreed Forward Value, the agreed Downpayment and any Additional Downpayments and Subsequent Additional Downpayments which have been calculated by Standard and are conclusive and binding in the absence of any manifest error.

Under clause 14 itself, upon which the argument centres, “the value of any Designated Assets liquidated or retained shall be determined on the date of termination by Seller”.

Whilst the Agreement sets out Socimer’s acknowledgement of the volatile nature of the emerging markets in which the Transactions involving Designated Assets are taking place and the impracticability for Standard to notify or consult it before liquidating a position [clause 16(a)(iii)] and the considerable risks involved in the Designated Assets themselves [clause 16(a)(ii)] and therefore the difficulties which may arise with regard to the liquidation of such assets, the whole of the Agreement proceeds on the basis that it is possible to value the Designated Assets on any day. If the Designated Assets are the subject of forward sale, then the Agreement assumes that there is a market for such assets or at least that a “Market Value” can be determined for them by Standard, although the method by which it makes that assessment is left entirely to Standard’s own discretion. This, in my judgment is a crucial factor when approaching the question of construction of clause 14. That is not to say that there may not be difficulties in valuation if there are problems in identifying “assets of the same description and type” as referred to in the definition of “market value”, but as the procedure for calculation lies in the hands of Standard, it can hardly be put forward as an impossible valuation to make.

The importance of this is clear when the options given to Standard by clause 14 (a) (bb) are examined. It is accepted by Standard that if Standard exercises the option to retain sufficient Designated Assets to satisfy in part or in whole any amounts payable to it under the Agreement and the Trade Confirmations, a valuation exercise has to be effected. Unless such valuation is carried out, there is no basis for offset of those Designated Assets against the amounts owing to Standard by Socimer.

There is therefore inbuilt into clause 14 and the Agreement as a whole a requirement for valuation to which the crucial sentence, upon which Socimer relies, refers. This crucial sentence reads:-

The overall structure of clause 14 is clear. The first paragraph sets out a series of events of default, including the buyers’ failure to pay, the insolvency of a party or its inability to pay its debts as they fall due and the repudiation of the Agreement. One or more of these applies in the present case to Socimer. The next part of the clause (sub-clause (a)) sets out the position where the defaulting party is Socimer, whilst the last part of the clause (sub-clause (b)) sets out the position where the defaulting party is the Seller. It is sub-clause (a) which gives rise to the dispute between the parties and this itself falls into three distinct parts, namely sub-clause (aa), sub-clause (bb) which, as can be seen from the degree of indentation of the paragraphs, includes three paragraphs before the third part of sub-clause (a) constituting the last paragraph of it which, on its own terms clearly refers to both (aa) and (bb).

The terms of sub-clause (a) provide for the parties’ obligations under the Agreement and each Trade Confirmation to terminate upon the event of default or the notice given by Socimer of its own default, except as specifically provided in the clause. This is clear from:

The first sentence which provides expressly that the obligation of Standard to sell the Designated Assets to the Buyer and all its other obligations under the Agreement and each Trade Confirmation shall terminate, save as otherwise provided.

Upon that termination, neither party is required to refund or repay any amount previously paid, save as expressly provided thereafter (see the second sentence of sub-clause (a)).

The Seller then has the right, in its discretion to adopt either the procedure set out in sub-clause (aa) or sub-clause (bb). Sub-clause (aa) refers in terms to “such terminated transactions” in three places, in the context of Standard’s election to refund Additional Downpayments and Subsequent Downpayments, after deducting sums due to it (including any losses but not the Unpaid Amount) while Socimer’s obligation to pay the Unpaid Amount is terminated in consideration of the termination of the Seller’s obligation to deliver the Designated Assets.

If Standard should decide that the procedure set out in sub-clause (bb) should be followed, that sub-clause gives the right to Standard to liquidate or retain sufficient Designated Assets to satisfy amounts payable to it under the Agreement and Trade Confirmations and refers to “this termination” and in the two succeeding sub-paragraphs to “the date of termination” which can only mean the date of termination previously referred to, namely the termination of Standard’s obligation to sell (which carries with it termination of Socimer’s obligation to pay the Unpaid Amount) and thus the Transactions as a whole, which are referred to as being terminated in sub-clauses (a) and (aa).

In my judgment there is no gainsaying the consistent references to termination in clause 14(a) and the date of termination can only be the date of the event of default or notice of that event.

Clause 15 of the Agreement reinforces this point inasmuch as it provides for termination of individual Transactions upon the happening of the events set out in that clause which make it unlawful, impossible or impracticable for the particular Transaction to be fulfilled. That clause provides expressly for termination of the Transaction or Transactions so affected and for the obligations of each party with respect to that Transaction or Transactions to terminate, save as otherwise provided in the Agreement and save for the obligations set out in clause 14(a) which are to apply to the termination.

Clause 14(a)(bb) has then to be construed in this context. It is clear that clause 14(a)(bb) provides in the first paragraph for Standard either to liquidate or retain sufficient Designated Assets and to apply the proceeds of their sale to satisfy amounts payable to it. Where the reference is to “proceeds of their sale” this must be taken to include the notional proceeds where the Designated Assets in question are retained and valued, as Standard accepted in argument. Of course, under the terms of the Agreement, the Designated Assets belong to Standard at all times until payment of the Unpaid Amount and transfer to Socimer, so that sub-clause (bb) gives Standard the right either to liquidate or to retain sufficient Designated Assets to satisfy the amounts outstanding under the Agreement. There is no question of Standard selling Designated Assets to itself since it already owns them but the object of sub-clause (bb) is plainly to make Standard “whole”, as Counsel for Standard put it in argument. Standard had expected to transfer the Designated Assets to Socimer on payment of the Unpaid Amount at the Forward Settlement Date, thus receiving the full agreed Forward Value which included its costs of funds without taking any risk on the value of the Designated Assets. The intention of the sub-clause is that Standard should recoup the amounts which it would otherwise have received and not be out of pocket in respect of any losses, costs or expenses which arise as a result of the termination and the sale of the Designated Assets. It could therefore sell Designated Assets to a third party or retain them itself in order to recoup these amounts, following which the third paragraph of sub-clause (bb) comes into play.

The third paragraph of sub-clause (bb) sets out what is to occur following “the satisfaction of the Seller’s claims”, namely the recoupment by Standard of the sums to which reference is made in the sub-clause. Once that has been done, the remaining Designated Assets which have not been liquidated or retained are to be sold to the buyer as contemplated by the Agreement and the Trade Confirmations, “but as soon as practicable after the date of termination”. Moreover if there is any balance from the sale of the Designated Assets following satisfaction of all amounts payable to Standard, Standard is also to pay this to Socimer. This provision makes it plain that the whole process of liquidation or retention is to take place “as soon as practicable after the date of termination”, which, as I have already held, can only mean the date of the event of default or notice thereof.

This means that Standard must elect whether to liquidate by sale to third parties or keep Designated Assets at the date of termination or at least as soon thereafter as is practicable, since the remittance to Socimer of any balance, after satisfaction of Standard’s claims, has to take place by that point.

It follows therefore that the second sentence of the second sub-paragraph of (bb), which I have already set out earlier in this Judgment, is entirely consistent with the procedure envisaged. If Standard elects to liquidate or retain particular Designated Assets, their value is to be determined on the date of termination by Standard itself. Self-evidently, the words “on the date of termination” must allow some latitude to Standard, particularly if the event occurs or notice of the event is given at 23.59 hours on the date in question. In practice it requires a determination “as at” the date of termination, but the principle is clear in requiring the election and the liquidation or the retention to be effected at that point or so soon thereafter as is practicable. The value of those Designated Assets, as determined by Standard, then has to be taken into account to satisfy amounts payable to Standard under the Agreement and the Trade Confirmation (which have also to be ascertained at that point), as provided by the sub-clause, including any losses, expenses or costs arising as a result of the termination of the sale of the Designated Assets.

The sub-clause does not envisage such lack of liquidity as would render this impossible to achieve. The words “the proceeds of their sale” in the first line of sub-clause (bb), which refer to the Designated Assets, are not therefore to be seen as inconsistent with the valuation “on the date of termination” in the second paragraph of that sub-clause. Standard itself can assess the value of the Designated Assets liquidated or retained in the same way as it can assess the Market Value as set out in the definitions clause in the Agreement. The whole point of the exercise is to crystallise the position as at the date of termination by reference to value as at that date.

Standard relied heavily on the first sentence of the second paragraph of sub-clause (bb) which stated that:-

There is no difficulty in this from Standard’s point of view since the valuation exercise lies entirely in its hands as at the date of termination. If the value on the screens, or the information available from other sources, indicates a value which it regards as too high because of the nature of the Designated Assets and the difficulty in liquidation, Standard can take such matters into account, and provided that the assessment is in good faith and is not challengeable on any other basis, it can value the assets at a lower figure. If the assets are truly liquid then although it may be impracticable for Standard to notify or consult Socimer before liquidating, it can sell and the value which it would ordinarily attribute, in good faith, to the Designated Assets would be the value actually realised. If the assets appear completely illiquid, then in theory a zero valuation is possible. That is the essential assumption upon which sub-clause (b) works so that there is no conflict between “the proceeds of their sale” and the “value of any Designated Assets liquidated” as “determined on the date of termination by Seller”.

Whilst clause 14(a)(bb) is not a model of drafting, the overall intention is, in my judgment, clear. Whereas sub-clause (aa) provides for Standard to opt to retain the Downpayment and the Designated Assets and only to refund the Additional Downpayments and Subsequent Additional Downpayments (after deducting other amounts due and owing and losses arising as a result of termination), which Standard would presumably wish to operate if the Market Value of the Designated Assets exceeded the Forward Value or in a rising market, sub-clause (bb) provides for it to liquidate, whether by sale to third parties or retention at a value for its own account, sufficient Designated Assets to meet the outstanding amounts owing to it under the Agreement, which it would presumably wish to operate if the Market Value was lower than the Forward Value or in the event of a falling market. In the latter situation it would take on the market risk of particular assets which it chose to retain. Whilst it remained free in its sole and absolute discretion to sell the Designated Assets which it owned at any time and in any place and at any price, it was the value of those assets at the point of election to liquidate or retain which fell to be taken into account as a credit against the sums owing to it under the Agreement, before assessing the surplus or deficiency which would give rise to the remaining obligations in clause 14(a), under the last sub-paragraph of sub-clause (bb) and the final paragraph of sub-clause (a).

I hold therefore that, on the proper construction of the Agreement, Standard was obliged to value the Designated Assets as at the date of termination of the Agreement for the purpose of clause 14(a) of the Agreement and to bring into account the value so assessed as a credit against the amounts payable to Standard under the Agreement and Trade Confirmations and was not entitled to bring into account the actual proceeds of sale of those Designated Assets for the purpose of its continuing obligations to Socimer under that clause.

The parties may address me on the form of the declaration to be made and on the question of costs but, without making a final determination without hearing the parties, it seems to me inevitable that Standard should be ordered to pay Socimer’s costs of the preliminary issue, unless there is some peculiarity of which I am unaware.