Savings Bank of the Russian Federation v Refco Securities Llc

I have before me an application for summary judgment. Liability is admitted but there is a dispute as to the extent of that liability. The issue between the parties depends upon a short but important point (or points) of construction, which it is agreed that I should determine now. The Claimants are the Savings Bank of the Russian Federation (“Sberbank”). Sberbank is the largest commercial bank in Russia. The Defendant, Refco Securities LLC (“RSL”) is part of a group headed by Refco Inc., which was until its filing for bankruptcy in October 2005 a provider of execution and clearing services for exchange traded derivatives and brokerage services in the fixed income and foreign exchange markets, as well as being a broker of cash market products.

On or about 17^th December 2004 Sberbank and Refco entered into a standard form Global Master Securities Lending Agreement (“GMSLA”). The form is published by the International Securities Lending Association. Under that agreement the parties were to enter into individual transactions described as “Loans” whereby one of them acting as Lender would advance to the other as Borrower securities or financial instruments against the provision of collateral by the Borrower of a value equivalent to the securities or financial instruments advanced, subject to a margin dependent on the type of collateral proposed. Under the Loans the Borrower was to transfer to the Lender on a fixed date or on demand securities equivalent to the securities transferred by the Lender to it, against the transfer to the Borrower by the Lender of assets equivalent to the collateral. The term “financial instruments” was by an addendum of 24^th December 2004 agreed to include amounts in United States dollars.

Paragraph 17 of the Agreement provided that:

“Each Party shall have the right to terminate this Agreement by giving not less than 15 Business Days’ notice in writing to the other Party (which notice shall specify the date of termination) subject to an obligation to ensure that all Loans which have been entered into but not discharged at the time such notice is given are duly discharged in accordance with this Agreement.”

In relation to termination of Loans paragraph 8.1 provided that on termination the Borrower should procure the redelivery of Equivalent Securities to the Lender or redeliver such securities, in accordance with the GMSLA and the terms of the relevant Loan. Paragraph 8.2 gave the Lender, subject to the terms of the relevant Loan, a right to terminate the Loan and call for redelivery of all or any Equivalent Securities at any time by giving notice on any business day.

Paragraph 8.3 provided that:

“Subject to the terms of the relevant Loan, Borrower shall be entitled at any time to terminate a Loan and to redeliver all and any Equivalent Securities due and outstanding to Lender in accordance with Lender’s instructions and Lender shall accept such redelivery.”

Paragraph 8.4 provided:

“On the date and time that Equivalent Securities are required to be redelivered by Borrower on the termination of a Loan, Lender shall simultaneously (subject to paragraph 5.4 if applicable) repay to Borrower any Cash Collateral or, as the case may be, redeliver Collateral equivalent to the Collateral provided by Borrower pursuant to paragraph 5 in respect of such Loan.”

Paragraph 9.2(i) provided as follows:

“If Lender does not redeliver Equivalent Collateral in accordance with paragraph 8.4 or 8.5 Borrower may either by written notice to Lender terminate the Loan forthwith and the Parties’ delivery and payment obligations in respect thereof (in which case sub-paragraph (ii) below shall apply) or serve a notice of an Event of Default in accordance with paragraph 14.”

As is apparent that paragraph gave to the Borrower two options.

Paragraph 9.2(ii) provided that:

“Upon service of a notice to terminate the relevant Loan pursuant to paragraph 9.2(i):

(a)

there shall be set-off against the Market Value of the Equivalent Collateral concerned the Market Value of the Loaned Securities;

(b)

the Parties’ delivery and payment obligations in relation to such assets which are set-off shall terminate;

(c)

in the event that the Market Value of the Loaned Securities held by Borrower is less than the Market Value of the Equivalent Collateral concerned Lender shall account to Borrower for the shortfall.”

‘Market Value’ was defined in paragraph 2(2) as meaning, so far as presently relevant:

“In relation to the valuation of Securities, Equivalent Securities, Collateral or Equivalent Collateral …

(i)

such price as is equal to the market quotation for the bid price of such Securities, Equivalent Securities, Collateral and/or Equivalent Collateral as derived from a reputable pricing information service reasonably chosen in good faith by Lender, or

(ii)

if unavailable the market value thereof as derived from the prices or rates bid by a reputable dealer for the relevant instrument reasonably chosen in good faith by Lender,

in each case at Close of Business on the previous Business Day or, at the option of either Party where in its reasonable opinion there has been an exceptional movement in the price of the asset in question since such time, the latest available price…”

Paragraph 14 of the GMSLA dealt with events of default. It provides that:

“14.1.

Each of the following events occurring in relation to either Party (the ‘Defaulting Party’, the other Party being the ‘Non-Defaulting Party’) shall be an Event of Default for the purpose of paragraph 10 but only (subject to sub-paragraph (v) below) where the Non-Defaulting Party serves written notice on the Defaulting Party.”

Those events included the Borrower or Lender failing to pay or repay Cash Collateral, or deliver Collateral, or redeliver Equivalent Collateral (14.1(i)) and the Lender or the Borrower admitting to the other that it is unable to, or it intends not to, perform any of its obligations under the GMSLA and/or in respect of any Loan (14.1(vii)).

The event specified in subparagraph (v) was as follows:

“an Act of Insolvency occurring with respect to Lender or Borrower. an Act of insolvency which is the presentation of a petition for winding up or any analogous proceeding or the appointment of a liquidator or analogous officer of the Defaulting Party not requiring the Non-Defaulting party to serve written notice on the Defaulting Party.”

Paragraph 10.2 provided in relation to an Event of Default

“Subject to paragraph 9, if an Event of Default occurs in relation to either Party, the Parties’ delivery and payment obligations (and any other obligations they have under this Agreement) shall be accelerated so as to require performance thereof at the time such Event of Default occurs (the date of which shall be the ‘Termination Date’ for the purposes of this clause) so that performance of such delivery and payment obligations shall be effected only in accordance with the following provisions:

(i)

the Relevant Value of the securities which would have been required to be delivered but for such termination (or payment to be made, as the case may be) by each Party shall be established in accordance with paragraph 10.3; and

(ii)

on the basis of the Relevant Values so established an account shall be taken (as at the Termination Date) of what is due from each Party to the other and (on the basis that each Party’s claim against the other in respect of delivery of Equivalent Securities or Equivalent Collateral or any cash payment equals the Relevant Value thereof) the sums due from one Party shall be set-off against the sums due from the other and only the balance of the account shall be payable (by the Party having the claim valued at the lower amount pursuant to the foregoing) and such balances shall be payable on the Termination Date.”

Paragraph 10.3 provided:

“For the purposes of 10.2 the ‘Relevant Value’:

(i)

of any securities to be delivered by the Defaulting Party shall, subject to paragraph 10.5 below, equal the Offer Value of such securities; and

(ii)

of any securities to be delivered to the Defaulting Party shall, subject to paragraph 10.5 below, equal the Bid Value of such securities.”

Paragraph 10.1 defined ‘Bid Value’ as, in essence, the amount which would be received on a sale and ‘Offer Value’ as the amount that it would cost to buy the Equivalent Securities or Equivalent Collateral.

Paragraph 10. 4 provided that

“For the purposes of paragraph 10.3 but subject to paragraph 10.5 the Bid Value and Offer Value of any securities shall be calculated for securities of the relevant description … as of the first Business Day following the Termination Date.”

Paragraph 10.5 provided:

“Where the Non-Defaulting Party has following the occurrence of an Event of Default but prior to the close of business on the fifth Business Day following the Termination Date purchased securities forming part of the same issue and being of an identical type and description to those to be delivered by the Defaulting Party or sold securities forming part of the same issue and being of an identical type and description to those to be delivered by him to the Defaulting Party, the costs of such purchase or the proceeds of such sale, as the case may be … shall … be treated as the Offer Value or Bid Value, as the case may be, of the amount of securities to be delivered which is equivalent to the amount of the securities so bought or sold, as the case may be, for the purposes of this paragraph 10, so that where the amount of securities to be delivered is more than the amount so bought or sold, as the case may be, the Offer Value or Bid Value, as the case may be, of the balance shall be valued in accordance with paragraph 10.4.”

On 17^th October 2005 the Deputy Director of Capital Markets at Sberbank faxed a letter to RSL which read as follows:

“In accordance with clause 17 of the Global Master Securities Lending Agreement between [RSL] and [Sberbank] as of December 2004 we would like to exercise our right to terminate the above agreement from November 8, 2005 and settle all our mutual obligations on the outstanding Loans by that date.”

At that stage Sberbank was the Borrower and the Loans outstanding with their associated collateral were as follows.

On 28^th October 2005 Sberbank faxed to RFL a letter referring to their earlier fax of 17^th October and the fact that they had not received any answer as to whether or not RFL was going to settle the existing trades in full or in part. The fax set out the Loans and the Collateral to which I have referred and invited confirmation that RTL would return the Collateral to Sberbank against payment of the outstanding Loans and interest on the settlement date of November 8, 2005.

On 8^th November 2005 RFL faxed a letter to Sberbank informing them that it was unable to deliver back the Russian Euro-Bonds that constituted the Collateral and asking Sberbank to act as their nominee under section 1.3 of the GMSLA for the purpose of buying in the securities for redelivery.

By a fax of 2^nd December 2005 Sberbank declined the suggestion that they should act as RSL’s nominee to fulfil RSL’s obligations and informed RSL that Sberbank was

“exercising its rights under the relevant agreements and has determined that RSL owes Sberbank U.S.$120,114,706.03, calculated based on the value of the Loans (US$700,000,000 plus accrued interest US$19,764,781.25 as of December 02, 2005) and the bid price of the collateral (106.438% for the Russian Federation sovereign Euro-Bonds maturing 2010 and 147.0% for the Russian Federation sovereign Euro-Bonds maturing 2018) as derived from Reuters pagae 0#RUEUROSAZ as of 6 p.m. Moscow time on December 2^nd 2005, plus accrued coupon on the bonds US$19,610,265.28 as of December 02, 2005. Please arrange for prompt payment by wire transfer of this amount to the Sberbank account no. 890-0057-610 with Bank of New York, New York.”

On 16^th December 2005 Sberbank wrote to RSL again, expressing disquiet that RSL had failed to issue instructions for the redemption of the Loans or to redeliver to Sberbank the Collateral or Equivalent Collateral. It claimed that the failure to redeliver such collateral, and RSL’s admitted inability to do so constituted Events of Default within the meaning of paragraphs 14.1(i) and (vii) of the GMSLA, written notice whereof was “thereby served on RSL”. A meeting was demanded in New York on or prior to December 20^th.

As will be seen from the above narrative Sberbank had (a) on 17^th October terminated the GMSLA under clause 17 and called for settlement of mutual obligations by November 8^th; (b) on 28^th October 2005 requested return of the collateral against payment of the Loans; (c) on 2^nd December 2005 purported to exercise its rights under the GMSLA and claimed over US$120,000,000; and (d) on 16^th December 2005 given notice of default under paragraph 14.

RSL does not dispute that Sberbank is entitled to set off the value of the Collateral provided by Sberbank against the value of the Loans, and to payment of the shortfall. The issue that divides the parties is as to whether

There can be no doubt that on 8^th November 2005 it was the responsibility of RSL to redeliver Equivalent Collateral to Sberbank against payment of the outstanding Loan. Sberbank had by then terminated the GMSLA with effect from that date and come under an obligation to see that all the Loans were duly discharged. By its letters of 17^th and 28^th October Sberbank had made plain that it was exercising its right to terminate the Loans and settle all mutual obligations by that date. RSL accepts that Sberbank was entitled to serve a notice under clause 9.2(i) and that, if the fax of 2^nd December 2005 constituted a notice to terminate under paragraph 9.2, the amount due and owing as a result of the relevant set-off would, if calculated on 9^th November 2005, be US$120,114,706.03 with interest to date of US$1,565,465.65. The first issue that divides the parties is whether that fax was a notice to terminate under the first limb of clause 9.2 at all. I propose to call such a notice “a notice under paragraph 9.2(i)” and to refer to a notice under the second limb as a “notice of default”.

I turn then to the question as to whether the letter of 2^nd December 2005 was a notice under paragraph 9.2(i). RSL contend that the letter was not a notice under paragraph 9.2(i), because although it stated that Sberbank was “exercising its rights under the relevant agreements”, it did not specify which rights it was exercising and said nothing about terminating the Loans. Sberbank had, they submit, an election as to which of its rights it would exercise. In order to exercise that election validly it had to be clear and unequivocal as to what it was doing. Instead, as Mr. John Jarvis, QC on RSL’s behalf submitted, they left all their balls in the air. In addition it is pointed out that the letter of 2^nd December 2005 set out a calculation of what was due which was not consistent with paragraph 9.2(ii) because it did not require RSL to choose a reputable pricing information service or invite them to do so. That the letter of 2^nd December 2005 was not such a notice is, it is submitted, also apparent from the fact that by its subsequent letter of 16^th December 2005 Sberbank gave a notice of default under paragraph 14.

Sberbank contend that it is immaterial that the letter did not use the word “terminate” or “termination”. It was sufficient that the letter made clear that Sberbank were requiring payment, terminating the Loans and invoking the procedure set out under paragraph 9.2(ii). This, it is submitted, the letter did, because it told RSL that Sberbank calculated the amount due as US$120,114,706.03, that amount being calculated in a manner consistent with paragraph 9.2(ii), and requested prompt payment by wire transfer. The calculation was in accordance with paragraph 9.2(ii) because in the event of a written notice to terminate under paragraph 9.2(i) the set-off against the market value of the collateral under paragraph 9.2(ii) is, by virtue of the definition of “Market Value”, to be effected taking a bid price in respect of the collateral, which is what the letter specified. In contradistinction a set-off following an Event of Default is to be performed using an offer price for the collateral. The letter, as Sberbank submit, made plain that Sberbank was exercising its rights under the agreement. The only potential rights were to terminate the Loans and apply paragraph 9.2(ii) or to serve a notice of default. The fax did not do the latter and must have done the former.

I accept these submissions. The GMSLA appears to me to use the word “terminate” to different effect depending on the context. Paragraph 17 gives each party a right to bring the whole agreement to an end. Such a notice imports an obligation to ensure that all Loans not discharged are discharged. That notice need not necessarily, although it may and in this case did, constitute a notice of termination of the Loans. Paragraphs 8.2 and 8.3 give each party the right to terminate a Loan or Loans. If that right is exercised the obligation of the parties is to redeliver Equivalent Securities in return for Equivalent Collateral. Paragraph 9.2 then provides that if Equivalent Collateral is not redelivered by the Lender the Borrower may terminate the Loan forthwith and the Parties’ delivery and payment obligations in respect thereof, in which case subparagraph (ii) applies. Such a notice is not a simple notice to terminate the Loan. The effect of such a notice is that, instead of there being an obligation on the parties to redeliver Equivalent Collateral against Equivalent Securities, there is to be a set-off of the market value of the non-delivered collateral against the market value of the securities and the Lender has to make up any shortfall.

When Sberbank sent its letter of December 2^nd 2005 it was plainly purporting to exercise its rights under the GMSLA and the Loans. It was not serving a notice of an Event of Default. What it was doing, in my view, was calculating that RSL owed it the difference between the amount of the Loans plus interest and the greater value of the collateral, calculated using a bid price. Such a calculation is the calculation prescribed by clause 9.2(ii), save that under that clause the Lender is entitled to choose the pricing information service to be used. The fact that Sberbank specified the Reuters price cannot, however, in my view, alter that which would have been apparent to a reasonable observer in RSL’s shoes, namely that Sberbank were asserting rights and giving a notice under section 9.2(i). Sberbank’s determination of the amount due by using Reuters as the pricing information service was open to challenge by RSL on the basis that they were entitled to choose the relevant service, but it cannot in my view sensibly be regarded as having the effect that Sberbank were not exercising, or not validly exercising, any rights at all. The relevant test is that referred to in Mannai Investment Co. Ltd. v. Eagle Star Life Insurance Co. Ltd. [1997] A.C. 749 where at p. 768 Lord Steyn said the following:

“… the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice.”

Accordingly, as I hold, Sberbank did by their letter of December 2^nd give a valid notice under paragraph 9.2(i). Whether or not they did so has to be judged by considering the effect of the letter when it was faxed to a recipient in RSL’s shoes with knowledge of the terms of the GMSLA. If the fax did constitute a notice under paragraph 9.2(i) it is immaterial in my view that by a letter faxed two weeks later Sberbank gave notice of default. Sberbank had already invoked the first of the two alternative options.

The question arises, however, as to what is the appropriate date for valuation if notice was given under clause 9.2(i). RSL submit that clause 9.2(ii) does not provide for a date and that it is, therefore, necessary to determine an appropriate date by interpretation or implication. They submit that the appropriate date is 9^th November 2005 because that was the date of breach of the relevant obligation. They submit that it would be absurd if the valuation dates differed depending on whether Sberbank elected to terminate under paragraph 9.2.(i) or to serve notice of an Event of Default. RSL submit that in the event of service of a notice of an Event of Default the correct date is 9^th November 2005 and that it would be unacceptable, in any event, to allow Sberbank to wait and see how the market moved and to choose its remedy accordingly.

I disagree. Firstly, as will become apparent hereafter, I am not persuaded that under the notice of default procedure the correct date is 9^th November. Secondly, it seems to me far from self-evident that the appropriate date is the same whichever limb of paragraph 9.2(i) is selected. The GMSLA provides a number of different rights in the event of default with different consequences. The non-defaulting party can terminate the Loan or Loans under paragraph 8 or under paragraph 9.2(i). He can serve notice of default under paragraph 14, in which case all delivery and payment obligations, and, indeed, all other obligations, are accelerated. The valuation of the collateral is not identical under both limbs of paragraph 9.2(i), nor is the date upon which the valuation is to be made. Thirdly, it seems to me that the date contemplated by paragraph 9.2(ii) is the date of service of the relevant notice because it is upon service of that notice that the obligations set out in paragraph 9.2(ii), including the obligation to set off the market values and to account to the Borrower for the shortfall, arise. I do not regard the opening words of paragraph 9.2(ii) as simply specifying the condition upon which the consequences set out in the preceding subparagraphs will arise as opposed to indicating when they will arise.

Accordingly, I propose to give to the Claimants judgment in what I understand to be the agreed figures of US$120,114,706.03 by way of principal and US$1,565,465.65 by way of interest.

In the light of my decision it is not strictly necessary to determine what is RSL’s entitlement if there was no valid notice under paragraph 9.2(i). But since the matter has been fully argued I propose to express my views upon the question.

If there was no valid notice under paragraph 9.2(i) then the set-off that is to take place is that prescribed by paragraph 10.2. Under paragraph 10.2 the effect of the notice of default is to accelerate all outstanding delivery and payment obligations and any other obligations under the Agreement, “so as to require performance thereof at the time such Event of Default occurs (the date of which shall be the ‘Termination Date’ for the purposes of this clause).” What paragraphs 10.2 and 10.3 then require is for the obligations of the parties to be given a Relevant Value and for the Relevant Values to be set off with the balance being paid by whichever party owes it. Since the Loans were in cash it was, on the facts of this particular case, unnecessary to convert them, although if what had been lent had been other securities it would have been. But it was necessary to convert the Collateral, taking the offer value as of the first business day following the termination date: see paragraph 10.4.

RSL claim that the Termination Date was 8^th November 2005, that being the date of default, and that the offer value falls to be calculated as of 9^th November, in which case it is agreed that the excess figure is US$112,414,920.08. Sberbank say that the Termination Date is the date of service of the notice under paragraph 14, that is to say 16^th December, in which case the date for calculating the Offer Value is 19^th December 2005, the following Monday. If that is so the excess is either US$123,453,330.14 or US$121,319,683.61. RSL contend that the Events of Default occurred on 8^th November because it was on that date that (a) RSL failed to deliver the Collateral, and (b) admitted that it was unable to deliver the Collateral, these events constituting Events of Default under paragraph 14.1(i) and (vii) respectively. The fact that paragraph 14.1 provides that the enumerated events shall be “an Event of Default for the purpose of paragraph 10 but only where the non-defaulting party serves written notice” means that those events are only contingently Events of Default. But once notice has been served, as it was on 16^th December, the two events “matured” into Events of Default occurring on 8^th November 2005. The GMSLA, they submit, noticeably does not provide that an event shall only be an Event of Default when a notice is served. Further, the effect of the clause is to accelerate, that is to say to bring forward, delivery and payment obligations. In the present case, however, RSL’s obligations had already been accelerated under clause 8.4 as a result of the exercise by Sberbank of its right to terminate the Loans under paragraph 8.3. Further, if the Termination Date is 19^th December, as Sberbank contend, they say the absurd consequence would result that payment was accelerated but in the wrong direction, that is to say from 8^th November 2005 to 19^th December 2005. To treat 8^th November 2005 as the relevant date is, they submit, consistent with the principle that damages should be assessed as at the date of the breach. Paragraph 10, they submit, is intended to fulfil the function of a liquidated damages provision, and, accordingly, the court should be guided by what is the usual date by reference to which damages are calculated. Further, on the facts of the present case Sberbank knew that RSL were in breach on 8^th November 2005 and could have immediately purchased Equivalent Collateral, as RSL, in effect, invited them to do by their letter of 8^th November.

Sberbank, on the other hand, contend that paragraph 14.1 distinguishes between an event specified in the subparagraphs of paragraph 14.1 and an Event of Default. It is only the event and the giving of notice that together make an Event of Default. Save in the case of an act of insolvency of the type mentioned in the second sentence of subparagraph (v) where no notice of default is necessary, a notice of default has to be served if an event is to become an Event of Default. If and when that is done, but not before, outstanding obligations will be accelerated to the date of the notice. If, however, RSL are correct, then, as Sberbank submit, the consequence would be that the obligations would be accelerated by the notice of default to a date in the past, a curious use of language. If that was what was meant the relevant paragraph would have to have said that “the parties’ delivery and payment obligations shall be deemed to have been accelerated” or words to the like effect. Sberbank further submits that RSL’s construction involves considerable difficulties of application and would lead to nonsensical results. For instance, one of the events specified is “any representation or warranty made by Lender or Borrower being incorrect or untrue in any material respect when made”. If RSL are correct then, if Sberbank discover a breach of warranty a year after the agreement, the obligations of the parties are accelerated in the event that notice of default is served, so as to require performance on the first day of the agreement, if not before.

Further, as they submit, RSL’s construction places the risk of subsequent market movements on to the non-defaulting party as from the date of the event. Thus, in the present case if RSL are right, Sberbank were at risk of a rise in the value of Russian Euro-Bonds as from 8^th November, a circumstance which would be an incentive to give notice of default early rather than endeavour to work towards some form of commercial solution.

Further, they submit that, if RSL are right, paragraph 10.5, which permits a non-defaulting party who buys securities to replace those which should have been delivered to it by the defaulting party, to use the price at which it actually buys the securities (instead of the quoted price) as the offer value for the purposes of paragraph 10, provided that it buys those securities within five business days of the termination date, is practically unworkable if the non-defaulting party did not know of the default during those five business days. But, on Sberbank’s construction, the operative date would be the date of the service of the notice under clause 14 and the non-defaulting party would have five business days thereafter to take advantage of paragraph 10.5. Mr. Jarvis was, I think, disposed to accept that there was something in this point; but, as he observed, it has no application to the present facts.

In my judgment no Event of Default occurs until such time as two things have happened: (a) one of the events specified in the subparagraphs of paragraph 14.1 has occurred, and (b) written notice of default has been served. It does not seem to me that the parties intended the use of the word “where” to signify that, provided a notice was served subsequently, an event of default occurred for the purposes of clause 10 whenever the event in question had happened.

I have reached that view for the following reasons. Firstly, the enumerated events cannot be Events of Default for the purpose of clause 10, with the exception of the events specified in subparagraph (v), unless a written notice has been served. An enumerated event without a notice is not an Event of Default for the purposes of paragraph 10. If such an event can only be an Event of Default where a notice is served it can legitimately be said that it will not become one until that has happened. Secondly, paragraph 14.1 does not simply provide, as it might have done, that the enumerated events are Events of Default but that any consequences that may follow from them are dependent on the giving of a notice. Thirdly, the fact that it is the service of a notice which causes an Event of Default to occur is underlined by the provisions of paragraph 14.2 of the GMSLA which provides as follows:

“Each Party shall notify the other (in writing) if an Event of Default or an event which, with the passage of time and/or upon the serving of a written notice as referred to above, would be an Event of Default, occurs in relation to it.”

Fourthly, the enumerated events are, if notice is given, Events of Default for the purposes of paragraph 10. That paragraph operates once an Event of Default occurs to accelerate the outstanding delivery and payment obligations of the parties so as to require performance at the time that the Event of Default occurs. The accelerated performance is to take the form of a comparison of Relevant Values and payment of the difference. Whilst the paragraph contemplates that obligations that have not yet become will become due, and that a settlement will be made as at the Termination Date, it does not, as it seems to me, contemplate that, because of the notice, the parties are to become retrospectively under an obligation to have made a payment by reference to the values applicable at a much earlier date. Lastly, the construction for which RSL contends would, as it seems to me, lead to the curious results to which Sberbank referred.

I have not ignored Mr. Jarvis’s submission that because the Lender’s warranties are continuous warranties a Borrower who serves notice of default in respect of a warranty that has been broken since the agreement was made may be able to avoid comparison of the relevant values being made as at the date of the agreement by relying on the continuous breach. I entertain some doubt as to whether that approach would be efficacious, but the fact that the problem arises at all seems to me a factor militating against the construction for which Mr. Jarvis argues. As to RSL’s point that, if Sberbank are right, there is an acceleration in the wrong direction, it has first to be observed that the Event of Default route is available when there has been no termination of any Loan so that the service of a notice will accelerate an obligation to repay and indeed all obligations. As it happens, in this case the Loans had been terminated prior to service of the notice of default, but in other cases the notice of default will act as an accelerant of all outstanding obligations. Further, the acceleration provided for by paragraph 10.2 is not simply an acceleration, if needed, of the date for repayment of any Loans. The paragraph calls for an acceleration so as to require a very specific form of performance involving a comparison of Relevant Values and payment of the difference. It is that which to my mind the notice of default brings about, and not retrospectively.

Accordingly, had I not been in favour of the Claimants on their primary case, I would, upon this alternative hypothesis, have held that the valuation date is 19^th December 2005. That would have led to a judgment for either US$123,453,330.14 or US$121,393,683.61. I do not in the circumstances propose to resolve the two issues that arise as to which of those is the correct figure. The first issue is as to what is the Offer Price at close of business on 19^th December. The Offer Price is defined in relation to Equivalent Securities or Equivalent Collateral as meaning “the best available offer price on the most appropriate market in a standard size.” If it be the case that the figures set out at exhibit PDG7 of Ms. Das Gupta’s witness statement constitute actual trades then it seems to me likely that the best evidence of the best available offer price at close of business is, in the absence of any further evidence, the last of the traded prices. If the position is that these are not traded prices but prices on offer the position might well be different. That is a factual area into which, in the light of my judgment, I do not propose or need to go into.