Goldman Sachs International v Videocon Global Ltd & Anor

The Claimant (“Goldman Sachs”) seeks summary judgment against the First Defendant (“Videocon Global”) for sums said to be due on the termination of two currency option transactions (“the Transactions”).

Against the Second Defendant (“Videocon Industries”), Goldman Sachs seeks summary judgment for sums said to be due on a guarantee of the liabilities of Videocon Global in respect of the Transactions (“the Guarantee”). With one exception (considered below) no separate issues arise on the Guarantee claim, with the result that the claims stand or fall together. I will use the term “Videocon” when describing the Defendants together.

For the Transactions, Goldman Sachs and Videocon Global contracted on the basis of the 1992 (Multicurrency - Cross Border) form of ISDA Master Agreement, with the 1995 (Bilateral Form –Transfer, English Law) form of ISDA Credit Support Annex (together, “the ISDA Master Agreement”). A Schedule to the ISDA Master Agreement provided for the Transactions to be governed by English Law.

On 23 November 2011 Goldman Sachs demanded payment of US$ 840,000 by Videocon Global by way of margin call as Eligible Credit Support under the Credit Support Annex. It is Goldman Sachs’ position that the margin was not paid in time, or at all. Goldman Sachs delivered a “Notice of Potential Event of Default” dated 28 November 2011 and then a notice designating an Early Termination Date (“the Early Termination Notice”). The latter designated “2 December 2011 or, if this notice is not effective on such date, the next Local Business Day on which the notice is effective under Section 12(a) of the ISDA Master Agreement, as the Early Termination Date” in respect of the Transactions. Relying on a statement it has made under Section 6(d) of the ISDA Master Agreement, Goldman Sachs claims US$ 4,066,542.90 together with interest and expenses.

Videocon Global contends that by the time that the Early Termination Notice was delivered the 23 November 2011 margin call was no longer effective, and also that it had in any event tendered performance of any obligation to pay the margin demanded. It further contends that the Early Termination Notice was not delivered until after close of business on 2 December 2011 and was not effective in designating 2 December as the Early Termination Date. Moreover, according to Videocon Global, the Early Termination Notice did not effectively designate a date later than 2 December 2011 as an Early Termination Date.

Finally, Videocon does not accept that any liability or loss is in the sum calculated by Goldman Sachs. This last issue involves some examination of the requirements for a statement under Section 6 of the 1992 (Multicurrency - Cross Border) form of ISDA Master Agreement if such a statement is to be used to determine quantum on an Event of Default.

The validity of the 23 November 2011 margin call (by way of Eligible Credit Support under the Credit Support Annex) is common ground. It obliged Videocon Global to pay US$ 840,000 by 25 November 2011, and it is common ground that the payment was not made by that time. Videocon admit that at 3pm on 28 November 2011 a “Notice of Potential Event of Default” was served on Videocon Global by Goldman Sachs, requiring payment of the margin call within 1 Local Business Day and that payment of the margin call was not made within that time.

However also on 28 November 2011 another margin call was made by Goldman Sachs. This was for US$ 1,470,000. And between that margin call and the margin call on 23 November 2011 two other margin calls had also been made; one for US$ 660,000 on 24 November 2011 and one, on 25 November 2011, for US$ 380,000 in addition to the US$ 840,000 demanded on 23 November 2011. Videocon argue that the later margin calls superseded the earlier ones. Videocon contend that the “Notice of Potential Event of Default” on 28 November (and the later Early Termination Notice), each being based on a failure to pay the earliest of the margin calls, were ineffective because the earliest margin call did not remain effective and an obligation to make payment of the margin demanded did not remain outstanding.

The ISDA Credit Support Annex anticipates and allows for successive margin calls to be made. Daily calculations of Exposure will often produce different figures as currencies move. At no stage over the period from the margin call on 23 November 2011 did Goldman Sachs do anything that was capable of causing Videocon Global to understand that the margin call was withdrawn. That is true even of the fact that the margin call on 24 November 2011 was for a lesser sum, because the relevant Margin Call Notices made plain that the margin calls were based on different valuation dates.

If there was any room for doubt, doubt did not survive an email dated 24 November 2011 in which Goldman Sachs advised Videocon Global in terms that “although we have issued a call for cob 23 November 2011 below, our call for cob 22 November 2011 is still pending”. And when Goldman Sachs emailed Videocon Global on 25 November 2011 requesting confirmation whether Videocon Global agreed to pay US$ 840,000 for value 25 November 2011, the reply was “OK”.

That reply was from Mr Sanjay Chudnaik, Finance Manager of Videocon Global. In a witness statement dated 30 April 2013 he gives this account:

“On receipt of the [first] Margin Call Notice [of 23 November], we started the internal process of arranging for transfer from [Videocon Industries] to [Videocon Global] of USD 840,000 to meet the call notice requirements. At the time, the Chief Financial Officer of [Videocon Global], Mr Hegde and I were communicating with Mr Thakore of [Goldman Sachs], and we informed him that the process of arranging payment was underway.

Mr Hegde and I kept Mr Thakore generally informed on progress with the arrangement of payment. There was very little, if any, written communication with Mr Thakore. He would call at our offices and discuss in person with me and Mr Hegde.

We then received another Margin Call Notice on 28 November 2011 … which, by its terms, necessarily superseded the 23 November 2011 Margin Call Notice. This time the Margin Call was for USD 1,470,000 (instead of the USD 840,000 called for in the 23 November 2011 Notice). This put to waste all our previous efforts to arrange payment of USD 840,000, and the process of arranging payment of the increased amount had to be started all over again. We immediately started that process, and we informed Mr Thakore that, in accordance with the new Margin Call Notice, we had stopped arranging payment of USD 840,000 and started arranging payment of USD 1,470,000.

Mr Thakore telephoned me in relation to the new Margin Call Notice. I remember asking him to confirm that the Margin Call Amount was now USD 1,470,000 and not USD 840,000, and he confirmed the same.”

Several points bear emphasis in relation to that account. First, it contains no suggestion that Videocon Global thought it was liable to pay less than US$ 840,000 after the margin call for US$ 660,000 on 24 November 2011. Second, the account makes clear that by the time of the margin call on 28 November 2011 Videocon Global had not completed what Mr Chudnaik describes as “efforts to arrange payment of USD 840,000”. Third, the account offers no explanation why Videocon Global could not have proceeded to pay US$ 840,000 and then pay the additional sum required by the margin call for US$ 1,470,000.

Videocon next contends that at the time that the Early Termination Notice was delivered Videocon Global had tendered performance of any obligation to pay the margin demanded.

Mr Giles Wheeler, Counsel for Videocon, argues in his written submissions that tender was made “by Videocon faxing instructions to its bank to make the requisite payment to [Goldman Sachs] in circumstances in which [Goldman Sachs] knew that the instructions had been sent”. In giving those instructions, Mr Wheeler argues, Videocon Global had performed its obligation to make payment to Goldman Sachs as far as it was able to do; all that remained was for the money to work its way through the banking system; no further action from Videocon Global was required for that to happen.

I mean no disrespect when I say that in my view this argument has no foundation. It was for Videocon Global to pay Goldman Sachs. An instruction by Videocon Global to its own bank, with the potential for alteration of instruction, delay in compliance with instruction, refusal to comply with instruction, and more, does not begin to meet that obligation.

Dixon v Clark (1848) 3 CB 365 is relied upon by Mr Wheeler in support of the argument. Delivering the judgment of the Court, Wilde CJ said this:

“In actions of debt and assumpsit, the principle of the plea of tender, in our apprehension, is, that the defendant has always been ready (toujours prist) to perform entirely the contract on which the action is founded; and that he did perform it, as far as he was able, by tendering the requisite money; the plaintiff himself precluded a complete performance, by refusing to receive it. And, as in ordinary cases, the debt is not discharged by such tender and refusal, the plea must not only go on to allege that the defendant is still ready (uncore prist), but must be accompanied by a profert in curiam of the money tendered”

In the present case on facts that are plain at this stage there was no performance by Videocon Global by payment, and there was no refusal by Goldman Sachs to receive that payment.

On the evidence of Mr Chudnaik of Videocon Global, at about 6pm on 2 December 2011 he cancelled the payment instruction that Videocon Global had given to its bank.

It is common ground that the Early Termination Notice was delivered on the afternoon of 2 December 2011 by Mr Thakore at Videocon’s offices in India. Goldman Sachs says that the delivery was at 3.55pm. This is the time recorded in a form signed by Mr Thakore and dated 2 December 2011.

Videocon say that the delivery was after 5pm, that is, after (on Videocon’s case) the close of the business day in Mumbai. In his written submissions Mr Wheeler states that Videocon’s case is that Mr Thakore left their offices at around 5.15pm.

Videocon produce no contemporaneous materials but refer to witness statements of three individuals each made on 30 April 2013. The first witness statement is made by Mr Coutinho, a receptionist at Videocon’s offices. He says this:

“At approximately 5.15pm on 2 December 2011, Mr Thakore came to the front desk and hand delivered an envelope to me. He said that it was important and that it was to be given to Mr Hegde, the CFO, or to Mr Sanjay Chudnaik. I did not open the envelope.

Then, at 5.20pm on 2 December 2011, I telephoned Mr Chudnaik, [Videocon Global’s] Finance Manager, to inform him that I had received an important document from Mr Thakore. I then sent the unopened envelope across to his desk through an office boy.”

Mr Coutinho offers no explanation of how he is able, 16 months on, to put the time of his receipt of this envelope as receptionist at approximately 15 minutes after 5pm rather than at any time before 5pm. He himself puts the time as approximate, suggesting that he is not relying on a record. Indeed Videocon offer no evidence whether there was any record keeping system for received materials generally, or whether any note was made on this particular occasion. Videocon do not say whether anything happened that could have caused Mr Coutinho to recall what the time was.

The second witness statement is made by Mr Chudnaik, and the third by a Mr Diddi. Mr Chudnaik gives an account of time he spent with Mr Thakore earlier in the afternoon of 2 December 2011. He offers no direct evidence of the delivery of the Early Termination Notice, but says that he has spoken to Mr Coutinho (he does not say when) “who confirms that the Notice was left with him at [sic] 5.15 pm”. That account, said to be based on what Mr Coutinho has told him, is more definite as to time than even Mr Coutinho’s own statement to the Court.

Mr Chudhaik then states that “at approximately 5.20 pm” he received a telephone call from Mr Coutinho informing him that Mr Thakore “had just” left a document with him. Mr Diddi, a financial consultant to Videocon, refers in his witness statement to a telephone conversation with Mr Thakore “at approximately 5.30pm” in which Mr Thakore informed him that he “had just served” the Notice.

Like Mr Coutinho, so too Mr Chudnaik and Mr Diddi offer no explanation of how it is they are able, 16 months on, to specify the times in the way they do, and to within the 15 or 20 minutes crucial to Videocon’s case. They do not suggest there is any record. Again Videocon offers no evidence of any record keeping system for received materials generally, or of any note made on this particular occasion.

I have considered the witness statements carefully, including the accounts of earlier and later events on 2 December 2011. I keep closely in mind that this is a summary judgment application. I have concluded that the Court is not required to accept the claims from these witnesses, that after 16 months they can recall the timing of a delivery or a call to within 15 or 20 minutes when they do not explain how. The most direct evidence is that of Mr Coutinho and I cannot accept, without his explaining how, that he is in a position to state the time when he received in 2011 a package described as important and sent it on, unopened, within the office.

In circumstances where a fact of this nature is, according to a Defendant, crucial to a defence that that Defendant wishes to advance at trial, and the Claimant says that there is no properly arguable defence, in my judgment it behoves the Defendant to offer the fullest particulars. In the narrow circumstances under discussion the Court is entitled to form a view as to whether evidence tendered of the fact has a real prospect of withstanding scrutiny at trial. In the present case in my judgment it does not.

I do not overlook the absence of a witness statement from Mr Thakore, or the fact that there are respects in which the form signed by him and dated 2 December 2011 is not complete. In reaching my conclusion I have taken the incompleteness in the form as I find it. As to a witness statement from Mr Thakore, a comparison between a witness statement from him and the witness statements from Videocon would likely not be fruitful on a summary judgment application. What is material, even on a summary judgment application, is the deficiency in the evidence put forward by Videocon, taking that evidence in its own right.

If Videocon were right, or arguably right, that the Early Termination Notice was not delivered until after 5pm on 2 December 2011, did the Early Termination Notice fail to designate an Early Termination Date?

As stated above, the Early Termination Notice stated that it designated “2 December 2011 or, if this notice is not effective on such date, the next Local Business Day on which the notice is effective under Section 12(a) of the ISDA Master Agreement, as the Early Termination Date” in respect of the Transactions.

Section 6(a) of the ISDA Master Agreement provides (the parties in the present case not having specified “Automatic Early Termination”):

“Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. ...”

Videocon argue that the contractual requirement is that “a day” is designated. By designating “the next Local Business Day on which this notice is effective under section 12(a) of the ISDA Master Agreement” in the event that the Early Termination Notice was not effective on 2 December 2011, Goldman Sachs did not designate “a day”, argue Videocon.

Section 12(a) provides when a notice “will be deemed effective”. For example if a notice is in writing and delivered in person it will be deemed effective on the date it is delivered unless the date of that delivery is not a Local Business Day or the notice is delivered after the close of business on a Local Business Day, in which case the notice is deemed effective on the first following business day that is a Local Business Day. The first following business day that was a Local Business Day was 5 December 2011.

It seems to me plain that the Early Termination Notice in the present case complies well enough with Section 6(a). It is designed to designate one day (rather than more than one day). It recognises that, in certain circumstances, Section 12(a) may deem a day other than the actual day of delivery as the day on which the Notice is deemed effective. The Notice sensibly allows for that possibility in terms. The Notice also makes clear that the choice has been made not to designate a date that reaches further into the 20 day maximum provided by Section 6(a).

In my judgment:

In these circumstances Goldman Sachs is entitled to summary judgment on issues of liability. The question remains whether the judgment should be in the sum calculated by Goldman Sachs.

The ISDA Master Agreement contains provisions for the calculation of loss where there has been a breach of contract. The argument before me is confined to the question of how those provisions operate on their terms, rather than any question of validity or enforceability.

Sections 6(c) and 6(d) of the ISDA Master Agreementprovide:

“(c)

Effect of Designation.

(i)

If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.

(ii)

Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).

(d)

Calculations.

(i)

Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.

(ii)

Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective ... Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.”

Section 6(e) provides for the calculation of amounts due on Early Termination, depending on whether the relevant ISDA Schedule specifies “Market Quotation” or “Loss”. and “First Method” or “Second Method”. The ISDA Schedule Part 1 paragraph (f) in the present case specified “Loss” and “Second Method”.

Section 6(e)(i)(4) of the ISDA Master Agreement provides as follows:

“(4)

Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party’s Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.”

“Loss” is defined in Section 14 of the ISDA Master Agreement as follows:

“‘Loss’means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs ... in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position ... Loss includes losses and costs ... in respect of any payment or delivery required to have been made ... on or before the relevant Early Termination Date and not made ... Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.”

On 14 December 2011, Goldman Sachs delivered a statement (“the Statement”) that on its case was a statement complying with Section 6(d) of the ISDA Master Agreement. The Statement stated that “the Loss in respect of each Transaction is specified in Appendix 2” to the Statement.

Appendix 2 is in the following form and terms (the emphasis is in the original):

“ LOSS

For the purpose of 6(e) of the Master Agreement, “Loss” and “Second method” apply pursuant to paragraph 1(f) of the Schedule to the Master Agreement. The Termination Currency is USD.

[Goldman Sachs] (as Non-defaulting Party) has calculated its Loss in respect of each Transaction, and taking into account the Credit Support Balance under the [Credit Support Annex]. A summary of the calculation of [Goldman Sachs’] Loss is set out in this Appendix 2.

The Loss for each of the Terminated Transactions is set forth under the heading ‘Loss Amount’ in the table below. These amounts were determined using the following process.

First, [Goldman Sachs] obtained an independent quote from a third party source, and a quote from a Goldman Sachs entity, for spot exchange rates, forward rates and FX volatilities for INR/USD and BRL/USD (as applicable). Second, GSI used the quotes that were more favourable level [sic] for Videocon to calculate the value of the Terminated Transactions using an options pricing model based on market accepted standards.

GSI Trade Reference No Trade Date Loss Amount

[The first Transaction] 9-August-2011 USD 3,021,476

[The second Transaction] 2-September-2011 USD 1,577,795

Total = USD 4,599,271

The [Credit Support Annex] had, as at the Early Termination Date, a Credit Support Balance equal to USD 532,728.10 which, pursuant to Paragraph 6 of the [Credit Support Annex], constitutes an Unpaid Amount owing to you (as Transferor under the Credit Support Annex).

This amount (being and amount owed to you) was deducted from the total figure in the table above (being an amount owing to [Goldman Sachs] to give an overall loss of USD 4,066,542.90. As this amount is positive, this is payable by you to [Goldman Sachs] in accordance with Schedule 6(e) of the Master Agreement.”

Pursuant to Section 14 of the ISDA Master Agreement, the determination of Loss is to be “as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable”. Videocon say, and Goldman Sachs accept, that the Statement is calculated as at 2 December 2011. On my conclusions above, that would be the correct “relevant Early Termination Date”, although there may or may not be any material difference between a calculation as at 2 December 2011 and a calculation as at 5 December 2011 (the next business day). Of greater importance is the broader question of the sufficiency of the Statement itself.

In my judgment, the agreed procedure under the ISDA Master Agreement where “Loss” and “Second Method” are chosen included these material requirements:

Against the context of these requirements I examine the Statement delivered. I find:

The failures in the Statement to meet the agreed requirements are in my view material. In my judgment part of the purpose of those requirements, viewed objectively, was to provide to the party receiving a statement under Section 6 the information required to enable a reasonable understanding of how the figures stated were arrived at. The information would further assist the party receiving a statement under Section 6 to form a view, assisted if necessary by advice, as to whether the determination of Loss satisfied the contractual requirements of reasonableness and of good faith.

Mr Nik Yeo, Counsel for Goldman Sachs, submitted that the Statement in the present case “contains evidence of a manifestly reasonable and good faith approach to determination of “Loss”, including by reference to “market accepted standards””. He adds that “[i]t has been open to the Defendants to question any or all aspects of the … statement, but they have not done so.”. For the reasons I have given, I do not agree that the Statement contains the information that the contract between the parties requires. Videocon has questioned the Statement generally; the reason for the absence of a more detailed challenge lies at least in part in the deficiency in the information provided to them as against the information that the contract entitled them to receive from Goldman Sachs.

In these circumstances, whilst Goldman Sachs is entitled to summary judgment in respect of the issues of liability, it is not entitled to summary judgment on the issues of quantum. As things stand, the issues of quantum must go forward to trial.

As against Videocon Industries, Mr Yeo refers additionally to clause 20 of the Guarantee. This provides, in summary, that a certificate signed by any two duly authorised officers of the Goldman Sachs as to the amount for the time being due from Videocon Global to Goldman Sachs shall (in the absence of manifest error) be conclusive evidence for all purposes against Videocon Industries. The demand served on the Videocon Industrieswas, according to Goldman Sachs, signed by two such officers.

In light of my conclusion on quantum as against Videocon Global I do not propose to grant summary judgment against Videocon Industries for the amount stated in the demand. I am not persuaded that conclusivity in these circumstances was contemplated under clause 20 of the Guarantee, but even if it was I consider that the circumstances provide a compelling reason why the issues of quantum as against Videocon Industries should be disposed of at trial which is where, as things stand, they will be disposed of as against Videocon Global.

Videocon advance a counterclaim but the conclusions I have reached also deal with that. The final figure for quantum will (as did the Statement) give credit for a Credit Support Balance of USD 532,728.10 held by Goldman Sachs.