Goldman Sachs International v Videocon Global Ltd & Anor

This is an application by the Claimant, Goldman Sachs, for summary judgment against the Defendants, Videocon Global Limited and Videocon Industries Limited. Unusually, this is the Claimant’s second attempt at securing summary judgment.

The Claimant’s claim is for US$4,066,542.90, plus interest and costs, being the sum said to be owing to the Claimant under a series of ISDA Master Agreement based currency swaps which were duly terminated as of 2 December 2011 after the First Defendant failed to pay margin calls. The Claimant claims the same amount from the Second Defendant under a guarantee. By notice dated 14 December 2011 the Claimant set out some calculations of the sum claimed in purported compliance with clause 6(d) of the ISDA Master Agreement.

As a result of the decision of Mr. Knowles CBE QC (as he then was) in September 2013 on the first summary judgment application ([2013] EWHC 2843 (Comm)) there is no dispute that the Defendants are, in principle, liable to the Claimant. However, Mr. Knowles held that in breach of clause 6(d) of the ISDA Master Agreement the Claimant had failed to give the Defendants sufficient details of how the sum claimed had been calculated. The Claimant was not therefore entitled to summary judgment for the sum claimed.

On 7 March 2014 the Claimant provided the Defendants with further details of how the sum claimed had been calculated. There is no longer any suggestion that the Defendants lack sufficient details of the sum claimed. It is the service of those further details which justifies this second attempt at securing summary judgment.

However, Mr. Wheeler, on behalf of the Defendants submitted that in breach of clause 6(d) the further details had not been provided “on or as soon as reasonably practicable” following the Early Termination Date. Indeed the details were served well over two years after the Early Termination Date. It was therefore submitted that the Claimant had not complied with the contractual conditions for the sum to become due for payment and in consequence the Claimant cannot claim payment and is not entitled to summary judgment.

In response to this argument Mr.Yeo, on behalf of the Claimant, took four points. First, he submitted that it was unarguable that the further details had not been provided “on or as soon as reasonably practicable” following the Early Termination Date. Second, if such a contention is arguable then, on the true construction of the ISDA Master Agreement, the sum claimed is payable but the Defendants may counterclaim for any damages caused by the lateness of the provision of adequate details. Third, in any event, on the true construction of the ISDA Master Agreement the obligation to provide notice “on or as soon as reasonably practicable” following the Early Termination Date applies only to the calculation of the sum claimed and not to notification of the details of the calculation. Fourth, and in any event, the same sum can be claimed as damages.

Before considering each of these points it is necessary to set out clause 6 (d) of the ISDA Master Agreement.

The question for the court on this application for summary judgment is whether the Defendants have any real prospect of establishing at trial that the second notice of details was not delivered “on or as soon as reasonably practicable” following the Early Termination Date.

Mr. Yeo submitted, in an elaborate argument, that the second notice, notwithstanding that it was served well over two years after the Early Termination Date, was served “on or as soon as reasonably practicable” following the Early Termination Date. The stages in this argument were these:

Since it took the Defendants 17 months to complain about the adequacy of the first notice it was reasonable for the Claimant to assume that the first notice provided sufficient details.

It was not reasonable to expect the Claimant to start the work of providing further details until the time for the Defendants to appeal the judgment of Mr. Knowles had expired. That was not until November 2013.

The Claimant provided the further details on 7 March 2014, a mere three and half months later. Having regard to the work required and the intervening 6 public holidays this was a reasonable time.

The service of the fresh details on 7 March 2014 has caused the Defendants no prejudice.

It therefore follows that the further details were provided “on or as soon as reasonably practicable” following the Early Termination Date.

Mr. Wheeler submitted that in circumstances where the first notice was provided within two weeks of the Early Termination Date but was inadequate the addition of the requisite details “cannot possibly justify the additional time [some 2 years and 3 months] taken to produce the New Section 6 Notice”. The evidence submitted by the Claimant “does not begin to constitute a full explanation of (still less justification for) the time taken such that the Claimant can demonstrate that it could not reasonably have acted any faster that it did.”

In my judgment the Defendants plainly have a real prospect of establishing at trial that the second notice was not delivered “on or as soon as reasonably practicable” following the Early Termination Date. It seems to me most improbable that the parties to this currency swap envisaged that the provision of details of the sum claimed some two years or more after the Early Termination Date could ever be within the phrase “on or as soon as reasonably practicable” following the Early Termination Date.

This is a short question of construction which is suitable for determination on a summary judgment application.

Mr. Yeo accepted that pursuant to clause 6(d) the sum claimed only became payable once adequate details of the sum claimed had been provided. However, he submitted that once those details had been provided the sum claimed was payable, notwithstanding that the details had not been provided “on or as soon as reasonably practicable” following the Early Termination Date. Any other construction would mean that service of adequate details just one day late would mean that the sum claimed was not payable. This would be “commercially absurd”. Any lateness in the provision of particulars would give rise to a claim for damages but not to a complete defence to the sum claimed.

Mr. Wheeler submitted that the terms of clause 6(d) were clear. An adequate and timely notice was a condition precedent to the sum claimed being payable. In the absence of such a notice the sum claimed was not payable.

In my judgment it is necessary to consider the words used by the parties. Clause 6(d)(ii) states that the sum claimed will be payable on the day that notice of the amount payable is effective. When is the notice of the amount payable effective?

Both parties accepted that the reference to “notice of the amount payable” was a reference back to the obligation in clause 6(d)(i) to provide a statement. The purpose of the statement required by clause 6(d) is twofold. First, it is to provide the paying party with an explanation of the sum claimed so that he can understand it and, if he wishes, check it (see the judgment of Mr. Knowles CBE QC at paragraph 46). Second, it is to inform the paying party of the account into which the sum must be paid so that he can effect payment. Once sufficient details of both matters have been given the notice is, in my judgment, effective. The fact that it was not served “on or as soon as reasonably practicable” following the Early Termination Date does not render the notice ineffective. It merely renders it “late”.

It is to be observed that clause 6(d)(ii) does not state that the sum will be payable when a notice compliant with clause 6(d)(i) has been served. If it had done so that would have provided, at least, the foundation for Mr. Wheeler’s submission that a late notice was non-compliant and therefore that the sum claimed was not payable. But, by contrast, clause 6(d)(ii) states that the sum is payable when the notice is effective. That requires one to have regard to the purpose of the notice. When one does so the second notice, albeit late, can be seen to be effective.

Further, Mr. Wheeler’s construction of clause 6(d) means that, following a failure to serve the notice “on or as soon as reasonably practicable” following the Early Termination Date, any later notice will inevitably be ineffective with the result that the sum claimed will never be payable.

I consider this construction to be so lacking in commercial sense that it cannot have been the meaning which a reasonable person with the background knowledge available to the parties would have understood the clause to bear. Indeed, it is difficult to conceive of a reason why the parties would have intended that a late notice should be an ineffective notice. By contrast there is commercial sense in a construction pursuant to which a notice is effective if it provides the paying party with the information required by clause 6(d). That is not to say that the provision of a late notice, that is, one which is not served “on or as soon as reasonably practicable” following the Early Termination Date is devoid of legal consequence. It is a breach of contract and so it may found an action in damages if the lateness has caused loss. Although Mr. Wheeler did not suggest that the lateness in this case has caused any loss I do not consider that it can be said that lateness can never cause loss. All will depend upon the circumstances of the case.

Finally, my approach to the construction of clause 6(d) is consistent with the policy of the court to give effect to, rather than to invalidate, commercial agreements; see BNP Paribas v Wockhardt EU Operations (Swiss) AG[2009] EWHC 3116 (Comm) per Christopher Clarke J at paragraph 24.

It follows from my construction of clause 6(d) that the Claimant is entitled to summary judgment on its claim.

It is unnecessary to decide these two points but I will express my view on them shortly.

Mr. Yeo submitted that the phrase “on or as soon as reasonably practicable” following the Early Termination Date applied only to the obligation to calculate the sum claimed and not to the obligation to provide a statement showing those calculations in reasonable detail. I am unable to accept that submission. It appears to me that the phrase in question governs both the obligation to make calculations and the obligation to provide a statement showing such calculations in reasonable detail. I have relied upon the following considerations:

That is the natural reading of the clause which states that, “on or as soon as reasonably practicable following the occurrence of an Early Termination Date each partywill make the calculations ………and will provide to the other party a statement ……….” (emphasis added). The subject of each obligation is the same which suggests that the phrase in question applies to both obligations.

If the phrase does not apply to the second obligation there is no express stipulation as to when the obligation should be performed. It is unlikely that the parties to this complicated and detailed agreement would not have made an express agreement as to when that obligation should be performed.

There is no difficulty in the Claimant providing details of the calculations immediately after he has done them, which would be, in the language of the clause, as soon as reasonably practicable after the Early Termination Date.

Mr. Yeo’s final point was that even if the Claimant was unable to claim in debt the Claimant could claim the same sum in damages. However, the sum claimed as a debt under the ISDA Master Agreement is not be equated with the common law measure of damages; see Lomas v JFB Firth Rixson[2012] 2 Lloyd’s Rep. 548 at paragraphs 129-136. Whilst it might prove upon analysis that the details provided happen to be a good and even reliable estimate of the common law measure of damages in the particular case I do not consider that it is appropriate to carry out that analysis on a summary judgment application.