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Lomas v Firth Rixson (2012) – Section 2(a)(iii) provisions clarified as…the opposite of NY law

Lomas & Others v JFB Firth Rixson Inc & Others [2012] EWCA Civ 419


Four appeals were jointly heard in a single hearing concerning Events of Default under 1992 ISDA Master Agreements between Lomas and four other differing parties, regarding the efficacy of conditions in the standard Master Agreement. The case offered definitive answers to the interpretation of the Agreement, and under English law, came to the opposite conclusion that New York courts had in the Metavante ruling.

The judgment can be found here.


Four previous appeals: [2010] EWHC 3372 (Ch), [2011] EWHC 718 (Ch), [2011] EWHC 1692 (Comm) and [2011] EWHC 692 (Comm), were co-appealed in a single appeal. Despite the fact that each of the four individual appeals differed slightly, each had an Event of Default that had occurred under a 1992 ISDA Master Agreement, two with an Automatic Early Termination and two without.

Each Agreement had stated that the parties had entered into one or more transactions governed by the ISDA Master Agreement between each two parties. The ISDA Master Agreements stated that non-occurrence of an Event of Default was a “condition precedent” to payment obligations. The non-Defaulting Parties subsequently claimed that as the Event of Default ate into the time that the contracts matured, they would not have to pay the sums and were entitled to windfall.  This went to appeal at the Court of the Appeal, where all four cases were co-joined.


It was found that the underlying debt obligation was undisturbed by the Event of Default; if the Event of Default was cured before the transactions were terminated then the previously suspended payment obligations of the non-defaulting party were to resume.

As the first two parties elected not to use the Automatic Early Termination provisions in the Master Agreement, that underlying debt remains, even if the early payment obligation is inoperable, pursuant to the decision in Enron Australia v TXU Electricity [2003] NSWSC 1169.

LJ Longmore expressed that as there was no concept of expiration articulated in the Agreement and similarly there was no event in which this could arise. However, it would be possible for the Non-defaulting Party to terminate early after the maturity of the Transaction, where described in the Schedule as provided in section(6)(a) of the Agreement.

The court also heard that it was difficult for Section 2(a)(iii) to offend the anti-deprivation rule, but that the correct response would be to examine each Transaction individually, and seek justification as a response to liquidation that one of the parties was going into, triggering the Event of Default. This was in context to the second appeal.

The court also upheld the existing judgement made in Pioneer Freight Co Ltd v TMT Asia Ltd [2011] 2 Lloyds Rep 96, stating that the condition precedent did not affect the underlying debt accruing and being calculated in accordance with the terms of the agreement.

The ratio decidendi of the co-joined appeal was the complete opposite to the decision made regarding the Metavante v Lehman ruling in the New York courts. Here, the Court found that Early Termination had to be triggered in good time, or not at all – and could not decide to terminate the trade at an arbitrary point in the future.


Edward Murray stated that the case offers a “comprehensive judgement (which) masterfully resolved a number of conflicting strands of jurisprudence” and can be used, going forward, to offer guidance on the efficacy and meaning of certain provisions of the 1992 ISDA Master Agreement. The case was heralded with positive and significant judicial judgement.

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