Final payment under the ISDA: pay now, the details are in the mail
On 15 March 2016, the Court of Appeal dismissed the appeal of Videocon Global Ltd and Videocon Industries Limited (“Videocon”) against a summary judgment granted by the High Court in favour of Goldman Sachs International (“Goldman”). Videocon`s defence was that the termination amount in respect of the Early Termination Date under the 1992 ISDA Master Agreement was not payable because the supporting statement was two years late.
Delivering the judgment for the Court of Appeal, Gloster J established a clear-cut separation between:
- 6(d)(i) The statement showing in reasonable detail the calculations of the amount due in respect of any Early Termination Date, along with the details of the relevant account for payment; and
- 6(d)(ii) The notice of the amount calculated as being due and then payable in respect of any Early Termination Date
Contrary to the concessions made in the earlier proceedings, and acknowledged by the judges then, the Section 6(d) statement and notice would not be one and the same thing.
Breaking with the expected chronological order, an amount due in respect of an Early Termination Date becomes payable before the provision of the statement showing the details of the calculation.
The interpretation adopted by the Court of Appeal could influence how Transactions are terminated under the ISDA Master Agreement .
Key facts and issue in appeal
An Early Termination Date was designated on 2 December 2011, the validity of which was confirmed by the High Court on 20 September 2013 on a first application for summary judgment. The Court held that further issues had to be disposed of at trial, as the related statement of calculations provided on 14 December 2011 by Goldman lacked details.
In response, on 7 March 2014, Goldman delivered a second statement setting out the detailed calculations of the amount payable and filed a second application for summary judgment.
On 19 December 2014, the High Court granted the application. The defence of Videocon based on the lateness of the statement was rejected. Essentially the judge held that a failure to serve a Section 6(d) statement “as soon as reasonably practicable” merely rendered the statement late, but not ineffective.
The issue raised by the appeal is whether there is any applicable time limit to a notice given under section 6(d) of the 1992 Master Agreement.
Section 6(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. [… ]
(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 [… ]
Position of Videocon and the decision
Videocon argued that as the statement under (i) had not been provided as soon as reasonably practicable, it could not be effective to constitute the notice required under (ii). As a result, the contractual mechanism should be displaced in favour of a common law claim.
The Court of Appeal held that the notice of the amount payable under (ii) becomes effective when it is given in accordance with Section 12, which is essentially concerned with the way to deliver a notice and the day on which it becomes effective. On a natural reading, in (ii) “the only thing which those words are referring to is what they say: namely notice of the amount payable, not a detailed statement of the relevant calculations and quotations et cetera, supporting the amount payable.”
The provision of the statement under (i) – or in this case, its late provision – would have no bearing on the effectiveness of the notice under (ii).
Whether a claim for damages arises due to the lateness would depend on the circumstances of the case.
The distinction made by the Court of Appeal permits the notice of the amount payable to be delivered and become effective ahead of the statement, without immediately apparent consequences due to the lateness of the statement. Nonetheless, a transition to such an approach is unlikely as it would go against commercial sense: under normal closing-out practices, both the Section 6(d)(ii) notice and the Section 6(d)(i) statement of details are provided simultaneously.
On the face of it, the judgment is firmly placing the cart before the horse, but the willingness of a party to write a cheque without the benefit of the calculations remains to be seen.
 Videocon Global Ltd and another v Goldman Sachs International  EWCA Civ 130
 The High Court case is discussed here: Two years is late, but not too late for a notice under the ISDAContact Us