COMMODITIES IN FOCUS
ISDA early termination payments
This is an abridged version of a webcast produced by
of our Financial
Litigation team. To view the full webcast go to:ISDA Master Agreements - a brief update webcast
The English courts have recently considered the termination and "close out" provisions in
section 6 of the ISDA Master Agreements, in particular, the mechanism for calculation and
payment on early termination following an event of default.
The amount due in respect of an early termination
must be communicated to the party required to pay it
by a "statement" showing "in reasonable detail" the
calculations undertaken and providing details of the
account into which payment is to be made (section
6(d)(i)). This should be done as soon as reasonably
practicable following the occurrence of an Early
Termination Date ("ETD"). Section 6(d)(ii) provides
that the amount due in respect of an ETD is "payable
on the day that notice of the amount payable is
Videocon Global Limited and another v
Goldman Sachs International  EWCA
In Videocon Global v Goldman Sachs, the Court of
Appeal considered whether the defaulting party's
obligation to pay the sum due on early termination
was conditional on the notice being served as soon as
reasonably practicable after the ETD.
Videocon and Goldman Sachs entered into two
currency swap transactions under the umbrella of a
1992 Master Agreement. Goldman made a margin
call, which was not paid. Goldman delivered a notice
of potential event of default and a notice designating
an ETD. Several weeks later, Goldman delivered a
calculation statement. Videocon did not pay, so
Goldman started proceedings.
The judge held that Goldman had not provided proper
details of its calculations. Goldman served a new
notice, more than two years later. The new notice
set out the same sum but provided the further
information required. Goldman then reapplied for
The judge ruled that service of the notice "on or as
soon as reasonably practicable" after the ETD was not
a condition precedent to the sum becoming payable.
Whilst Goldman might have been in breach of
contract for serving the notice late, the notice itself
was still valid.
The Court of Appeal then dismissed Videocon's
appeal, distinguishing between a sum becoming due
and its becoming payable. The Court held that:
It is clear that the debt obligation in respect of
an ETD accrues due on that date, prior to the
section 6(d)(i) statement. Therefore, the debt
cannot be subject to production of the statement
before it becomes due and cannot be discharged
simply by failure to serve a non-compliant
The amount due on an ETD is payable on the day
that notice of the amount payable is effective
(section 6(d)(ii)). The clause does not refer to
the section 6(d)(i) statement, merely to "notice
of the amount payable", a more general term.
On its natural reading, those words refer only to
a notice of the amount payable and not a
detailed statement of the supporting calculations
and quotations. Only the "effective" giving of
notice of the amount payable is required to
trigger the Payment Date.
Goldman's letter clearly set out the amount
payable and its calculations. Although the
calculations lacked detail, the letter was still
adequate notice of the amount payable.
This important decision indicates that whether the
sum is due on the early termination of transactions
does not depend on detailed calculations being
provided at all, or even within a reasonable time.
The ruling will apply to both ISDA 1992 and 2002
Master Agreements. However, the calculation still
needs to be correct, so we expect that parties will
continue to deliver just one statement containing
both payment amount and calculation methodology.
“This important decision indicates
that whether the sum is due on
the early termination of
transactions does not depend on
detailed calculations being
provided at all, or even within a
The non-defaulting party could still be in breach of
contract if it does not provide the calculation details
promptly, even if the sum is due as a result of
notification of the sum. The defaulting party may be
able to prove that it has suffered loss as a result of
this failure, so prompt notification of the amount and
calculations is advisable.