FIRST JUDGMENT HANDED DOWN IN THE FINANCIAL LIST
Mr Justice Robin Knowles CBE today handed down the judgment in GSO Credit – A Partners LP v Barclays Bank Plc  EWHC 146 (Comm), in which Tom Smith QC and Andrew Shaw appeared on behalf of the successful Claimants, funds managed by GSO Capital Partners.
This was the first substantive judgment given in the new Financial List, which was established in October 2015 as a joint initiative involving the Chancery Division and the Commercial Court in order to allow claims related to financial markets to be heard by judges with suitable expertise and experience.
HCC International Insurance Company Plc ("HCC") had provided surety bonds to various public authorities in Spain on behalf of Codere SA ("Codere"), a Spanish gaming company, under a surety bonds facility. The GSO funds agreed to acquire HCC’s position under the surety bonds facility at a rate of 76 cents/€1 facility through back-to back-trades carried out via an intermediary, Barclays Bank. The dispute between the parties concerned the settlement amount payable in relation to these trades.
The trades were subject to the Loan Market Association Standard Terms and Conditions for Par and Distressed Trade Transactions (Bank/Debt Claims) ("the LMA Standard Terms"). HCC argued that the definition of "Purchased Assets" in the LMA Standard terms excluded its obligation to pay the beneficiaries under the issued surety bonds and consisted solely of its rights in relation to Codere and that the position sold to the GSO funds was therefore "funded" for the purposes of calculating the settlement amount under the LMA Standard Terms because HCC had issued surety bonds under the surety bonds facility.
The GSO funds argued that the definition of "Purchased Assets" was broad enough to include any obligations under the issued surety bonds, and that the traded position had included these obligations. The traded position was "unfunded" for the purposes of the LMA Standard Terms because no calls had been made on the issued surety bonds. This would result in a settlement amount payable to the GSO funds, to reflect the fact that they were assuming the obligations of HCC to pay the beneficiaries of the issued surety bonds.
Mr Justice Knowles found in favour of the GSO funds' construction of the LMA Standard Terms, holding that HCC was wrong to contend that the definition of "Purchased Assets" under the LMA Standard Terms excluded obligations and that the surety bonds facility was "unfunded" because no monies had been paid by HCC to the beneficiaries of the issued surety bonds. Recognising the wider significance of the judgment for trades conducted under the LMA Standard Terms he identified two key conclusions relevant for trades in respect of surety bonds facilities under those terms:
- The trade will generally include the economic burden of the seller’s obligations under the issued surety bonds; and
- The "Purchased Assets" are generally "funded" to the extent that monies have been paid by the seller under the issued surety bonds.