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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Videocon Global Ltd & Anor v Goldman Sachs International [2016] EWCA Civ 130 (15 March 2016)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2016/130.html
Cite as: [2016] EWCA Civ 130
Neutral Citation Number: [2016] EWCA Civ 130
Case No: A3/2015/0105
2012FOLIO1049
Mr Giles Wheeler (instructed by TLT LLP) for the Appellants
Miss Sonia Tolaney QC and Mr Nik Yeo (instructed by Allen & Overy LLP) for the Respondent
Hearing dates: Thursday 3 December 2015
This is an application for permission to appeal, and, if permission is granted, an appeal, by the defendants to the action, Videocon Global Limited ("Global"), and Videocon Industries Limited ("Industries") (collectively "the appellants"), against the decision of Teare J, dated 19 December 2014, and reported under neutral citation number [2014] EWHC 4267 (Comm) ("the judgment"), in which he granted summary judgment to the claimant, Goldman Sachs International ("Goldman"), against the appellants in the sum of US $4,066,542.90, together with interest and expenses.
The appeal turns on a short point of construction of a key provision (section 6) of the 1992 (Multicurrency – Cross Border) ISDA Master Agreement ("the Master Agreement"). The Master Agreement is a standard form agreement which is "very widely used in international financial markets in all types of derivative transactions" (per Christopher Clarke J (as he then was) in BNP Paribas v Wockhardt EU Operations (Swiss) AG [2009] EWHC 3116 (Comm), at [23]) and it was common ground that its provisions fall to be interpreted in that context.
Capitalised terms which appear in this judgment are references to defined terms in the Master Agreement. All passages in bold in this judgment are my own emphasis.
Section 6 contains the ISDA "close out" provisions. The purpose of these provisions is to provide a contractual mechanism for (a) calculating the amount due upon the (early) termination of multiple transactions – as a single payment due from one party to the other; and (b) facilitating the prompt payment of such amount.
The issue raised by the appeal is whether there is any applicable time limit to a notice given under section 6(d) of the Master Agreement requiring payment of the sum calculated pursuant to section 6(e) as due following an Early Termination.
Mr Giles Wheeler appeared on behalf of the appellants (as he had done on both the summary judgment applications below). Miss Sonia Tolaney QC and Mr Nik Yeo appeared on behalf of Goldman (Mr Yeo alone having appeared on the summary judgment applications below).
At the conclusion of Mr Wheeler's arguments on behalf of the appellants, the court indicated that, because of the importance of the issue to the market, and not because it considered that the appeal had any real prospect of success, it would give permission to appeal, but that, having heard such arguments, and having reas the written submissions of, but without hearing from Miss Tolaney QC, on behalf of Goldman, it would dismiss the appeal. This judgment sets out my reasons for dismissing the appeal.
The operation and relevant terms of the Master Agreement
The critical terms of the Master Agreement for the purposes of this appeal are sections 6(c), 6(d) and 6(e), section 12 and the definition of "Loss" contained in section 14. They are as follows:
"6(c)	Effect of Designation.
i)	If notice designating an Early Termination Date is given under section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.
ii)	Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under section 2(a)(i) or 2(c) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to section 6(e).
(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 (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event.) Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(a)	Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:-
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or
"Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re-establishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "
The following description of the operation of the Master Agreement is adapted (but not in its entirety, and with certain amendments) from Goldman's skeleton argument on the appeal. It reflects my analysis of the contractual provisions.
The Master Agreement is intended to operate as an umbrella agreement governing a number of individual transactions or trades between the parties to a Master Agreement. Section 1(c) provides that all transactions (and all Confirmations of such transactions), along with the Master Agreement itself, form a single agreement between the parties.
Pursuant to section 2(a)(i), each party is obliged to make payments in respect of each trade in accordance with the relevant Confirmation. (In this case, under the relevant Confirmation for each Transaction, certain margin calls were payable, which Global failed to pay.)
Upon any failure to pay an amount due under section 2(a)(i), the Non-defaulting Party may serve a notice of that failure. If the failure is not remedied on or before the third Local Business Day, then an Event of Default occurs under section 5(a)(i).
If an Event of Default has occurred and is continuing, the Non-defaulting Party may serve an Early Termination notice setting a date not more than 20 days thereafter as the Early Termination Date for all outstanding transactions (section 6(a)).
Upon the Early Termination Date, no further payments are required under section 2(a)(i) in respect of any outstanding transactions, and those various contractual obligations are replaced by the single obligation to pay an amount "due in respect of any Early Termination Date"; see section 6(c)(ii). That amount is calculated in accordance with the provisions of section 6(e). In effect the amount due in respect of an Early Termination Date will be the net sum owing after the calculation of "close out" amounts for each Transaction. In other words it is the total of all net sums owing in respect of all Transactions.
This regime applies not only when there is an Event of Default but also upon the occurrence of various Termination Events, such as a change in law rendering the relevant transaction illegal (section 5(b)(i)).
The quantum of the amount payable in respect of an Early Termination Date falls to be determined :
i)	(if the termination is due to an Event of Default, as in the present case) by the Non-defaulting Party; or
ii)	(if the termination is due to a Termination Event) by the relevant Affected Party. If there are two Affected Parties both of them must perform the relevant calculation and split any difference between the amounts respectively calculated.
Thus, where there is (as in this case) an Event of Default termination, the Non-defaulting Party (in this case Goldman) is entitled to calculate the "amount … being due in respect of any Early Termination Date" and then require payment of such sum from the Defaulting Party or make payment if the amount is owed the other way. In other words, the Non-defaulting Party can, in appropriate circumstances, owe the amount due in respect of an Early Termination Date to the Defaulting Party.
The way in which the amount due in respect of an Early Termination Date is to be calculated is set out in section 6(e) and depends upon the elections made by the parties when entering the Master Agreement or the relevant transaction:
i)	If "Loss" is specified as the relevant option, then the calculating party must determine its "Loss" (defined broadly as its loss of bargain, cost of funding or loss or cost of terminating or re-establishing any hedge or related trading position) reasonably and in good faith. The definition of "Loss" in section 14 includes the following:
ii)	If "Market Quotation" is specified as the relevant option, then the calculating party must seek quotations for a replacement transaction and determine a mean of them. The parties acknowledge that the amount recoverable as a result of this calculation is a reasonable pre-estimate of loss and not a penalty. If less than three quotations are received (or if Market Quotation would not, in the reasonable belief of the determining party, produce a commercially reasonable result) then Loss must be determined instead.
In relation to the calculation of the amount due in respect of an Early Termination Date as a result of an Event of Default termination:
i)	if the "First Method" is specified, any positive amount so calculated is payable by the Defaulting Party to the Non-defaulting Party, but any negative amount is ignored; and
ii)	if the "Second Method" is specified, any positive amount so calculated is payable by the Defaulting Party to the Non-defaulting Party, and if the calculation yields a negative amount, the absolute amount is payable by the Non-defaulting Party to the Defaulting Party.
Where the calculation of the amount payable in respect of the Early Termination Date is the result of a Termination Event, the Second Method is always in effect applied. In this case, Loss and the Second Method were selected by the parties.
Following the calculation of the amount due in respect of an Early Termination Date, section 6(d)(i) requires that amount to be communicated to the party required to pay it by a "statement" provided by the calculating party showing "in reasonable detail" the calculations undertaken and providing details of the account into which payment is to be made. Section 6(d)(ii) provides that the amount due in respect of an Early Termination Date (in the case, as here, where the Early Termination Date is designated or occurs as a result of an Event of Default) is "payable on the day that notice of the amount payable is effective". The paying party is required to pay interest on the amount payable from the relevant Early Termination Date to the date on which the amount is paid, not, it is to be observed, from the "day that notice of the amount payable is effective."
Section 6(d) thus requires payment of any sums due "on the day that notice of the amount payable is effective". It is obviously in the interests of the calculating party to provide the information promptly whether to obtain payment of sums due to it or to avoid liability for any damage suffered by the other party from delay.
In all material respects, the factual background to the dispute was common ground. I summarise it as follows.
On 26 October 2010 Global (a British Virgin Islands corporation) and Goldman (an English company) entered into the Master Agreement, the ISDA Schedule and the Credit Support Annex.
On 11 November 2010 Industries (an Indian company and the parent of Global) guaranteed Global's obligations under the Master Agreement. There is no dispute that Industries' guarantee is valid and enforceable.
Two binding and enforceable currency swap transactions under the umbrella of the Master Agreement (defined in the Master Agreement as "Transactions") were entered into as between Goldman and Global on 9 August 2011 and 2 September 2011 respectively.
Global failed to pay a margin call of US$ 840,000 made by Goldman under the Transactions on 23 November 2011 which required payment by 25 November 2011.
Pursuant to the terms of the Master Agreement, Goldman served an Early Termination notice on 2 December 2011 designating 2 December 2011 as the Early Termination Date, namely the date as at which Goldman terminated the Transactions. Goldman then exercised its right under section 6 of the Master Agreement to crystallise the amount payable in respect of that Early Termination Date. It calculated the Loss payable by Global (and by Industries under its guarantee) in the sum of US$ 4,066,542.90, together with further sums in respect of contractual interest from the Early Termination Date and costs. By letter dated 14 December 2011, Goldman served a statement pursuant, or purportedly pursuant, to section 6(d) of the Master Agreement, in which it stated the amount payable under section 6(e) as US$ 4,066,542.90, together with interest and costs, and set out certain details of its calculations ("the first section 6 notice"). It stated that such amount was due "on the date of this letter (or, if later, the date on which this letter is effective)".
Following the appellants' failure to pay the amount payable in respect of the Early Termination Date (together with contractual interest and costs), Goldman issued proceedings in the Commercial Court on 6 August 2012.
By their defence and counterclaim dated 17 October 2012, the appellants raised three defences as follows:
i)	First, that Global had tendered performance by allegedly faxing instructions to its own bank to make payment. However the evidence showed that payment was never received - and in fact the instructions were subsequently countermanded by Global.
ii)	Second, that the Early Termination notice was not delivered until after business hours on 2 December 2011 and therefore was not effective to designate 2 December 2011 as the Early Termination Date. However the evidence, in the form of contemporaneous emails, showed that the notice was hand delivered to the appellants by 3:59pm on 2 December 2011.
iii)	Third, that if 2 December 2011 was not effectively designated as the Early Termination Date, the notice was not effective to designate the "next Local Business Day on which the notice is effective" as an alternative Early Termination Date.
On 14 November 2012 Goldman served its reply and defence to counterclaim.
On 1 March 2013 Goldman applied for summary judgment. In their evidence in response to that application, the appellants raised a further defence: namely, that the relevant Margin Call notice (triggering the payment default) was superseded by a subsequent one. That contention, as the judge hearing the summary judgment application (Mr Robin Knowles QC sitting as a deputy judge of the High Court) held, was unsustainable given that the Credit Support Annex envisages daily margin call notices and provides that each one has to be paid.
The summary judgment hearing took place on 17 May 2013 and on 20 September 2013 Mr Knowles gave judgment. He rejected all four defences and granted summary judgment in favour of Goldman in relation to all issues of liability. Accordingly, following his judgment, there was no dispute that the appellants were, in principle, liable to Goldman. The appellants sought permission to appeal but permission was refused by Lewison LJ on 19 November 2013.
However, immediately before the summary judgment hearing in May 2013, the appellants raised a further (and unpleaded) point in their written skeleton argument to the effect that Goldman had not provided "reasonable detail" of its calculation of the amount payable in respect of the Early Termination Date of US$4,066,542.90 in the first section 6 notice, despite the fact that that calculation had been provided some 17 months earlier and had not, prior to that date, been challenged in amount.
In the light of that argument, however, Mr Knowles QC concluded that, in breach of section 6(d) of the Master Agreement, Goldman had failed to give the appellants sufficient details of how the sum claimed had been calculated, and, accordingly, Goldman was not entitled to summary judgment for the sum claimed; issues of quantum would have to go forward to trial. At paragraphs 44 – 48 of his judgment he said:
44.	" In my judgment, the agreed procedure under the ISDA Master Agreement where "Loss" and "Second Method" are chosen included these material requirements:
Pursuant to section 6(d)(i) Goldman Sachs is required to make calculations and "provide to the other party a statement". Pursuant to section 6(d)(i) the statement is required to " show[], in reasonable detail, such calculations".
Pursuant to section 14 Goldman Sachs may (but need not) determine its Loss "by reference to quotations of relevant rates or prices". If it does then pursuant to section 14 the quotations must be "from one or more leading dealers in the relevant markets.", and pursuant to section 6(d)(i) the statement is required to " show[], in reasonable detail, … all relevant quotations …".
Pursuant to section 14 the determination of Loss is to satisfy the requirements of reasonableness and of good faith.
I emphasise that I am dealing with the 1992 (Multicurrency – Cross Border) form of ISDA Master Agreement and not with any other or later form, and with the situation where the parties have chosen "Loss" and "Second Method" under that form, rather than made any other choice.
45.	Against the context of these requirements I examine the Statement delivered. I find:
(1) Leaving aside interest, the Statement does not show any of the calculations Goldman Sachs has made, other than the addition or subtraction of total sums. This fails to meet the requirement that it " show[], in reasonable detail, such calculations".
(2) Although the use of quotations of rates or prices are not mandatory for the determination of Loss, the Statement says that quotations were in fact obtained in the present case for three items ("spot exchange rates, forward rates and FX volatilities") and across two exchanges of currency ("INR/USD and BRL/USD"). Having chosen to use quotations in the determination of Loss, the Statement does not show any of the quotations used. This fails to meet the requirement that it "show[], in reasonable detail, … all relevant quotations …)".
(3) The Statement says that the "quotes that were more favourable level [sic] for Videocon " were used. The Statement says that two quotations were obtained, one "an independent quote from a third party source" and one a "quote from a Goldman Sachs entity". It does not say who the "third party source" was or which "Goldman Sachs entity" was used, or whether it was the quote from the "third party source" or the "Goldman Sachs entity" that "were more favourable level". This fails to show that the requirement that if "quotations of relevant rates or prices" were to be used then they were to be "from one or more leading dealers in the relevant markets" was met.
(4) The Statement says that the quotations were used "to calculate the value of the Terminated Transactions using an options pricing model based on market accepted standards". It does not say what the pricing model was or show how it was used. This fails to meet the requirement that the statement "show[], in reasonable detail, the calculations". Further, without sight of the calculations it may be an open question whether what the Statement referred to as "calculat[ing] the value of the Terminated Transactions using an options pricing model based on market accepted standards" would in fact be a calculation of "Loss" as defined in the ISDA Master Agreement.
46.	The failures in the Statement to meet the agreed requirements are in my view material. In my judgment part of the purpose of those requirements, viewed objectively, was to provide to the party receiving a statement under section 6 the information required to enable a reasonable understanding of how the figures stated were arrived at. The information would further assist the party receiving a statement under section 6 to form a view, assisted if necessary by advice, as to whether the determination of Loss satisfied the contractual requirements of reasonableness and of good faith.
47.	Mr Nik Yeo, Counsel for Goldman Sachs, submitted that the Statement in the present case "contains evidence of a manifestly reasonable and good faith approach to determination of "Loss", including by reference to "market accepted standards"". He adds that "[i]t has been open to the Defendants to question any or all aspects of the … statement, but they have not done so.". For the reasons I have given, I do not agree that the Statement contains the information that the contract between the parties requires. Videocon has questioned the Statement generally; the reason for the absence of a more detailed challenge lies at least in part in the deficiency in the information provided to them as against the information that the contract entitled them to receive from Goldman Sachs.
48.	In these circumstances, whilst Goldman Sachs is entitled to summary judgment in respect of the issues of liability, it is not entitled to summary judgment on the issues of quantum. As things stand, the issues of quantum must go forward to trial.
49.	As against Videocon Industries, Mr Yeo refers additionally to clause 20 of the Guarantee. This provides, in summary, that a certificate signed by any two duly authorised officers of the Goldman Sachs as to the amount for the time being due from Videocon Global to Goldman Sachs shall (in the absence of manifest error) be conclusive evidence for all purposes against Videocon Industries. The demand served on the Videocon Industries was, according to Goldman Sachs, signed by two such officers.
50.	In light of my conclusion on quantum as against Videocon Global I do not propose to grant summary judgment against Videocon Industries for the amount stated in the demand. I am not persuaded that conclusivity in these circumstances was contemplated under clause 20 of the Guarantee, but even if it was I consider that the circumstances provide a compelling reason why the issues of quantum as against Videocon Industries should be disposed of at trial which is where, as things stand, they will be disposed of as against Videocon Global."
The ratio of his decision appears to have been, therefore, that, in the absence of the contractually required detail of the calculations, Goldman had not demonstrated, for the purposes of an application for summary judgment under Part 24.2, that Global had no real prospect of defending the quantum of the claim, notwithstanding that Global had not, apparently, put forward any positive basis for challenging the amount of the claim. Further, or alternatively, Mr Knowles QC may have taken the view that Goldman's failure to comply with the requirements to give details of the calculations provided some "other compelling reason why the … issue should be disposed of at a trial" for the purposes of Part 24. 2 (b). Be that as it may, what is clear is that Mr Knowles QC was not expressing any view as to the construction issues which arose before Teare J and on this appeal.
I should also say at this juncture that I reject Mr Wheeler's submission that, on Goldman's first application for summary judgment, Mr Knowles QC "effectively acknowledged that compliance with the requirement of section 6(d)(i) to show the calculations contemplated by section 6(e) of the Master Agreement in reasonable detail was necessary before Global's payment obligation under section 6(d)(ii) accrued"; and that "It was the failure of Goldman's original section 6 notice to meet those requirements which led to Mr Knowles QC refusing to give judgment for Goldman on its first application." I do not read the judgment of Mr Knowles QC in that way. All he was doing effectively was saying that the appellants were entitled to an opportunity to defend the quantum of the claim against them at trial.
Rather than pursuing its originally pleaded claim to a trial of the quantum issues, Goldman delivered to the appellants on 7 or 9 March 2014 (the date of actual delivery was in dispute, but it was agreed that the precise date was not material) a second notice under section 6(d)(i) of the Master Agreement ("the second section 6 notice"), which rectified the lack of detail in the notice considered by Mr Knowles QC. The second section 6 notice contained extensive details of Goldman's calculations but did not involve any recalculation of the amount originally claimed by Goldman as the amount payable in respect of the Early Termination Date; the sum claimed (US$4,066,542.90) was the same as in the original statement served on Global in December 2011 pursuant to section 6 of the Master Agreement. The second section 6 notice stated "this letter supersedes a statement dated and provided to you on 14 December 2011 [i.e. the first section 6 notice]."
Goldman then amended its particulars of claim to advance a new claim based on the second section 6 notice; and, following service of an amended defence by the appellants, issued a second application for summary judgment on the basis of the second section 6 notice.
By their amended defence, the appellants contended (at paragraph 27) that:
i)	the second section 6 notice had not been delivered by Goldman as soon as reasonably practicable after the Early Termination Date, as required by section 6(d)(i) of the Master Agreement;
ii)	as a consequence, the second section 6 notice did not comply with the contractual requirements for notice of the sum due to Goldman which had to be given before that sum would fall due for payment under section 6(d)(ii) of the Master Agreement; and
iii)	Goldman therefore had no right to claim under section 6(d)(ii) on the basis of the second section 6 notice (or at all).
The hearing before Teare J
The second summary judgment application was heard on 10 December 2014 before Teare J. By that stage the appellants accepted that Goldman had provided "reasonable detail" of its calculations as required under the Master Agreement. But, as pleaded in their defence, as set out above, the appellants now contended that the second section 6(d)(i) statement setting out reasonable details of Goldman's calculations had not been provided "as soon as reasonably practicable", and, consequently, the "trigger" for payment by Global of the Early Termination Amount never arose (and could now never arise), with the result that the Early Termination Amount was not payable.
Thus, on the appellants' case, as presented to Teare J, Goldman had (forever) forfeited its right to a substantial payment that the appellants accepted would otherwise have been due, because the statement required by section 6(d)(i) had not been provided "on or as soon as reasonably practicable following the occurrence of an Early Termination date".
In giving judgment summarily in favour of Goldman, in the amount of US$ 4,066,542.90 plus interest and expenses, Teare J ruled that:
i)	the appellants had a real prospect of establishing at trial that the second section 6 notice had not been delivered by Goldman "on or as soon as reasonably practicable" following the Early Termination Date; see paragraphs 8 - 11 of the judgment;
ii)	that such late provision of information would be a breach of contract which might found an action in damages if it had caused loss; see paragraph 19 of the judgment;
iii)	however, even if it had not been served "on or as soon as reasonably practicable" following the Early Termination Date, the second section 6 notice was nonetheless effective to oblige Global to make payment of the sum claimed by Goldman pursuant to section 6(d)(ii) of the Master Agreement.
The judge dealt with the construction argument arising on this appeal as follows:
"The effect of a late notice of details
12.	This is a short question of construction which is suitable for determination on a summary judgment application.
13.	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.
14.	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.
15.	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?
16.	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".
17.	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.
18.	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.
19.	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.
20.	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.
21.	It follows from my construction of clause 6(d) that the Claimant is entitled to summary judgment on its claim."
The judge refused permission to appeal. On 5 March 2015 McCombe LJ adjourned the appellants' application for permission to appeal to an oral hearing, on notice to Goldman, with the appeal to follow if permission to appeal was granted.
The appellants' arguments on the appeal
On the appeal the appellants contend in summary that the judge erred in law and misconstrued section 6(d) by holding that a failure to serve a section 6(d) statement "as soon as reasonably practicable" merely rendered the statement "late" and did not render it ineffective; they contend that the judge ought to have held that a statement, which had not been served as soon as reasonably practicable, was not effective to constitute a notice required by section 6(d)(ii), in order for the amount due in respect of any Early Termination Date to be payable. In support of these arguments, Mr Wheeler submitted as follows:
i)	It was common ground between the parties (and the judge appears to have accepted) that payment fell due under section 6(d)(ii) of the Master Agreement only when notice of the amount payable ("a section 6 notice") was given as required by section 6(d)(i). However, the judge held that the requirement as to the timing of the delivery of a section 6 notice was not a requirement which had to be satisfied for the payment obligation under section 6(d)(ii) to accrue. On the judge's findings, a section 6 notice could be served at any time (even years after the Early Termination Date) and would suffice as the basis for payment to fall due under section 6(d)(ii) of the Master Agreement. The judge's statement, at paragraph 17, that section 6(d)(ii) "does not state that the sum will be payable when a notice compliant with clause 6(d)(i) has been served", is inconsistent with his apparent acceptance of the common ground between the parties.
ii)	The effect of the judge's decision is that a demand under section 6(d) is not subject to any meaningful time constraint. The possibility of the recipient of a late notice claiming damages for the delay is unlikely ever to arise.
iii)	If the notice of the amount payable required to trigger the obligation to make payment under section 6(d)(ii) were not the notice required by section 6(d)(i), the requirements specified for the notice under section 6(d)(i) would be redundant and the obligation to make payment would be dependent on delivery of a separate notice about which the Master Agreement was entirely silent.
iv)	Notice under section 6(d)(i) was accepted as being the trigger for payment falling due under section 6(d)(ii) by Aikens J in Australia and New Zealand Banking Group Ltd v Societe Generale [1999] 2 All ER (Comm) 625 at paragraphs 16-18. (Although, as noted below, Aikens J rejected an argument that all of the requirements of section 6(d)(i) had to be met for the obligation to make payment to accrue.)
v)	On Goldman's first application for summary judgment, Mr Knowles QC effectively acknowledged that compliance with the requirement of section 6(d)(i) to show the calculations contemplated by section 6(e) of the Master Agreement in reasonable detail was necessary before Global's payment obligation under section 6(d)(ii) accrued. It was the failure of Goldman's original section 6 notice to meet those requirements which led to Mr Knowles QC refusing to give judgment for Goldman on its first application.
vi)	The judge justified his conclusion by reference to the provision in section 6(d)(ii) that the sum is payable "when the notice is effective", which the judge held required regard to be had to the purpose of the notice. The judge was wrong to place emphasis on the requirement in section 6(d)(ii) for the notice to be "effective". Section 12 of the Master Agreement contained provisions setting out the means by which notices required under the Master Agreement could be given by one party to the other and when those notices would be "deemed effective". Those provisions said nothing about the form or content of the notice and relate entirely to the mode of delivery and when it is "effective" (i.e. treated as having been received and capable of being acted on).
vii)	The reference in section 6(d)(ii) to the notice being "effective" was concerned only with whether it had been delivered in accordance with the contractual requirements in section 12. The effectiveness of a notice in that sense did not turn on the purpose of the notice (as the judge stated in paragraph 17) but on compliance with the requirements of section 12 of the Master Agreement.
viii)	In holding, in the final sentence of paragraph 17 of the judgment, that the new section 6 notice, although late, could be seen to be "effective", the judge wrongly elided the effectiveness (of delivery) under section 12 of the Master Agreement with the question of whether the notice was also "effective" in the sense of achieving its intended contractual consequences. On the correct construction of the Master Agreement, the reference in section 6(d)(ii) to the notice being "effective" was concerned only with whether it had been delivered in accordance with the contractual requirements. Whether it achieved its intended contractual consequences was a separate question which required separate consideration.
ix)	On the basis that the notice required to give rise to an obligation to make payment under section 6(d)(ii) of the Master Agreement was the notice required by section 6(d)(i), the new section 6 notice could achieve its intended contractual consequence of requiring Global to make payment under section 6(d)(ii) only if that notice satisfied the relevant requirements of section 6(d)(i). Those requirements were that the notice:
a)	was delivered to the paying party as soon as reasonably practicable after the Early Termination Date; and
b)	showed the calculations contemplated by section 6(e) of the Master Agreement in reasonable detail.
x)	A failure to deliver the new section 6 notice as soon as reasonably practicable after the Early Termination Date ought to have been treated by the judge as having the same consequence as a failure to show in reasonable detail the calculations contemplated by section 6(e) of the Master Agreement, namely that the notice did not give rise to an obligation to make payment of the sum demanded under section 6(d)(ii).
xi)	The decision of Australia and New Zealand Banking Group Ltd v Societe Generale [1999] 2 All ER (Comm) 625 supported the appellants' analysis. Although Aikens J held that a particular form of notice was not required to give rise to the payment obligations under section 6(d)(ii), he did acknowledge (consistently with the decision of Mr Knowles QC on Goldman's first summary judgment application) that the information about the calculation of the sum claimed was the important information to be given in the notice. That decision therefore distinguishes between substantive and purely formal requirements: a section 6 notice can have contractual consequences despite not complying with a purely formal requirement; it cannot have contractual consequences if it does not comply with a substantive requirement. Aikens J did not consider the implications of late delivery of the notice under section 6(d)(i) and no direct authority on that question was cited to the judge. The obligation as to the time within which the notice must be delivered is properly regarded as a substantive requirement, which must be met for a section 6 notice to have contractual consequences (in the same way as the obligation to provide reasonable details of the calculation was treated by Mr Knowles QC).
xii)	On the correct construction of section 6(d)(i), the obligation to deliver the notice as soon as reasonably practicable after the Early Termination Date ought to be treated in the same way as Mr Knowles QC treated the failure to provide reasonable details of the calculation of the sum claimed (i.e. as preventing the notice from triggering the payment obligation under section 6(d)(ii)) rather than the way in which Aikens J treated the obligation to provide details of the account to which payment should be made.
xiii)	The judge was wrong to hold that the appellants' interpretation of section 6(d)(i) was lacking in commercial sense. There were good commercial reasons to attach greater significance to the obligation as regards the timing of the delivery of the notice than the judge had done. These could be summarised as follows:
a)	The appellants' interpretation of section 6(d)(i) gave full effect to the obligation on the non-defaulting party to act as soon as reasonably practicable in delivering notice of the payment due following default.
b)	The mechanism for calculating the sum due under section 6(e) operated strongly in Goldman's favour. It allowed Goldman to make its own assessment of the losses that it has suffered and to make an early demand for payment of that sum. It was commercially rational for the parties to have agreed to a contractual mechanism that was designed to work as a quick means of determining the payment due in respect of an early termination. However, to balance those advantages, it was also commercially rational for Goldman to have agreed that it should only have the advantage of being able to claim the sum which it has itself assessed to be due to it if it acted quickly in advancing its claim to that sum. Permitting a claim under section 6 regardless of the lapse of time would cause commercial prejudice to the paying party in the same way as the pursuit of any delayed claim.
c)	There was nothing uncommercial in preventing Goldman from advancing a claim under section 6 because it had failed to act as soon as reasonably practicable. It would remain open to Goldman to claim damages at common law, subject to proving its loss in the normal way. Delay would not prevent Goldman from claiming any compensation, it would merely require Goldman to claim on a different basis from that contractually provided for under section 6 of the Master Agreement.
d)	By contrast, there was no commercial rationale for allowing Goldman to advance a claim under section 6 at the time of its choosing, no matter how long after the event. The payment obligation under section 6(d)(ii) did not accrue until the notice was delivered. Time under the Limitation Act did not therefore begin to run until that happened; delay in delivery of the notice could not result in the claim becoming time-barred if there was no contractual limitation on the time of delivery. Such an interpretation of section 6(d) was inconsistent with the inclusion of the express obligation to act as soon as reasonably practicable after the Early Termination Date.
e)	Damages were unlikely ever to be a meaningful remedy for a breach of the obligation to deliver a notice under section 6(d)(i) as soon as reasonably practicable after the Early Termination Date.
xiv)	At paragraph 20 of the judgment, the judge said that his approach to the construction of section 6(d) was consistent with the policy of the court to give effect to, rather than to invalidate, commercial agreements. That policy was not questioned but it must be a policy to give effect to commercial agreements as properly construed. Global's construction of section 6(d) did not invalidate it; it merely took account of the express contractual requirement to serve a section 6 notice as soon as reasonably practicable after the Early Termination Date and gave proper effect to it. Global's construction of section 6(d) therefore reflected (rather than conflicted with) the policy identified by the judge of giving effect to commercial agreements.
xv)	On Global's interpretation of section 6(d)(i), Goldman ought to have been refused summary judgment in the light of the judge's (correct) finding that Global had a real prospect of establishing at trial that the new section 6 notice was not delivered "on or as soon as reasonably practicable" following the Early Termination Date.
Goldman's submissions on the appeal
Goldman served a respondent's notice in which it sought to rely on additional arguments to support the judge's conclusion. In its written skeleton argument for the appeal, Goldman put forward the following general grounds for upholding the judge's order:
i)	the appellants' interpretation was wrong because it was both inconsistent with the nature, structure and operation of the Master Agreement and contrary to well-established principles of interpretation of commercial contracts such as the Master Agreement;
ii)	the appellants' interpretation of section 6(d)(i) wrongly attempted to elevate the opening words thereof to the status of a condition precedent to the validity of the section 6(d) statement and/or to recast them as a condition of the section 6(d) statement itself;
iii)	the consequences of the appellants' construction, as well as being wholly uncommercial would undermine the operation of the ISDA close out mechanism and/or the wide usage of the Master Agreement in international financial markets in all types of derivative transactions;
iv)	it was well-established that time bar clauses were to be interpreted strictly: Bunge SA v Deutsche Conti-Handelsgesellschaft (No 2) [1980] 1 Lloyd's Rep 352 at 358; whilst it was a question of construction as to whether stipulations as to time were the essence of the contract, the Court of Appeal held in British and Commonwealth Holdings Ltd v Quadrex Holdings Ltd [1989] QB 842 that the phrase "as soon as reasonably practicable" was insufficiently clear to constitute a clause in respect of which time is of the essence.
In support of these arguments, Miss Tolaney QC presented detailed and well- articulated written submissions. Because they are - at least to a certain extent - reflected in my own analysis, it is not necessary to set them out extensively at this stage of my judgment.
Approach to the construction of these types of clauses
It is necessary to remind oneself of the approach to the interpretation or construction of contracts and clauses of the type under consideration in the present case.
It was common ground that commercial contracts had to be interpreted as a whole in the light of the commercial purpose of the document and the transactions which it documented. That approach is particularly pertinent in the case of a commercial contract such as the ISDA Master Agreement. Thus for example in In Re Sigma Finance Corporation [2010] 1 All ER 571, paragraph 37, Lord Collins reiterated the principle that an instrument:
"must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument and from the nature of the debtor's business. Detailed semantic analysis must give way to business common sense".
And at paragraph 35 he observed that courts have cautioned against an "over-literal interpretation of one provision without regard to the whole [which] may distort or frustrate the commercial purpose". In the same case, at paragraph 12, Lord Mance highlighted the importance of understanding a contract's "overall scheme and [of] a reading of its individual sentences and phrases which places them in the context of that overall scheme".
Moreover, courts are wary of interpreting commercial contracts so as to invalidate provisions for payment. As Christopher Clarke J stated in BNP Paribas v Wockhardt EU Operations (Swiss) AG [2009] EWHC 3116 (Comm) (another ISDA case), when considering the application of the doctrine of penalties, at paragraphs 23 -24
"23. In considering the potential application of the doctrine of penalties the authorities provide a number of guidelines. The ISDA Master Agreement is very widely used in international financial markets in all types of derivative transactions. That does not mean that its standard provisions may not be penal but the consequences of that being so means that the sooner the issue of its validity is determined the better: AWB (Geneva) SA & Anor v North America Steamships Ltd & Anor [2007] EWCA Civ 739.
24. The desirability of a prompt determination cannot alter the test as to whether some form of summary judgment should be given, but:
"…… on general principles the court should not be astute to interpret commercial transactions so as to invalidate them, particularly when … consequential doubt might be cast on other long-standing commercial arrangements": Perpetual Trustee Co Ltd v BNY Corporate Trustees Services and another; Belmont Park Investments Pty Ltd v Corporate Trustee Services Ltd and another [2009] EWHC 1912 (Ch) per Sir Andrew Morritt, QC.
"It is also desirable that, if possible, the courts give effect to contractual terms which the parties have agreed. Indeed there is a particularly strong case for party autonomy in cases of complex financial instruments …" per the Master of the Rolls at para 58 of the Butters appeal [2009] EWCA Civ 1160.
"…the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression"; per Dickson J in the Supreme Court of Canada in Elsey v J.G. Collins Insurance Agencies Ltd [1978] 83 DLR 1, p 15. , approved by the Privy Council in Phillips Hong Kong Ltd v AG of Hong Kong [1993] 61 BLR 49, p 58.
25. The policy of the law is to encourage the use of liquidated damages clauses especially in commercial contracts: Murray v Leisureplay plc [2005] EWCA Civ 963, para 114 citing Diplock, LJ in Robophone v Blank [1966] 1 WLR 1428, 1447"
As Miss Tolaney submitted, the authorities showed that time bar clauses are to be interpreted strictly: Bunge SA v Deutsche Conti-Handelsgesellschaft (No 2) [1980] 1 Lloyd's Rep 352 at 358. It is a question of construction as to whether stipulations as to time are the essence of the contract. In British and Commonwealth Holdings Ltd v Quadrex Holdings Ltd [1989] QB 842 it was held that the phrase "as soon as reasonably practicable" was insufficiently clear to constitute a clause in respect of which time is of the essence: Sir Nicolas Browne-Wilkinson VC (as he then was) at 857 B-C said as follows:
"…in my judgment it is impossible to say that time was originally of the essence of completion since the agreement does not specify a date for completion or fix a time for completion by reference to a formula which subsequently makes the date capable of exact definition. The only case which might appear to be contrary to this view is the SociM Italo-Belge case where the time was held to be of the essence of a term that declaration of ship be made "as soon as possible". But in that case it was conceded that the declaration had not been made as soon as possible and there was a finding by the arbitrators that such declarations would normally be passed on the same day as they were received….For the reasons I have given, time could not be of the essence of completion on a date which was neither specified nor capable of exact determination by the parties."
The structure of the close-out provisions of the Master Agreement
The first important point to note is that, as in many contracts, there is a clear distinction in the Master Agreement between, on the one hand, the underlying indebtedness obligation and the date on which such obligation accrues (i.e. the date at which the relevant amount becomes due) and, on the other hand, the payment obligation and the date upon which the obligation to pay the relevant amount arises. Although the language of section 6 might be said to be somewhat inconsistent, on occasions, between its use of words "due" on the one hand and "payable" on the other, nonetheless the distinction between the debt obligation and the payment obligation, and the different dates upon which those obligations respectively arise, is clear in the scheme of the contract. That distinction is particularly clear, for example, in the definition of payment date in section 6(d)(ii)).
The importance of this distinction was recognised by this court in Lomas v JFB Firth Rixson Inc [2012] 1 CLC 713 (CA) at paragraphs 25 – 28 and 35, where the court said:
"25. Section 2 of the Master Agreement is, however, all about the payment obligation and does not, in our view, touch the underlying indebtedness obligation. In particular, section 2(i) obliges each party to make each payment specified in the Confirmation and it is that payment obligation which is, by section 2(a)(iii), made subject to the condition precedent that no event of default has occurred and is continuing."
26. That this is so is demonstrated by the fact that the Master Agreement provides that, in cases where Early Termination occurs and payments have to be made pursuant to section 6(e) by reference to a payment measure which is to be either "Market Quotation" or "Loss", it is to be assumed that each applicable condition precedent has been satisfied. As already explained (see para 12 (xiii) above) that means that in the event of early termination, the net position of the parties is to be calculated. If in fact no debt obligation ever arose, the calculation envisaged as occurring on early termination could never take place since there would be no obligation of the Non-defaulting party to take into account.
27. Nor does Mr Fisher's argument cater conveniently for Potential Events of Default; these are just as likely to occur as actual Events of Default. It would be very odd if no obligation arose if a Potential Event of Default had occurred on or before a due date for payment but that fault was cured the day after the due date. Mr Fisher would no doubt say that the debt and the obligation to pay it did arise but would be extinguished if the Potential Event of Default became an actual Event of Default but it is most unlikely that the parties could have intended that the indebtedness should come into existence for one kind of default but not for the other.
28. A similar argument to that advanced by Mr Fisher was submitted to Gloster J by Mr Jonathan Crow QC in Pioneer Freight Co Ltd v TMT Asia Ltd [2011] 2 Lloyds Rep 96, a case about FFAs decided after the decision of Briggs J in the present case, at any rate in his oral reply (see para 72). It was rejected by her for much the same reasons as we have set out. She said in para 91
"Once one approaches the analysis on the basis that, under Section 2(a)(iii), one is only looking at the payment obligation, rather than the debt obligation, the whole machinery makes sense. Thus, the wording of Section 2(a)(iii) makes it clear that the payment obligation is subject to the condition precedent that no Event of Default or Potential Event of Default has occurred "… and is continuing". The natural reading of those words envisages that once a condition precedent is fulfilled, the obligation to pay revives. There is no need for any further creation of the debt obligation itself, as Mr. Crow seeks to suggest"
We would respectfully adopt those observations of Gloster J and hold that the underlying debt obligation is undisturbed by the Event of Default; it is merely the payment obligation which is barred if there is an Event of Default. We turn therefore to the next question which is whether the obligation to pay is extinguished or is merely suspended so that it can and will revive if the Event of Default is cured before termination by either party or on the maturity of the transaction."
We would therefore decide that the payment obligation of the Non-defaulting Parties is suspended (rather than extinguished) during the currency of an Event of Default under the Master Agreement and will revive if the Event of Default is cured at any time before the outstanding Transactions are terminated. The question then arises whether the payment obligation revives at any other time while the contract continues to exist and whether (if not) the obligation is extinguished when the contract arrives at its contractual maturity date."
As Miss Tolaney submitted, the Court of Appeal's conclusion that a payment obligation arising under the ISDA Master Agreement is suspended during the currency of an Event of Default as a result of the operation of Section 2(a)(iii) entails that in such circumstances an amount may be due but not payable.
A similar distinction may be found in section 6 in respect of the amount which becomes due in respect of an Early Termination Date and subsequently payable. As I have already explained, the obligation to pay that single amount replaces the previous obligations to make payment or deliveries under section 2(a)(i) or section 2(e) in respect of what may have been numerous Terminated Transactions; see section 6(c)(ii). In my judgment, and contrary to Miss Tolaney's submissions in this respect[1], it is clear from the scheme of section 6 and the definition of "Loss" that the debt obligation in respect of an Early Termination Date arises, or accrues due on, or as at, the Early Termination Date. I reach that conclusion because:
i)	that is the date on which the numerous obligations under the Terminated Transactions are replaced by the single obligation to pay the amount due in respect of an Early Termination Date; see section 6(c)(ii);
ii)	"Loss" is calculated by reference to a party's losses incurred in relation to any Terminated Transaction, including any losses or costs (or gains) in respect of any payment or delivery required to be made on or before the relevant Early Termination Date, and not made, and, most importantly, is determined as of the relevant Early Termination Date (or, if that is not reasonably practicable) as at the earliest date thereafter as is reasonably practicable); see the definition of "Loss" in section 14;
iii)	interest is payable on the amount due in respect of an Early Termination Date from (and including) the relevant Early Termination Date to (but excluding) the date of payment; see section 6(d)(ii); it would be surprising if interest was payable in respect of a period prior to the date on which the indebtedness obligation accrued due.
The point to make in the present context is that the accrual of the debt obligation in respect of the amount due in respect of an Early Termination Date necessarily arises prior to the service of the statement referred to in section 6(d)(i). Therefore it cannot possibly be subject to the type of condition precedent for which Mr Wheeler contended, namely service of a statement compliant with all the requirements of section 6(d)(i), including the "as soon as reasonably practicable" requirement. The debt obligation in respect of the amount due in respect of an Early Termination Date cannot be discharged simply by reason of a failure to serve a statement that is non-compliant with all the requirements of section 6(d)(i).
The questions which then arise are: (a) as at what date is the amount due in respect of an Early Termination Date payable; and (b) is the payment obligation subject to a condition precedent that the statement required under section 6(d)(i) has been served "as soon as reasonably practicable" , with the result that if such statement is not served "as soon as reasonably practicable", no payment (as opposed to debt) obligation can ever arise in relation to the amount due in respect of an Early Termination Date.
As to (a), section 6(d)(ii) makes it clear that the amount calculated as being due in respect of any Early Termination Date under section 6(e) will be payable (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) on the day that notice of the amount payable is effective, and (in the case of an Early Termination Date which is designated as a result of a Termination Event) on the day which is two Local Business Days after the day on which notice of the amount payable is effective. The first point to note is that the clause does not refer to the statement described in section 6(d)(i); rather it refers to merely "notice of the amount payable", a more general term. It appeared to be common ground, at least below, that the reference to "notice of the amount payable" was a reference back to all aspects of the obligation in section 6(d)(i) to provide a detailed statement; see paragraph 16 of the judgment. I disagree; in my view, on its natural reading, 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. Whilst, obviously, notice of the amount payable is provided in the statement described in section 6(d)(i), all that is required, in my view, to trigger the Payment Date for the purposes of section 6(d)(ii) is the "effective" giving or service of the notice of the amount payable.
Before the judge Mr Yeo, appearing on behalf of Goldman, accepted in the light of the decision of Mr Knowles QC that pursuant to section 6(d) the sum claimed only became "payable" once adequate details of the sum claimed had been provided; see paragraph 13 of the judgment. In my judgment that concession was not correct. Likewise I do not agree with the judge's conclusion as set out in paragraph 16, that once "sufficient details" of both the calculation of the sum claimed and of the bank account into which the sum was to be paid "the notice is …. effective". The use by the draftsman of the word "notice", in conjunction with the word "effective", in section 6(d)(ii) in order to ascertain the Payment Date must, in my judgment, be a reference to the language of section 12, which expressly addresses the question of the precise day upon which a notice is deemed to be "effective". The words used in section 6(d)(ii) (i.e. "on the day that notice of the amount payable is effective") are not, in my view, addressing a wholly different concept of "effectiveness" - namely the concept that a section 6(d)(i) statement (or notice) can only be "effective" once all the details required to be contained in such a statement are supplied, a date which may be unclear and open to argument. On the contrary, section 6(d)(ii) is referring to when, in accordance with the provisions of section 12, the notice is "effective", viz. a specific delivery date, identified by the provisions of section 12.
This approach is supported not merely by the clear language of section 6(d)(ii) itself, but also by the decision of Aikens J (as he then was) in ANZ Banking Group Ltd v Société Général [1999] 2 All ER (Comm) 625[2]. That was a case where both parties were required to provide a statement. The issue as to the date of the Payment Date was relevant as to whether the Applicable Rate of interest was the Default Rate or the lower Termination Rate. At paragraph 17 of his judgment, Aikens J held that "the important information that has to be given in a notice (under section 6(d)(i)) is calculation of the amount payable to the party claiming payment under section 6(e)". Relevantly, Aikens J concluded that the requirement for the statement to set out the recipient's account details was not a necessary pre-requisite to a valid notice for the purposes of Section 6(d)(ii). At paragraphs 12 -18 he said:
"12. The calculation of interest on the principal sum of $US16,719,459
ANZ submits that it is entitled to interest on any sums outstanding from SG. SG accepts that it must pay interest but there is a dispute as to the rate payable. SG agrees that during the period between the agreed early termination date of the NDFs (24 September 1998) and 5 October 1998, the rate of interest should be the contractual 'Termination Rate'. ANZ submits that for the period after 5 October 1998 SG must pay interest at the 'Default Rate' as defined in the ISDA Master Agreement. ANZ say that under the terms of section 6(d)(i), upon an early termination of the NDFs, each party has to provide a statement to the other of the calculations which it has made in accordance with section 6(e). In the present case that means each party must produce a calculation of loss (or gain) according to the 'Loss' provisions of the ISDA Master Agreement and the 'Two Affected Parties' provisions in section 6(e)(ii)(2)(B). ANZ next submits that under section 6(d)(ii) ('Payment Date') the amount so calculated to be due must be paid two business days after the day on which the notice was effective. In this case ANZ served its notice on 1 October 1998 so, ANZ submits, the 'Payment Date' was 5 October 1998. SG did not pay the amount due to ANZ (which originally was $US16,719,459) on 5 October. Accordingly, ANZ submits, under section 6(d)(ii) and section 14, the definition section of the ISDA Master Agreement, the 'Applicable Rate' of interest on sums outstanding after the 'Payment Date' is the 'Default Rate'. The 'Applicable Rate' of interest is defined as being the 'Default Rate' in circumstances when —
'in respect of an obligation to pay an amount under section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate.'
13. Mr Nash for SG submits that a party does not have the right to be paid on the 'Payment Date' in accordance with section 6(d)(ii) until a notice of the amount payable is effective. But in the present case neither side produced a notice of the amount payable because of the dispute as to how the losses of SG should be calculated. The calculation of SG, even if it is ultimately found to be wrong, was, in the words of the 'Loss' clause, 'reasonably determined [by SG] to be its total losses and costs'. Therefore if the parties, in good faith, fail to agree on the amount payable in accordance with section 6(e), and so no effective notice was produced, then no 'Payment Date' can be determined. Therefore the 'Payment Date' will only arrive upon the court's determination of the proper basis for calculating SG's losses. Until that time SG is not in default and so does not have to pay the 'Default Rate'.
14. Mr Lenon for ANZ responds with two arguments. First he submits that the failure by SG to calculate its losses correctly and to serve an effective notice in accordance with section 6(e)(ii)(2)(B) and section 6(d) respectively were breaches of contract by SG. Either as a matter of law or upon the proper application of the terms of the NDFs, SG cannot rely on its own breaches of contract to prevent the 'Payment Date' accruing, and so avoid having to pay interest at the 'Default Rate'. He relies on the principles reiterated by the House of Lords in Alghussein Establishment v Eton College [1991] 1 All ER 267, [1988] 1 WLR 587. Mr Lenon also submitsithere is a further consequence of the failure of SG to serve a notice correctly calculating its losses, which, he says, was a breach of contract. The result of the breach was that time for calculating the arrival of the 'Payment Date' did not start to run and ANZ has therefore suffered a loss; namely the difference between the 'Non-default Rate' and the 'Default Rate' of interest. That loss was something that was contemplated by the parties when the contracts were concluded.
15. In my view section 6(d)(i) envisages that each party will serve a statement of any amount payable to one party or the other under section 6(e). I think this must follow from the wording of section 6(d)(i), which states that the calculation must specify '(1) … 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' (my emphasis). Therefore ANZ was entitled and obliged to serve a statement on SG of the amounts payable to ANZ following the early termination of the NDFs. Although SG was also obliged to serve a similar statement, its failure to do so does not affect the validity of the statement made by ANZ. There is nothing in section 6(d)(i) or (ii) or section 12j to indicate that the two parties' statements must agree before there can be a notice of the amount payable to one party or the other. This is not surprising, as in some cases there will only be one 'Affected Party' (see section 6(e)(ii)(1)) and so only that party will have to make a calculation and serve a statement.
16. ANZ gave SG a notice on 1 October calculating its loss at $US16,719,459. SG provided ANZ with its calculations on 1 October 1998 and explained them on 2 October. In a further letter to SG on 2 October 1998 ANZ said that it disagreed with SG's calculations and asked it to reformulate SG's 'losses'. ANZ also stated that until it received a statement of SG's losses then 'no calculation under Section 6(e)(ii)(2)(B) of the master agreement may be made'. I disagree with that view of section 6(e)(ii)(2)(B). That wording states only how to calculate the sum payable in a case where the 'Two Affected Parties' and 'Loss' regime applies. It does not state that time for the calculation of the 'Payment Date' will only run if each party has served on the other its 'Loss' calculations. I think that time runs once a calculation has been served stipulating the amount payable to one party as set out in section 6(d)(i) and (ii), provided that the calculation is either agreed or (retrospectively) once the court ultimately finds that the calculation served is correct. If it were otherwise one party could always claim that the 'Payment Date' could never arrive if the calculation of the amounts due were disputed, provided that party's calculation was made in good faith. Further, in my view, if the calculation was made in good faith, as required by the 'Loss' provision, then the party making it would not be in breach of contract as submitted by Mr Lenon. So there is no room for the application of the principles in Alghussein Establishment v Eton College.
17. Because ANZ considered that it could not produce a notice under section 6(d)(i) until SG had provided details of its 'Loss' in a form with which ANZ could agree, ANZ never sent a notice giving details of the account into which the amount it thought due to it should be paid. Does that stop time running so that the 'Payment Date' cannot arrive? I have concluded that it does not. Neither section 6(d)(i) or (ii) state that service of a particular form of notice is a condition precedent to the accrual of the 'Payment Date'. The important information that has to be given in a notice (under section 6(d)(i)) is calculation of the amount payable to the party claiming payment under section 6(e). In my view a reasonable person having the background knowledge available to forex dealers who considered the language of these terms would say that the failure to give details of the precise account into which money should be paid would not prevent the notice becoming effective so that the 'Payment Date' could arrive.
18. Therefore in the present case I think that once ANZ had rejected the SG calculation on 2 October 1998, the notice of its calculations of what was due was sufficient to start time running under section 6(d)(ii). Therefore the 'Payment Date' would be on the two local business days after the day on which the notice of 2 October was served. This makes the 'Payment Date' 5 October, as ANZ have always contended. As SG did not pay the amount that ANZ claimed was due to them on that date and I have found that ANZ were correct in their calculation, the 'Default Rate' must apply after that date."
In the present case the letter dated 14 December 2011, and delivered on that date clearly set out not only the amount payable, but also Goldman's calculations of the amount payable. The fact that, according to Mr Knowles QC, such calculations were not sufficiently detailed to satisfy the contractual requirements of section 6(d)(i), did not, in my judgment, prevent the letter constituting an adequate "notice of the amount payable" for the purposes of identifying a Payment Date under section 6(d)(ii). The fact that Goldman did not present its construction argument precisely in this way, either before the judge or in its written submissions on appeal[3], does not in any way prevent this court from approaching the construction of the clause somewhat differently. The construction of the relevant clause, in the context of the Master Agreement, is a question of law and thus the court cannot be prevented by concessions made by either party from reaching its own conclusion as to the correct construction of the instrument. Moreover, whether the Payment Date was the date of the first section 6 notice (14 December 2011), or the date of the second section 6 notice (4 March 2014), makes no difference to the amount of Goldman's claim for interest, since, under the terms of the Master Agreement, interest was in either case payable at the Default Rate from the Early Termination Date to the date of payment. Accordingly there can be no prejudice to the appellants in this court approaching the construction issue somewhat differently from the way in which it was presented by Goldman in the court below.
Moreover, irrespective of whether, as a matter of construction, the contractual Payment Date is the date upon which the Non-defaulting Party's "notice of the amount payable" is effective pursuant to section 12, albeit that the detail of its calculations are incomplete, or, alternatively, the date upon which the Non-defaulting Party serves the further details of its calculation which are section 6(d)(i) compliant, there is in my judgment no basis whatsoever for construing the requirement to serve a statement under section 6(d)(i) "on or as soon as reasonably practicable following the occurrence of an Early Termination Date" as imposing a condition precedent of which time is the essence so that, in the absence of timely compliance by the Non-defaulting Party, no payment obligation is ever triggered and the Non-defaulting Party is left, as Mr Wheeler suggested, to pursue its remedy at common law to establish its loss.
i)	Section 6(d)(ii) does not state that the amount due in respect of an Early Termination Date will be payable only when a statement compliant with section 6(d)(i) has been served. On the contrary, section 6(d)(ii) states that the sum is payable "on the day that notice of the amount payable is effective". In other words, as I have already suggested, the Payment Date is linked to the date on which the Non-defaulting Party gives notice of "the amount payable" and that notice is deemed to be "effective" in accordance with the provisions of section 12. In the present case, that notice was in fact given well in time on 14 December 2011. But even if (contrary to my view) such notice was only given on 4 March 2014, there is nothing in the language of section 6(d)(ii) to suggest that only if such notice complies with the "on or as soon as reasonably practicable" requirement in section 6(d)(i), will the relevant amount be payable.
ii)	As the authorities referred to in paragraph 52 above demonstrate, time bar clauses are to be interpreted strictly: Bunge SA v Deutsche Conti-Handelsgesellschaft (No 2) [1980] 1 Lloyd's Rep 352 at 358. There is no basis on the wording of section 6, as interpreted in context, for construing the requirement that the section 6(d)(i) statement is to be served "on or as soon as reasonably practicable following the occurrence of an Early Termination Date" as imposing a condition that time was of the essence of that obligation. As was held in British and Commonwealth Holdings Ltd v Quadrex Holdings Ltd [1989] QB 842, in normal circumstances the phrase "as soon as reasonably practicable" is insufficiently clear to constitute a clause in respect of which time is of the essence. Moreover, as already stated, there is no warrant in the language for importing any so-called time of the essence obligations into the provisions of section 6(d)(ii) where the Payment Date is identified.
iii)	The appellants' construction is inconsistent not only with the wording, but also with the contractual scheme and mechanisms of the Master Agreement. As I have already said, the debt obligation to pay the amount due in respect of any Early Termination Date, as calculated under section 6(e), clearly arises on the Early Termination Date. It would be surprising, to say the least, if that debt obligation could never be enforced, because, on the appellants' analysis, the obligation to pay such sum never arose, and therefore the Non-defaulting Party had to sue for some entirely different amount, which it might be able to establish at its loss as the result of the Defaulting Party's breach of contract. Moreover, the notion that, because a section 6(d)(i) statement is served later than reasonably practicable, the result is that the payment obligation under section 6(d)(ii) is prevented from ever arising, and a common law remedy for damages is substituted in its place, displacing the agreed, carefully defined, "Payment on Early Termination" calculation set out in section 6(e), is commercially unrealistic. Such a result would undermine the detailed contractual close out provisions contained in section 6 of the Master Agreement. The parties cannot be taken to have intended that the contractual mechanism (which is designed to avoid protracted disputes and to facilitate the prompt payment of the amount due in respect of an Early Termination Date) would in a case such as the present be displaced in favour of a vague and uncertain common law claim.
iv)	As the judge stated, an analysis which leads to the conclusion 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 is commercially absurd. I agree with the judge that no reasonable person with the background knowledge available to the parties would have understood the clause to bear that meaning, and that it is difficult to conceive of a reason why the parties would have intended that a late notice should be an ineffective notice.
v)	I reject Mr Wheeler's submission that not to construe the clause as he suggests deprives the obligation to serve a statement "on or as soon as reasonably practicable following the occurrence of an Early Termination Date" of any legal consequence. It is certainly possible to conceive of circumstances in which, by reason of changes in market or financial conditions, such as interest or other rates, or lending criteria, a Defaulting Party might well have suffered loss as a result in the delay in the provision of a section 6(d)(i) compliant notice, which would enable it to bring an action in damages. As the judge said, although the appellants did not suffer any loss in this case, inevitably whether or not a claim for damages is available upon late service will depend upon the circumstances of the case.
vi)	Finally I should say that the above approach is consistent with the approach of David Richards J (as he then was) in Fondazione Enasarco v Lehman Brothers Finance SA and Anthracite Rated Investments (Cayman) Limited [2015] EWHC 1307 (Ch), at paragraphs 137-139 where Lehman Brothers Finance SA (as the Defaulting Party, "LBF") took a large number of points concerning the calculation of Loss by the Non-defaulting Party. Although David Richards J held that the section 6(d) statement was not served by the Non-defaulting Party "as soon as reasonably practicable" after the Early Termination Date, he nonetheless stated, albeit based on concessions made by counsel:
"However, this breach of contract on the part of ARIC [the Non-defaulting Party] has no impact on the validity or otherwise of the calculation of loss itself. Mr Nash [Leading Counsel for LBF] accepted that the lateness in the provision of the calculation statement did not affect the binding nature of the calculation of Loss, if it was otherwise valid."
It was for the above reasons that I concluded that this appeal should be dismissed.
Note 1 She suggests that the amount payable in respect of an Early Termination Date falls "due" upon calculation by the relevant party. [Back]
Note 2 The case went to the Court of Appeal on another point. The Court of Appeal dismissed the appeal, but no consideration was given by the Court of Appeal in relation to the issue that is relevant for present purposes. [Back]
Note 3 Its argument apparently being that in the light of the decision of Mr Knowles QC the payment obligation was at most suspended until the provision of the requisite information, and that once the relevant information was provided by means of the new section 6 notice the amount became payable, irrespective of the fact that the second notice was not served as soon as reasonably practicable. [Back]