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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> SNCB Holding v UBS AG  EWHC 2044 (Comm) (20 July 2012)
Cite as:  EWHC 2044 (Comm)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| SNCB Holding
|- and -
Adrian Beltrami QC and Richard Hanke (instructed by Linklaters LLP) for the Defendant
Hearing dates: 3rd, 4th,5th, 6th,11th and 12th July 2012
Crown Copyright ©
The Hon Mr Justice Cooke:
THE PRINCIPAL ISSUES, AS DEFINED BY SNCB.
i) Whether, on the true construction of the Deposit Agreement and/or by way of an implied term, SNCB was entitled to receive and UBS was obliged to deliver to SNCB the Ambac Municipal Bonds, contained in the Collateral Account at the time of or following a Credit Event in respect of Ambac as part of the Delivery Portfolio.
ii) Whether UBS's removal of the Ambac Municipal Bonds from the Collateral Account, replacement with cash, transfer of the Terwin Bonds into the Collateral Account and delivery of them to SNCB was an impermissible exercise of UBS's discretion amounting to a breach of the Deposit Agreement. This issue raises the following sub-issues:a) Whether, on the true construction of the Deposit Agreement or by way of an implied term, it was an impermissible exercise of discretion for UBS to remove the Ambac Municipal Bonds from the Collateral Account and replace them with cash and subsequently the Terwin Bonds and deliver them to SNCB because that defeated the reasonable expectations of the parties.b) Whether, on the true construction of the Deposit Agreement or by way of an implied term, it was an impermissible exercise of discretion for UBS to remove the Ambac Municipal Bonds from the Collateral Account and replace them with cash and subsequently the Terwin Bonds and deliver them to SNCB for the primary or substantial purpose of conferring a commercial benefit on UBS at the expense of SNCB.c) If the implied term described at paragraph (b) above is established, whether UBS's discretion to replace the Ambac Municipal Bonds in the Collateral Account with cash and subsequently the Terwin Bonds and deliver them to SNCB was in fact exercised for the primary or substantial purpose of conferring a commercial benefit on UBS at the expense of SNCB.d) Whether, by way of an implied term of the Deposit Agreement, UBS's discretion to transfer and hold cash in the Collateral Account cannot be exercised for any purpose other than ensuring that the mark to market value (MTMV) of the Collateral was at least 100% of the MTMV of the Deposit during any time when UBS was unable to transfer sufficient Obligations into the Collateral Account by the last business day of the month.e) If the implied term described at paragraph (d) above is established, whether UBS's discretion to remove the Ambac Municipal Bonds from the Collateral Account, replace them with cash, and hold the cash until 9 August 2010 was in fact exercised other than for the proper purpose identified in paragraph (d) above.
iii) Whether UBS's breaches of the Deposit Agreement have caused SNCB any recoverable loss; and, what is the quantum of SNCB's loss.
"On the true construction of the express terms of the Deposit Agreement, in particular, the terms set out in Schedule 2 in the light of the factual background to that agreement pleaded herein, and/or by way of an implied term:
(1) From 31 January 2003, UBS was required to ensure that on the last business day of each month the mark to market value of the Collateral held in the Collateral Account was at least 100 per cent of the mark to market value of the Deposit.
(2) UBS was required on the last business day of each month to transfer Collateral into the Collateral Account in an amount sufficient to satisfy its obligation described at paragraph 9 (1) above if on that day the mark to market value of the Collateral held in the Collateral Account was less than 100 per cent of the mark to value of the Deposit.
(3) UBS had a discretion to determine whether the Collateral which it was required to transfer into the Collateral Account as described in paragraph 9(2) above or which it was entitled to transfer into the Collateral Account would be in the form of Obligations of the Reference Entities ("Obligations") or cash in US Dollars ("cash").
(4) UBS's discretion described at paragraph 9(3) above cannot be exercised by UBS for any purpose other than the purposes for which that discretion was conferred. The purposes for which the aforesaid discretion was conferred on UBS was limited:
To transferring cash into the Collateral Account if on the last business day of each month the mark to market value of the Deposit was more than 100% of the mark to market value of the Collateral and UBS was unable to transfer sufficient Obligations into the Collateral Account by the last business day of the month. Such cash was permitted to be held in the Collateral Account only for such period of time as was necessary to enable UBS to obtain sufficient Obligations to replace the cash in the Collateral Account.
(4A) UBS was not entitled to remove any Obligations of a Reference Entity that were held within the Collateral Account at any time after: (a) an event had occurred with respect to that Reference Entity which entitled UBS to serve a Credit Event Notice under clause 4 of the Deposit Agreement; or (b) UBS had formed or expressed an intention of serving a Credit Event Notice in respect of that Reference Entity. If UBS elected to serve a Credit Event Notice in respect of that Reference Entity and to deliver a Delivery Portfolio to SNCB, UBS was required to deliver any Obligations of that Reference Entity held in the Collateral Account at the time of the Credit Event or when UBS formed or expressed an intention to serve a Credit Event Notice as part of the Delivery Portfolio.
(5) UBS's obligation or right to transfer Collateral into the Collateral Account and/or right to remove Collateral from the Collateral Account and/or discretion to determine whether such Collateral would be in the form of Obligations or cash (as described above) cannot be relied upon where, and/or cannot be exercised by UBS in a manner or for a purpose, that was contrary to, or inconsistent with or which had the effect of defeating the aforesaid limited rights and purposes and/or the reasonable expectations of the parties as to SNCB's rights under the Deposit Agreement.
(6) The parties' reasonable expectation and/or presumed intention was that:
(i) If Obligations of a Reference Entity were held within the Collateral Account at a time when (a) an event had occurred with respect to that Reference Entity which entitled UBS to serve a Credit Event Notice under clause 4 of the Deposit Agreement, or (b) UBS had expressed the intention of serving a Credit Event Notice, or (c) UBS was aware it could serve a Credit Event Notice and UBS subsequently served a Credit Event Notice, those same Obligations would be Delivered to SNCB and other Obligations of the Reference Entity not held within the Collateral Account would be Delivered to SNCB only if and to the extent that there were insufficient Obligations in the Collateral Account to cover the required Delivery.
(ii) If Obligations of a Reference Entity were held within the Collateral at a time when UBS was considering whether to serve a Credit Event Notice or had expressed to SNCB an intention to serve a Credit Event Notice, UBS would not remove those Obligations from the Collateral and/or replace them with cash and/or Obligations of a lesser value at all and/or so as to confer on UBS a commercial benefit and/or deprive SNCB of the benefit it was entitled to receive, in the form of the value of the Obligations held in the Collateral that would be required to be delivered to SNCB, if UBS served a Credit Event Notice.
(7) UBS's right to remove Collateral from the Collateral Account and/or UBS's discretion to determine whether Collateral would be in the form of Obligations or cash must be exercised: (i) honestly and in good faith for a proper purpose having regard to the terms of the Deposit Agreement and/or the purposes and/or the reasonable expectations of the parties pleaded herein; and (ii) not arbitrarily, capriciously or unreasonably".
"The Credit Risk of the Deposit is that of the Reference Entities. Principal is at risk on the deposit if there is a Credit Event in respect of bonds of a Reference Entity. Following a Credit Event the Deposit will partially be terminated early (to the extent of the Current Percentage of the Affected Reference Entity) and the Depositor will be delivered Obligations in lieu of repayment of the Deposit. The Obligations may have a market value below par, subject to a minimum of zero.
1.1 The Depositor will pay or cause to be paid to UBS by crediting such account of UBS, as shall be notified by UBS to the Depositor, the Deposit Amount in same day funds on the Deposit Payment Date.
1.2 Subject to Clause 4, UBS shall pay on the Repayment Dates the Scheduled Repayments, in accordance with the Repayment Schedule In Annex 1, to the Depositor in same day funds by crediting such account of the Depositor as notified by the Depositor to UBS.
1.3 All dates specified for payment to be made pursuant to this Agreement, whether in respect of interest or otherwise, shall be subject to adjustment in accordance with the Modified Following Business Day Convention.
2. Reference Entity Current Percentages
2.1 Provided that no Credit Event shall have occurred, the aggregate of all Current Percentages shall equal 100 per cent. The percentage of the Accreted Amount applicable to any Reference Entity at any time as selected by UBS is referred to as the "Current Percentage". After a Credit Event the aggregate of the Current Percentages will be reduced by the current Percentage applicable to the Affected Reference Entity at the time of that Credit Event. The Current Percentages at any time relate to the Initial Accreted Amount disregarding any Credit Events that have occurred.
2.2 UBS may change the Current Percentage for any Reference Entity at any time, provided that the Reference Entity current Percentage Limits are observed. Any Reference Entity with a Current Percentage of greater than zero may only be replaced with one of at least equivalent rating (ratings from Standard & Poors and Moody's) as at the time of replacement UBS will notify the Depositor of the Reference Entity Current Percentages at least every six months following the Deposit Payment Date and on any change to such current Percentages.
The Deposit is a secured obligation of UBS and is secured by way of a first priority continuing security interest over the Collateral, in accordance with the Security Agreement dated on or about the date hereof.
3.1 The Collateral may only include Collateral Securities or USD cash.
3.2 The mark to market value when determined by UBS acting in good faith
("MTMV") of the Collateral is required to be at least 100 per cent of the MTMV of the Deposit. All coupons or other payments from the Collateral will be retained by UBS.
3.3 UBS will be required, until 17 December 2002, semi-annually to ensure that the correct amount of Collateral is held in the Collateral Account. From the 31 January 2003, UBS will be required monthly, on the last business day of each month, to ensure that the correct amount of Collateral is held in the Collateral Account. This may involve UBS transferring Collateral to the Collateral Account or removing Collateral from the Collateral Account. UBS will deliver the Collateral to the Collateral Account within an accumulation period of 20 Business Days from Deposit Payment Date.
3.4 UBS will provide a statement of the Collateral following each semi-annual mark to market. The first such statement will be prepared immediately following 17 December 2001. The second mark to market will take place on 20 May 2002 and a statement will be prepared immediately thereafter. From the 31 January 2003, the mark to markets will take place monthly on the last business day of each month. The statement will specify:
(a) the mark to market value of the Deposit; and
(b) the Collateral in the Collateral Account and its mark to market value.
4. Credit Event
4.1 UBS shall have the right following the occurrence of one or more of the Credit Events (regardless of whether such Credit Event is still in existence) on or after the Deposit Payment Date and on or prior to the Business Day immediately preceding the Scheduled Final Repayment Date, on giving notice in writing (the "Credit Event Notice") to the Depositor, to Deliver the Delivery Portfolio in lieu of partial repayment of the Scheduled Repayments. UBS shall determine in its absolute discretion whether a Credit Event has occurred. No later than 30 calendar days following the delivery of the Credit Event Notice, UBS shall send a notice (the "Notice of Portfolio") to the Depositor, listing the Obligations in the Delivery Portfolio and on the Physical Settlement Date, Deliver the Delivery Portfolio to the Depositor (to the account specified by Depositor) and the Depositor shall accept Delivery of such Delivery Portfolio, In each case subject to and in accordance with the Physical Settlement Provisions.
4.2 Subject to Defaulted Issuer Replacement following Delivery of the Delivery Portfolio in accordance with Clause 4.1, early termination of this Agreement and the rights and obligations of the parties hereto in respect of such terminated part ("Partial Early Termination"), will occur on the Physical Settlement Date in respect of the Current Percentage of the future Scheduled Repayments and Accreted Amount applicable to the Affected Reference Entity at the time of the Credit Event (ignoring for the avoidance of doubt any reduction as a result of prior Credit Events).
The Accreted Amounts and the future Scheduled Repayments will be reduced by amounts equal to the Initial Repayment Schedule multiplied by the Current Percentage of the Reference Entity.
For the avoidance of doubt, the Scheduled Repayments and Accreted Amount are exposed to the Reference Entities to the extent of their respective Current Percentages, not to the actual amount of bonds of the Reference Entity in the Collateral Account at the time of a Credit Event.
Save as otherwise defined in this Agreement, the following expressions shall have the following meanings:
"Accreted Amount" means the Deposit Amount accreted at the Accretion Yield, allowing for Scheduled Repayments Amount (as set out in Annex 1) and amended as described in Clause 4 for any Credit Events. The Accreted Amounts on certain dates (ignoring any reduction for Credit Events) are set out in Annex 1.
"Accretion Yield" means 6.0368%, calculated on 30/360 semi-annual day count basis, and applied to the Deposit Amount (taking into account the Scheduled Repayments), beginning on the Deposit Payment Date.
"Affected Reference Entity" means any Reference Entity in respect of which a Credit Event has been declared.
"Credit Event" means any event of default, howsoever described, in respect of any Obligation of any Reference Entity.
"Collateral" means the Obligations of the Reference Entities and/or USD cash.
"Collateral Account" means a segregated account in the name of UBS Warburg International Limited (or such other entity nominated by UBS in accordance with the Security Agreement) with the Custodian.
"Collateral Securities" means the Obligations in the Collateral Account from time to time.
"Current Percentage" shall have the meaning given in clause 2.2.
"Deliver" means to deliver, novate, transfer, assign or sell, as appropriate, in the manner customary for the settlement of the applicable Collateral Securities (which shall include executing all necessary documentation and taking any other necessary actions), in order to convey all right, title and interest in the Collateral Securities comprising the Delivery Portfolio to the Depositor free and clear of any and all liens, charges, claims or encumbrances (including without limitation any counterclaim, defence (other than a defence based on (a) any lack or alleged lack of authority or capacity of the Reference Entity or Collateral Securities issuer to issue the Collateral Securities, (b) any actual or alleged unenforceability, illegality, impossibility or invalidity with respect to any Collateral Securities, however described, (c) any applicable law, order, regulation, decree or notice, however described, or the promulgation of, or any change in, the interpretation by any court, tribunal, regulatory authority or similar administrative or judicial body with competent or apparent jurisdiction of any applicable law, order, regulation, decree or notice, however described, or (d) the imposition of, or any change in, any exchange controls, capital restrictions or any other similar restrictions imposed by any monetary or other authority, however described) or right of setoff by or of the Reference Entity or Collateral issuer). "Delivery" and "Delivered" will be construed accordingly.
"Delivery Portfolio" means with respect to each Credit Event, Obligations of the Affected Reference Entity, the sum of whose aggregate outstanding principal balance, without accrued but unpaid interest and other unpaid but due amounts, is equal to the Initial Accreted Amount as attached in Annex 1 (having no regard to any previous Credit Events, and applying the Accretion Yield to determine the exact Accreted Amount) muliplied by the current Percentage then applicable to the Affected Reference Entity.
"Notice of Portfolio" has the meaning ascribed to it in clause 4.1.
"Obligations" means with respect to any Reference Entity, any bonds of such Reference Entity either directly or in its capacity as unconditional guarantor, that rank at least equal in priority of payment with the senior unsecured debt obligations of the Reference Entity, and (a) are denominated and payable only in the lawful currency of G7 countries, Switzerland and Australia, and the EURO (Including all legacy currencies) (b) are repayable in an amount equal to their respective stated principal amounts, or in the case of zero coupon debt obligations, their outstanding balance calculated at their stated accretion yield (c) the repayment of which is not subject to any contingency.
In the case of AMBAC and MBIA, Obligations will include only Guaranteed Bonds.
"Physical Settlement Provisions", if applicable, mean
(a) UBS shall be deemed to represent to the Depositor on the Physical Settlement Date that it has conveyed (or, if applicable, caused to be conveyed) to the Depositor (or, if applicable, its designee) all right, title and interest in the Collateral Securities Delivered on such date free and clear of all claims, charges, liens and encumbrances.
(c) (i) UBS agrees (which agreement shall survive the termination of this Agreement) to execute, deliver, file and record any specific assignment, novation or other document and take any other action that may be necessary or desirable and reasonably requested by the Depositor in connection with UBS's Delivery of the applicable Collateral Securities and the Depositor agrees to co-operate reasonably with UBS in connection with the foregoing; and /or (ii) If due to an event beyond the control of UBS, it is impossible, illegal or impractical for UBS to Deliver or due to an event beyond the control of then Depositor it is impossible or illegal for the Depositor to accept Delivery of the Delivery Portfolio or Collateral Securities in whole or in part on the Physical Settlement Date. Failure to Deliver all or part of the Delivery Portfolio or Collateral Securities due to such impossibility, illegality or impracticality shall not constitute an Event of Default
"Reference Entity" means any of:
(i) (a) AMBAC Financial Group Inc., AMBAC Insurance Corporation;
(b) American International Group, lnc "AIG" (which expression shall include AIG entities rated AAA by Standard & Poors or Aaa by Moody's Investor Services on the Deposit Date, and
(c) Financial Security Assurance Inc., FSA Global Funding Inc.
(d) MBIA Inc;
(ii) US Agency securities, Including Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Banks ("FHLB"), Federal Home Loan Mortgage Corporation (Freddie Mac), Tennessee Valley Authority and any agencies that are backed by the full faith and credit of the United states Government;
and any Successors thereto.
"Reference Entity Current Percentage Limits" means for category 1 above, the Current Percentage in respect of any Reference Entity shall be no more than 40% (of the Accreted Amount), subject to a maximum of 100%;
Annex 1 – Repayment Schedule
|Repayment Date||Scheduled Repayments||Accreted Amount|
|19 Nov 01||(39,750,000.00)|
|30 Dec 01||40,020,160.42|
|01 Jan 02||40,026,772.59|
|02 Jan 03||6,403,507.49||42,486,584.05|
|02 Jan 04||3,201,753.75||38,294,204.51|
|02 Jan 05||3,201,753.89||37,242,874.35|
|01 Jan 06||36,121,151.80|
|01 Jan 07||38,334,612.96|
|01 Jan 08||40,683,712.38|
|01 Jan 09||43,176,761.82|
|01 Jan 10||45,822,582.36|
|01 Jan 11||48,630,535.63|
|01 Jan 12||51,610,556.93|
|01 Jan 13||54,773,190.38|
|01 Jan 14||58,129,626.25|
|01 Jan 15||61,691,740.51|
|01 Jan 16||65,472,136.88|
|01 Jan 17||69,484,191.45|
|01 Jan 18||73,742,099.94|
|01 Jan 19||78,260,927.99|
|01 Jan 20||83,056,664.44|
|01 Jan 21||88,146,277.91|
|01 Jan 22||93,547,776.83|
|01 Jan 23||99,208,273.17|
|01 Jan 24||105,364,050.06|
|01 Jan 25||111,820,633.55|
|01 Jan 26||118,672,868.78|
|01 Jan 27||125,945,000.83|
|01 Jan 28||113,662,760.47|
|01 Jan 29||141,853,455,22|
|15 Apr 31||41,392,677.77||162,540,187.78|
|15 Jun 31||41,392,677.77||122,354,348.19|
|15 Sept 31||41,392,677.77||82,174,455.14|
|15 Dec 31||41,392,677.77||41,392.677.77|
THE SECURITY AGREEMENT
THE CONTRACTUAL DOCUMENTS
"Deliverable Obligations will be bonds in the Reference Entity Delivery Portfolio. However, if following a Credit Event, there are insufficient obligations of the Affected Reference Entity, in the collateral account to cover the delivery required, because the Accreted Face Amount is greater than the market value of the Deposit, UBS may, to the extent of the shortfall only, deliver other obligations of the Affected Reference Entity which meet the Reference Entity Delivery Portfolio criteria. If there are more obligations of the Affected Reference Entity in the collateral account than required, they will be returned to UBS."
THE LETTER BEFORE ACTION AND THE PLEADED CASE
THE APPROACH TO CONSTRUCTION
The approach to the implication of Terms
"But the difficulties increase the further one moves away from these paradigm examples……… It is much more difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue. Given the rules which restrict evidence of the parties' intention when negotiating a contract, it may well be doubtful whether the omission was the result of the parties' oversight or of their deliberate decision; if the parties appreciate that they are unlikely to agree on what is to happen in a certain not impossible eventuality, they may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur.
The question of whether a term is to be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task with the benefit of hindsight and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. ………. A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that it is, if it such a term that it can confidently be said that if at the time of the contract was being negotiated someone has said to the parties, "what will happen in such a case" they would both have replied, "of course, and so will happen; we did not trouble to say that; it is too clear" unless the court comes to some such conclusion as that, it ought not to imply a term which the parties have not themselves expressed………..
And it is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown that one of several possible solutions would without doubt have been preferred…
The significance of both Liverpool CC v Irwin and the Phillips Electronique case is that they both stress the importance of the test of necessity. Is the proposed implied term necessary to make the contract work? That seems to me to be an entirely appropriate question to ask in considering whether a term should be implied…"
"It is plain from these authorities that a decision maker's discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith and genuineness and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness…."
i) There Lord Reid at p 431 said:
"It never has been the law that a person is only entitled to enforce his contractual rights in a reasonable way and that a court will not support an attempt to enforce them in an unreasonable way"
ii) Lord Hodson said at p 445:
"There is no duty laid upon a party to a subsisting contract to vary it at the behest of the other party so as to deprive himself of the benefit given to him by the contract."
THE CONSTRUCTION OF THE ADA
i) The list of available Reference Entities is set out in the Schedule to the ADA where Reference Entities are placed into 2 categories, of which the first includes Ambac.
ii) By Clause 2 of the ADA, UBS was entitled to select the Reference Entities, provided that the total amount equalled 100% of the Accreted Amount and that, in the case of any specific Reference Entity within the first category, it did not account for the more than 40% of that total. Thus UBS could have ascribed 100% to any one of the US Agencies in the second category or split the allocation amongst category 1 and category 2 entities, provided only that the 40% limit was observed in respect of any individual entity in category 1. UBS had total discretion as to selection of Reference Entity percentages for the Credit Event provisions, within those limits.
iii) Clause 2.1 specifically provided that UBS could select the specific Reference Entities and Clause 2.2 entitled it to change them and the current percentage for any Reference Entity at any time, provided that the percentage limits were observed. UBS had to notify SNCB of any change to the Current Percentages.
iv) There was no restriction on what went into the Collateral Account "from time to time", save that its contents had to be Reference Entity bonds or cash in US$.
v) In the absence of any provision that bonds in the Collateral Account would match the Current Percentage allocation, there could therefore, at any time that a Reference Entity failed, be no holdings of that entity in the Collateral Account at all. This gave freedom to UBS to manage its own investment business in the way it wished, taking a market view about the credit risk associated with any of the Reference Entities, upon which its repayment obligations depended and hedging as it thought appropriate.
vi) On the happening of a Credit Event (the default of a Reference Entity so selected by UBS- the Affected Reference Entity), under Clause 4 UBS had the right, on notice, to Deliver a Delivery Portfolio in lieu of partial repayment of the scheduled repayments, thus partially terminating the ADA in a ratio corresponding to the Current Percentage selected by UBS for the Affected Reference Entity. As I have already pointed out, the definition of Credit Event included any event of default in respect of any Obligation of any Reference Entity. There was no requirement that the default should be of a bond of that particular Reference Entity held in the Collateral.
vii) The Delivery Portfolio which had to be delivered, on election by UBS to exercise this right, was to consist of Obligations of the Affected Reference Entity, the sum of whose aggregate outstanding principal balance equalled the Initial Accreted Amount multiplied by the Current Percentage then applicable to the Affected Reference Entity. The Obligations referred to were defined as "any bonds of such Reference Entity" that were equivalent to senior unsecured debt obligations of that Reference Entity. They were not limited to such bonds held in the Collateral Account.
THE IMPLICATION OF TERMS INTO THE ADA.
i) That UBS was not entitled to switch any Obligations in or out of the Collateral Account, once a Credit Event had occurred or once UBS had formed or expressed the intention to serve a Credit Event Notice.
ii) That UBS was obliged to deliver the Affected Reference Entity Obligations that were held in the Collateral Account as the Delivery Portfolio.
i) in clause 10 of determining the MTMV of the Deposit in the event of termination of the ADA by reason of a relevant change in the tax regime.
ii) in the definitions of "Delivery Portfolio" and "Cash Settlement Amount", of calculating the value of Obligations denominated in currencies other than US$.
iii) in the definition of "Market Value" where, in the absence of sufficient firm bid quotations from dealers, of determining the cash value of the "Undelivered Portfolio".
The Implied Terms of Paragraph 9 (4) (A) and 9(6) of the Re Amended Particulars of Claim
i) The occurrence of a Credit Event, if a Credit Event Notice is later validly given, relying upon it.
ii) The point at which a Credit Event Notice is served, if a Credit Event has really happened.
i) the Collateral Account is security for UBS' repayment obligations, as is shown by the requirement that it must equate to the MTMV of those obligations;
ii) there is no link between the Current Percentage of the Reference Entities for credit protection purposes in the ADA and the holdings of Reference Entities in the Collateral Account prior to any trigger event;
iii) it is therefore mere happenstance whether the Collateral Account contains bonds of the Affected Reference Entity at all, let alone bonds of a nominal value equivalent to the Accreted Amount;
iv) the Delivery Portfolio can be made up of the bonds of any Reference Entity, whether or not held in the Collateral Account;
none of the implied terms set out in paragraph 9(4)(A) or 9(6) can be said to express the only meaning consistent with the other provisions of the ADA (as per paragraph 18 of Lord Hoffman's judgment). It cannot be said that any one of them is what the contract must mean. None represent the only term which, in the circumstances which obtain, where the Municipal Bonds exceeded the value of the Terwin Bonds at the time of the so- called trigger event, can be seen as expressing the true meaning of the ADA and it is not necessary to imply such a term to give effect to the reasonable expectations of the parties (as objectively assessed) nor to give business efficacy to the contract.
i) there could be no movement of Obligations in the Collateral Account once the Credit Event Notice had occurred, and any intention to serve a Credit Notice, formed before a Credit Event occurred was irrelevant, whilst ignorance of the Credit Event was effectively a risk that UBS took.
ii) it was necessary for UBS to match the Obligations in the Collateral Account of each Reference Entity to the Current Percentages utilised for the credit protection provisions of clause 2 of the ADA, at all times prior to any Credit Event (at least approximately, as there would almost inevitably be a difference between the Accreted Amount to which the Current Percentage specifically referred in Clause 2.1, which was to be selected by UBS, and the MTMV of the Deposit to which the Collateral had to equate).
The Implied terms of Paragraph 9(4).
The Implied Terms of Paragraphs 9(5) relating to "pure" rights and discretions
The Implied Terms of Paragraph 9(7)
BREACH AND CAUSATION OF LOSS