UK remains hands-off

Author: | Published: 1 May 2008

We are likely to see increasing numbers of UK capital markets contracts being unwound as events of default occur. In such circumstances the non-defaulting counterparty often determines the default valuations of the remaining assets. But if so, how far can it perform the valuation in its own interests – and how far is it obliged to ensure fairness to the party in default? This is likely to be an area of increasing controversy while defaults increase and thin markets make pricing difficult.

The recent UK Court of Appeal decision in Socimer International Bank Ltd v Standard Bank London Ltd gives helpful guidance. The claimant bank, Socimer, agreed to a forward purchase from the defendant, Standard Bank, of various emerging markets securities. It defaulted on its obligations to pay for the securities, and on the relevant termination date owed Standard Bank $24.5million.

The contracts were governed by Standard Bank's standard terms...