BNP Paribas SA & Ors v Yukos Oil Company

A contractual principle preventing a party from benefiting from its own wrongful act does not, without more, create a free-standing defence to a loan claim. Its operation depends on the contract and, in particular, on whether an implied term is necessary for the agreement’s business efficacy. A lender’s invalid notice of default does not automatically prevent reliance on a separate, subsequently admitted payment default. Where a loan agreement gives lenders an opinion-based right to declare an event of default, the borrower must show a real prospect of establishing that the contractual conditions were not satisfied or that the lenders’ decision was unreasonable.

A syndicate of banks sought summary judgment for approximately $472.8 million lent to Yukos Oil Company under an English-law loan agreement. The Facility Agent had declared events of default, including a material adverse effect on Yukos’s ability to perform its obligations, after Yukos’s assets were frozen and substantial tax liabilities were imposed in Russia.

Yukos accepted that, on the evidence then available, the Banks were entitled to judgment, but sought an adjournment to file evidence supporting a defence. It argued that the default notice was wrongful and had caused the later non-payment on which the Banks also relied. The central questions were whether the alleged events of default had occurred and, if not, whether the Banks could rely on the separate payment default.

1. Summary judgment. The application to adjourn was refused and summary judgment was given for the Banks. Yukos had no real prospect of successfully defending the claim on the evidence or proposed evidence.
2. Material adverse effect. The definition of Material Adverse Effect operated separately in relation to the Group as a whole and the Borrower’s ability to perform its obligations under the Finance Documents. The reference to the Borrower in limb (b) meant that Yukos could not rely solely on evidence that other group companies remained capable of making payments. In the circumstances, the asset freeze, the $3.3 billion tax judgment, the threatened further tax claims and Yukos’s own insolvency concerns provided no reasonable prospect of showing that the Banks’ decision under clause 19.27 was unreasonable.
3. Alternative contractual ground. The Banks needed to establish only one ground supporting the default notice. The alternative case based on continuing misrepresentations under clause 19.4 also appeared to have merit.
4. Effect of an invalid notice. Assuming that the first conclusion was wrong, the principle discussed in Stirling v Maitland and Shindler v Northern Raincoat Co Ltd was contractual. It required Yukos to establish an implied term that the Banks would not give an unjustified default notice. No such term was expressed in the Loan Agreement, and Yukos did not contend that exceptional circumstances justified implying one.
5. The reasoning in Concord Trust v Law Debenture Trust Corporation PLC supported the conclusion that a term preventing an invalid demand under a loan agreement is not implied without proof that it is necessary for business efficacy.

Not stated in the judgment.