Bear Stearns Bank Plc v Forum Global Equity Ltd

A contract for the sale of distressed debt may be concluded orally even though important machinery, including settlement arrangements, documentation, transfer structure and warranties, remains to be settled. The question is whether the parties objectively intended to be bound and whether the outstanding matters are essential to enforceability. Where no settlement date is agreed, the law may require completion within a reasonable time. In assessing damages for non-delivery, the market-value rule is the starting point, but the court may select a later valuation date where the innocent party reasonably preserves contractual rights and delays mitigation. A buyer’s known intention to resell assets does not, without more, require damages to reflect a specific back-to-back resale.

Bear Stearns claimed damages for Forum’s refusal to complete an alleged purchase of distressed Parmalat debt. Bear Stearns contended that a binding contract was made during a telephone conversation on 14 July 2005 when Forum accepted a firm bid of €2.9 million. Forum disputed contractual intention, certainty and the effect of the parties’ continuing negotiations over settlement and documentation.

The court also considered whether LMA standard terms had been incorporated, whether Bear Stearns’ later conduct established a contract or estoppel, and the proper measure and date of damages after Forum disposed of the shares representing the debt.

1. Contract. A binding contract was concluded orally on 14 July 2005. The parties were experienced market participants operating in a market where distressed-debt trades were ordinarily made by telephone. The expression “firm bid” objectively indicated an offer intended to become binding on acceptance, and Forum’s acceptance of the €2.9 million bid manifested contractual intention.
2. The parties had not agreed a specific settlement date, form of purchase or detailed warranties. Those omissions did not make the agreement void or unenforceable. Settlement was to occur within a reasonable time, and Forum’s essential obligation was to secure Bear Stearns the commercial benefit of the notes and associated claims. The detailed machinery could be settled by the lawyers.
3. The LMA terms were not incorporated. “Standard terms” referred to lawyers using customary wording, rather than adoption of the LMA terms. No sufficiently notorious, certain and reasonable market usage established their implication, and the unusual notes had no established trading practice requiring their use.
4. The alternative arguments based on later contract formation, ratification, adoption and estoppel by convention failed. The parties’ subsequent conduct was equally consistent with an existing contract and with an expectation that a contract would later be concluded.
5. Damages. The market-value principle reflected in section 51 of the Sale of Goods Act 1979 supplied the starting point by analogy, although the notes and shares were not goods within the Act. The sale to Morgan Stanley was disregarded because Forum could not show that a specific back-to-back resale of the very assets acquired was within the parties’ reasonable contemplation.
6. Bear Stearns acted reasonably in preserving its rights concerning the late filing claim and seeking specific performance. Damages were therefore assessed by reference to the later date on which the contract was effectively lost, 24 August 2006, at €2.67 per share. Damages were calculated at €1,618,670, with interest to be calculated from that date. The parties’ arrangement concerning the late filing claim was to be implemented by further order.

Forum’s jurisdiction challenge was dismissed by Mr Justice Cooke on 23 June 2006. The present judgment determined liability and quantum at first instance.