Merrill Lynch International Bank Ltd. v Winterthur Swiss Insurance Company

Under a credit indemnity policy linked to an ISDA agreement, a bankruptcy trigger did not require a prior payment default. The natural meaning of the policy covered a counterparty bankruptcy occurring before termination following a payment default, rather than requiring the bankruptcy itself to follow that default. The policy separately addressed payment-default and bankruptcy risks.

A notification of loss need not identify every contractual limb or provide excessive detail where the policy does not require it. Further information may be supplied following a reasonable request. A payment received from the counterparty in partial discharge of the insured debt must be taken into account when calculating the indemnity.

Merrill Lynch International Bank Ltd applied for summary judgment against Winterthur Swiss Insurance Company under a credit indemnity policy covering its exposure under an ISDA Master Agreement with Eurotunnel Finance Ltd. Following Eurotunnel companies’ commencement of French safeguard proceedings, the Bank terminated the ISDA agreement, calculated an early termination amount and claimed indemnity.

The issues included whether a counterparty bankruptcy had occurred, whether the termination was valid, whether a prior payment default was required for a bankruptcy trigger, whether the notification of loss was compliant, and whether later payment by EFL reduced the recoverable amount.

1. Summary judgment. The Bank was entitled to summary judgment under CPR Part 24 because the Insurer had no real prospect of successfully defending the primary claim. The amount was subject to deduction for the €8,887,953.73 payment received from EFL.
2. Counterparty bankruptcy. The French safeguard proceedings constituted a proceeding seeking relief under insolvency law affecting creditors’ rights. The 30-day conditions in sub-clauses (4A) and (4B) applied to proceedings instituted against a debtor, not proceedings instituted by the debtor itself. The proceedings also engaged sub-clause (6), concerning appointment of an administrator or similar official.
3. Construction of the policy. “Bankruptcy Trigger Event” did not require a prior Counterparty Failure to Pay. The policy addressed two distinct credit risks: payment default and bankruptcy. Clauses 1(i)(c) and 1(i)(d) provided protection for bankruptcy independently of the payment-default provisions. The Insurer’s construction would produce commercially unrealistic and anomalous results.
4. Termination and notice. The Bank validly designated an Early Termination Date under section 6(a) of the ISDA agreement. Its notification identified the bankruptcy trigger and supplied the calculation and account information required by the policy. The policy did not require the original notice to identify every relevant sub-clause or provide a detailed legal analysis. Information supplied in response to the Insurer’s request could complete the notification.
5. Alternative claims. The court considered that the alternative claims under clauses 1(i)(b) and 1(i)(d) also had no real defence. A counterparty bankruptcy was not necessarily a once-and-for-all event; the later appointment of administrators could constitute a further bankruptcy event. The issue whether notification was a condition precedent was assumed in the Insurer’s favour and left undecided.
6. Quantum and interest. The payment received from EFL had actually reduced the insured debt and had to be deducted consistently with indemnity principles. Interest was recoverable from 11 August 2006 because the Insurer had received sufficient information about the claim by then.

First-instance summary judgment application. No appellate history was stated in the judgment.