MHB- Bank Ag v Shanpark Ltd

Under an ISDA Master Agreement, payment netting and close-out netting are distinct from contractual set-off. Section 2(c) addresses contemporaneous payment obligations under the same transaction, in the same currency and payable on the same date. It does not permit an unliquidated mis-selling damages claim to be netted against an Early Termination Amount calculated under section 6(e).

Section 6(f) operates only in the circumstances specified by its language, principally termination following an Event of Default or a relevant Credit Event upon Merger. It does not apply where termination follows an Additional Termination Event. A later facility agreement may exclude the customer’s contractual set-off rights while preserving the bank’s rights. A pleading expressing a contingent intention to set off does not itself effect a set-off.

MHB sought summary judgment in two actions against Shanpark Ltd, Vendart Ltd and Structadene Ltd for Early Termination Amounts arising under materially identical ISDA Master Agreements. The claims had been assigned to MHB by Irish Bank Resolution Corporation.

The defendants alleged that interest-rate swaps had been mis-sold and that their resulting claims for damages could be set off against the Early Termination Amounts under sections 2(c) and 6(f) of the ISDA Master Agreements, or under the related Sterling Term Facilities Agreements. They also relied on the bank’s pleading of a contingent set-off in parallel mis-selling proceedings. The central issues were the construction and interaction of those provisions.

1. Summary judgment. The defendants had no realistic prospect of establishing the pleaded set-off defence, and there was no other compelling reason for a trial. MHB was entitled to summary judgment against all three defendants.
2. Two contractual regimes. The ISDA Master Agreement created one regime during the life of the Agreement, under section 2, and another following Early Termination, under section 6. Once Early Termination occurred, section 6 governed the sums payable. Section 2(c) therefore had no operation against the Early Termination Amount.
3. Section 2(c). Section 2(c) concerned payment netting of obligations arising under the Confirmations. The relevant amounts had to relate to the same transaction, be in the same currency and be payable on the same date. An Early Termination Amount calculated globally under section 6(e) was not such an obligation, and an unliquidated mis-selling damages claim was not payable contemporaneously with it. Section 2(c) consequently provided no defence.
4. Section 6(f). The provision distinguished a Defaulting Party from an Affected Party. It applied where termination followed an Event of Default and notice under section 6(a), or in the specified Credit Event upon Merger circumstances. It did not apply where the bank terminated following the Additional Termination Event constituted by repayment of the loans. The bank’s earlier insolvency did not make it a Defaulting Party for this purpose.
5. Facility agreement and pleadings. Clause 30.3 of the Sterling Term Facilities Agreement excluded the defendants’ set-off rights except for the specified netting provisions. Clause 31 permitted the bank to set off matured obligations, but an unliquidated damages claim was not matured. The bank’s contingent pleading did not effect a set-off, and no waiver was established.
6. Obiter. If section 6(f) had applied, its wording might have permitted the relevant party, acting in good faith, to estimate an unascertained contractual damages obligation and set it off, subject to later accounting.