LBI EHF (in winding up) v Raiffeisen Zentralbank Osterreich AG & Anor

Under the 2000 GMRA and GMSLA, a fax is effectively served when received in legible form by an employee responsible for receiving faxes. The employee need not understand the legal significance of the notice.

Where a contractual valuation depends on the non-defaulting party’s reasonable opinion, the court asks what that party would have decided, acting honestly, rationally and within the contract. Fair market value is not confined by definitions from other legal or financial contexts. In distressed markets, imperfect information and prices reflecting actual trading conditions may be used, provided the determination remains rational and in good faith.

LBI, formerly Landsbanki Islands hf, entered into repo and securities-lending trades with RZB under the 2000 editions of the GMRA and GMSLA. After LBI failed on 7 October 2008, RZB sent default notices by fax and subsequently valued the securities.

The issues were whether the default notices had been effectively served and whether RZB’s valuation complied with the contractual provisions governing Default Market Value and Net Value, including the requirement for a reasonable determination of fair market value.

1. Service of default notices. The contractual provisions permitted service by fax and placed the burden of proving receipt on the sender. On the evidence, the faxes were sent to the specified number, received in legible form and collected by an employee responsible for collecting incoming faxes. The expression “responsible employee” did not require the recipient to understand the nature or consequences of the default notice. The notices were therefore effectively served.
2. Contractual valuation. The court rejected importing definitions of fair market value from international valuation standards, financial reporting standards or other legal and financial contexts. The words had to operate across the factual situations contemplated by the GMRA.
3. The relevant question was what RZB, as non-defaulting party, would have determined, acting honestly and rationally and within the contractual terms. The assessment was not an independent valuation by the court or by experts. It was largely a question of fact concerning the opinion RZB would have formed.
4. The contractual discretion allowed RZB to consider appropriate pricing sources and methods, including prices for similar securities. There could be a range of rational outcomes. Actual bids, failed attempts to sell, prior transactions, Bloomberg or BGN information and appropriate adjustments could all be considered. A distressed market and imperfect information did not prevent a rational determination.
5. RZB’s proposed figures constituted an honest and rational determination of fair market value as at 15 October 2008. LBI’s claim accordingly failed.