Alfred Street Properties Ltd v National Asset Management Agency

Contractual options incorporated into standard market documentation may be exercised by the method specified in incorporated definitions where the transaction is identified by its structure and defined terminology, even if it is not labelled with the precise defined expression. A contractual notice provision permitting oral notice, including telephone notice, is not displaced by a postal address unless the contract clearly excludes oral communication.

Whether an oral exercise occurred is determined objectively from the words used and the surrounding commercial context. Where parties subsequently act on a shared assumption that contractual rights exist, estoppel by convention may prevent a party from challenging that assumption if reliance, detriment and unconscionability are established. Loss of an opportunity to protect restitutionary rights may also constitute change of position.

Alfred Street Properties Ltd claimed restitution of £4,778,289.56 paid under five interest-rate swaps. It alleged that National Asset Management Agency had failed validly to exercise contractual options to extend the swaps because the exercise was by telephone and was therefore ineffective.

The parties had incorporated the 2000 ISDA Definitions, whose section 12.2 permitted oral exercise unless otherwise provided. The claimant also challenged the timing and objective meaning of the telephone call. Alternatively, NAMA relied on estoppel by convention, waiver by estoppel and change of position. The central issues were whether the swaps had been validly extended and, if not, whether the claim was nevertheless barred.

1. The claim was dismissed. The options were validly and effectively exercised on 2 April 2012.
2. The Confirmations identified the options as Option Transactions within Article 10 of the 2000 Definitions. The use of defined terms such as Exercise Period, Expiration Time and Exercise Business Day, together with the heading Procedure for Exercise, made that conclusion clear. The court rejected an overly technical requirement that the precise labels Option Transaction or Swaption had to appear.
3. Section 12.2 of the 2000 Definitions was engaged, or alternatively incorporated, and permitted oral exercise including by telephone. The absence of an agreed ISDA Schedule meant that section 12(a) of the ISDA Form did not provide a workable notice route. The words “if any” meant that telephone exercise did not depend on a telephone number being stated in the Confirmation. A postal address did not implicitly exclude other permitted methods.
4. The telephone call took place before the 11 am expiry time. Objectively construed, the caller repeatedly stated that NAMA was exercising the rights, identified the transactions, and said that a formal confirmation would follow. The later emails were confirmations of an exercise already made.
5. If the exercise had been ineffective, ASPL would have been estopped by convention from asserting invalidity. The parties had shared and acted upon the assumption that the swaps had been extended. ASPL’s authorisations of the quarterly payments, its Business Plan and the parties’ subsequent dealings manifested that assumption. NAMA relied on it and lost the opportunity to protect its position before selling the debt and swaps. It would have been unconscionable to allow ASPL to resile.
6. Waiver by estoppel would alternatively have applied. The relevant requirements included a clear representation, reliance, detriment and unconscionability; knowledge of the invalidity was not essential.
7. NAMA did not have a good-consideration defence because, absent valid extension, it had no immediate right to receive the swap payments or apply them against ASPL’s debt without demand or authority. However, NAMA had changed its position by selling the debt in good faith while believing it was not liable to repay the sums, thereby losing the opportunity to protect its rights. That defeated the restitutionary claim in full.