Effective service of default notices under a GMRA and GMSLA (LBI EHF (in winding up) v Raiffeisen Zentralbank Österreich AG and Raiffeisen Bank International AG)

Effective service of default notices under a GMRA and GMSLA (LBI EHF (in winding up) v Raiffeisen Zentralbank Österreich AG and Raiffeisen Bank International AG)

A recent decision discusses the termination provisions in the Global Master Repurchase Agreement (GMRA) and Global Master Securities Lending Agreement (GMSLA), whether fax is an appropriate method of serving default notices and how the securities should be valued.

Original news

LBI EHF (in winding up) v Raiffeisen Zentralbank Österreich AG and Raiffeisen Bank International AG [2017] EWHC 522 (Comm)

The claimant, LBI EHF, contended that the default notice had not been served effectively and that the securities had not been valued correctly. The Commercial Court held that serving the notices by fax was effective as that was allowed under the GMRA and GMSLA and the securities had been valued correctly.

What are the practical implications of this case?

The case highlights the importance of following default provisions to ensure that notices are effective and also that non-defaulting parties are entitled to behave rationally and in good faith when determining valuations for securities.

What was this case about?

The claimant (LBI) entered into a number of trades with the defendants (RZB). In 2008, LBI failed. At this time there were eleven open positions between LBI and RZB relating to repo transactions and three open positions relating to securities lending transactions. These trades were on the terms of two master agreements—the repos were under the terms of the GMRA 2000 edition and the securities lending transactions were under the terms of the GMSLA 2000 edition. The dispute between the parties was in relation to valuation and whether default notices were effectively served by RZB.

What were the arguments arising in relation to the effective service of default notices?

RZB contended that it had sent default notices by fax. LBI said that it could not trace receipt of any default notices and so challenged this contention.

Under both the GMRA and GMSLA, service by fax is permissible—this is pursuant to paragraph 14(a)(ii) and (b)(iii) under the GMRA and paragraph 21.1 under the GMSLA. LBI criticised the choice of fax but the parties had provided a fax number under the agreements and so the choice could not be disputed.

RZB had transmission receipts marked "OK". The receipt containing the number for LBI commenced "0207" rather than "0044207" but the judge thought that the difference in number related to the answerback of the machine reached, and did not mean that the fax number had been di

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.