Supreme Court clarifies rights from trading of debt under LMA terms

Supreme Court clarifies rights from trading of debt under LMA terms

Banking & Finance analysis: Craig Pollack, global head of litigation at King & Wood Mallesons, advises that the Supreme Court’s decision in Tael One v Morgan Stanley will no doubt come as a relief to those who frequently trade debt in the secondary debt markets and provide clarity to buyers and sellers of secondary debt on the proper interpretation of the Loan Market Association (LMA) terms.

Original news

Tael One Partners Ltd v Morgan Stanley & Co International plc

[2015] UKSC 12, [2015] All ER (D) 112 (Mar)

The Supreme Court considered the interpretation of a contractual condition forming part of LMA standard terms and conditions for par trade transactions, in circumstances where the claimant claimed that it was entitled to be paid part of a payment premium which related to the amount of a loan which had been transferred to the defendant, to that extent that it pertained to the period prior to the transfer. The court held that the payment premium was not expressed to accrue by the reference to the lapse of time. The payment premium could not be regarded retrospectively, as having notionally accrued over the period in question.

What is the background to this case?

This case concerned a contention that a party that sold part of its participation in a loan under the Loan Market Association Standard Terms and Conditions for Par Trade Transactions (the LMA terms) trade nevertheless retained, without any express provision in the trade documentation, the right to receive a share of a payment premium that was ultimately paid by the borrower on prepayment of the loan.

Tael had transferred to Morgan Stanley part of its share in a syndicated loan in 2010. Tael claimed that Morgan Stanley was obliged, under the LMA terms, to pay over a sum equivalent to the part of the payment premium that Tael said was referable to the share

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About the author:

Neeta has been working as a paralegal in Banking and Insolvency for the past 4 and a half years.

She started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice Course. She moved to Lexis®PSL in April 2013.