Summary: The Court rectified an ISDA Swap Confirmation which was found to have mistakenly adopted the 1992 ISDA Master Agreement standard terms, instead of a 2002 ISDA Master Agreement which the parties had previously agreed and which contained Additional Termination Events.

LSREF III Wight Ltd v Millvalley Ltd [2016] EWHC 466 (Comm) (8 March 2016)


In November 2006, Millvalley, entered into a £33.7m loan facility (the “Facility”) with Anglo Irish Bank Corporation plc (“AIB”). The parties entered into a hedging arrangement (the “Original Swap”) using a long-form swap confirmation dated 2 January 2007 (the “Original Confirmation”). The repayment date for the loan, and the termination date for the swap, was 10 November 2016 in both cases. The parties agreed to enter into an ISDA Master Agreement at a later date (but did not actually do so). In the meantime, the swap was to be governed by the 1992 standard form ISDA Master agreement but without any Schedule. This meant that the Original Swap contained no provisions for early termination.

In 2010 the Facility and other facilities to members of the same group were restructured to provide for cross-consolidation of security. The repayment date of the loans was changed to 30 November 2011, but the termination date for the Original Swap remained as 10 November 2016. The Facility was repaid in July 2011. The Original Swap was nevertheless kept as hedging for the remaining facilities, which were extended until the end of 2012. Millvalley and Irish Bank Resolution Corporation Ltd (“IBRC”) (AIB’s successor) documented this in an agreement dated 13 December 2011 (the “2011 Agreement”), which used the 2002 ISDA Master Agreement form together with a Schedule (under which repayment of any facility was an additional termination event, thus potentially triggering early termination amounts).

In December 2012, IBRC agreed a further extension of the repayment dates for the remaining facilities until June 2014. The Original Swap was restructured with a reduced notional amount of £27.7m (the “Restructured Swap”). Like the Original Confirmation, the Restructured Swap was documented in a long form confirmation (the “2012 Confirmation”) and it referred to the 1992 standard form ISDA Master agreement (rather than the 2011 Agreement). As a result, it did not provide for repayment of a facility to be an additional termination event upon which an early termination amount might be payable.

One of the remaining facilities was duly repaid on 27 June 2014. IBRC claimed that a termination event had been triggered under the 2011 Agreement, and sent Millvalley an early termination notice claiming £4.3m. IBRC then transferred its right to the early termination amount to LSREF III Wight Ltd (“LSREF”). Millvalley refused to pay, arguing that repayment was not recognised as an early termination event under the 2012 Confirmation, upon which the Restructured Swap was based. LSREF argued there had clearly been a mistake, and that this should be corrected either as a matter of construction or by rectification.


The construction argument was rejected, as the language used in the confirmation was clear and unambiguous. However, the court agreed that the mistake should be rectified as IBRC and Millvalley’s dealings prior to the Restructured Swap demonstrated the requirements for rectification: a common continuing intention; an outward expression of accord; continuing intention at the time of execution; and by mistake the instrument did not reflect the common intention. Therefore, LSREF’s claim was allowed.

BLP Comment

The judge seems to have taken a dim view of Millvalley’s defence, because the evidence clearly showed that they had acted throughout on the basis that repayment of a facility would always be an additional termination event and trigger an early termination amount.

At the time of publication, an appeal to the Court of Appeal is scheduled for 18 or 19 July 2017.