In October, the High Court held that the buyer of a portion of a loan facility was entitled to unwind its participation where the deadline for meeting a condition had expired.

In 2007 Citibank arranged a US$55 million loan facility to Ukranian borrowers. In 2014, CVI EMCVF Lux Securities Trading SÀRL (CVI), a participant in the facility, transferred a US$10 million portion of its participation to an inter-dealer broker, Exotix Partners LLP (Exotix), which transferred the participation to VR Global Partners, L.P. (VR).

The transactions were subject to the condition that the National Bank of Ukraine issued a registration certificate relating to the loan transfer (NBU Registration). Under the terms of the transaction, if the NBU Registration had not been obtained by 30 November 2014, VR was entitled to unwind the transaction via a multilateral netting agreement (MNA) returning the parties to the positions they were in prior to the transaction. The contractual terms also stated that the parties may review the situation and agree a further review period, and that VR would, in good faith, take all reasonable actions to assist in obtaining NBU Registration. In addition, the LMA's standard terms, which were incorporated into the transaction, required VR to take any action as may reasonably be requested to effect the transaction.

Ultimately, NBU Registration was not obtained by the deadline, the market moved against VR and VR sought to exercise its option to unwind the transaction. Exotix agreed to enter into the MNA, but CVI refused, alleging broadly that: (i) VR had failed to take reasonable steps to agree an extension; (ii) in exercising its option to unwind the transaction, VR had not acted in good faith; and (iii) as the market had moved since the transaction date, it was not possible for the parties to be returned to the position they were in prior to the transaction.

The allegation that VR ought to have agreed an extension was advanced on the basis that there was an implied term that VR would take reasonable steps to agree a further review period. However, the court found that the meaning of the relevant clause was clear and that no party was under an obligation to agree to extend the deadline.

In relation to the contractual requirement of good faith, the judge found that it related to the process of unwinding rather than the exercise of the option to unwind. Even if the purpose of VR having the option to unwind was to provide VR with a hedge against the regulatory risk of non-registration, there was no absence of good faith in VR exercising the option when that regulatory risk had not been removed by the agreed date.

Finally, the court found that the parties could be returned to the position they were in prior to the transaction, despite the market moving between the transaction date and the exercise of the option. The position the parties were in prior to the transactions was that CVI owned the asset and Exotix and VR owned the purchase money. The option simply cancelled the sales.