The facts in Macquarie Bank Ltd v Graceland Industry Pte Ltd, a decision from May 2018 of Sir Bernard Eder (editor of Scrutton, formerly a UK High Court judge and now a judge on the Singapore International Commercial Court) occupy most of the 100 page judgment on the post-default close out of a commodities swap (the notional amount was 30,000 tons of urea) done on a 2002 ISDA Master, but after that he gives a helpful ruling on whether Macquarie had acted reasonably in calculating its Close-amount Amount. As we know from Lehman Brothers Special Financing Inc v National Power Corporation, under the 2002 Master, the determination must use reasonable procedures to produce a commercial reasonable amount – unlike the 1992, it is not simply Wednesbury reasonableness. Here, Macquarie sold 20,000 tons on one day and took an estimate of the cost for selling the other 10,000 on the same day. Graceland argued that the market was fairly thin – in the month before close out, there were only 6 days when any trades went through the market, and the largest was only 15,000 tons – and so dumping (in effect) all 30,000 on one day rather than spreading it out over two days so as not to rock the market was unreasonable, depressing the price and increasing the loss. The judge relied heavily on the excellent Briggs J (as he then was) in Lehman Brothers International (Europe) v Lehman Brothers Finance SA, 2012 and held:

  • “Close-out Amount” does not require a party to enter into any replacement transactions – estimates are allowed
  • Spreading it over two days may have been commercial reasonable…
  • … but it would be impossible to say that doing what Macquarie did was not also commercially reasonable.

He quoted Briggs J: even the objective (non-Wednesbury) standard “leaves a range or bracket both of procedures and results (emphasis added) within which the Determining Party may choose, even if the court, carrying out the exercise itself, might have come to a different conclusion”. A sound decision from the SICC. Just as there are several ways to produce financial statements that show “a” true and fair view, so the law allows several different results to stand as reasonable outcomes.