These are used by academic Joanna Benjamin to highlight the distinctions between various groupings of transaction structures based on common underpinnings of treatment under the law.
[7] The five position types are used as a framework to understand the legal treatment and corresponding constraints of instruments used in finance (such as, for example, a guarantee or asset-backed security).
[13] For example, the consumer relationship in the case of Office of Fair Trading v Abbey National [2009] UKSC 6 where the bank was fined by the FSA for failing to handle complaints set out in soft law principle practices on broadly worded business principles which state that the bank must pay due regard to the interests of its customers and treat them fairly.
This highlights a long history of incorporating and accounting for the lex mercatoria into the English law in order to facilitate financial markets.
[17] English law makes it difficult to create a type of security and reliance on rules may result in established views which reinforce errors.
Often, courts seek to reverse engineer matters to make commercially beneficial outcomes and so case law operates in a similar manner to market practice in producing efficient results.
In BCCI, the court held that a charge was no more than labels to self-consistent rules of law, an opinion shared Lord Goff in Clough Mill v Martin where he wrote concepts such as bailment and fiduciary duty must not be allowed to be our masters, but tools of the trade fashioning to aspects of lifeUnfortunately, case coverage is unsystematic.
Despite these problems, there is a new breed of litigious lenders, primarily hedge funds, which has helped propel the pragmatic nature of financial case law past the 2008 crisis.
We may consider In Re Lehman Brothers [2012] EWHC(Extended liens case) where Briggs J struggled to determine the legislative intent of the Financial Collateral Directive.
Lord Sumption summarised the position by stating Subject to very limited exceptions, most of which are statutory, a company is a legal entity distinct from its shareholders.
The ambition of measuring the likelihood of future loss, that is of identifying risk, is a central part of the role legal liability plays in economics.
Risk is a crucial part of financial market sectors: [I]t is not just legally but economically fundamental, since limited companies have been the principal unit of commercial life for more than a century.
[25] However, there is a need for balance; the removal of limitations on insolvency rules and security registration requirements, as observed in the FCARs, is dangerous as it degrades powers and protections which have been conferred deliberately by the law.
[28] The criteria for a "relevant financial obligations" is set out in Part I Paragraph 3 The purpose of the provision is to increase the efficiency of markets and lower the transaction costs.
[39] This is not merely a matter of English law,[40][41] Lord Briggs' judgment in Client Money [2009] EWHC 3228 held that to interpret the meaning of the directive a court ought to 1.
Other concepts, crucial to financial markets include contingent obligations, the fact that bank debts operate as money; and set-off designed to mitigate the net exposure of transactions.
[47] For example, the ISDA 2002 master agreement utilises contingent obligations, set-off, and legal personality to reduce the liabilities of non-defaulting parties in the event of default.
In finance, particularly relating to set-off, guarantees, or other simple and funded positions; the definition of payment is crucial to determining the legal exposure of parties.
In Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419, the issue concerned when a debtor was able to discharge the duty to pay under the ISDA Master Agreement (1992).
It was crucially held in Societe des Hotel Le Touquet Paris-Plage v Cummings[60] that the bilateral contractual process did not require "accord and satisfaction" to achieve discharge of a debt by payment.
Flexibility within the contract, and a court appreciation for the commercial objectives of the master agreements is a crucial aspect of the long-term operation of the financial markets which they support.
[89][90] The ISDA Master Agreement is dependent on market practices, which attach to interpretations of intention within a context of long term relationships.
As held by Lord Millet in Agnew v Commissioners of Inland Revenue (Re Brumark Investments Ltd,[92] characterisation interprets the document and then categorises it within one of the existing legal doctrines.
Bank lending may be categorised according to a large number of variables including the type of borrower, the purpose and the form of the loan facility.
LMA syndicated single currency term facility distinguishes between 1. commitment to lend to each lender, 2. average of each; and 3. the loan made under the agreement and the draw down.
[104] In Sheppard & Cooper Ltd v TSB Bank Plc (No 2) [1996] BCC 965; [1996] 2 ALL ER 654, the plaintiff granted a fixed and floating charge over its assets.
We may examine one of the leading authorities on material adverse change clauses in committed lending, Grupo Hotelero Urvasco SA v Carey Value Added [2013] EWHC 1039 (Comm), per Blair J [351] In my opinion, an assessment of the financial condition of the company should normally begin with its financial information at the relevant times, and a lender seeking to demonstrate a MAC should show an adverse change over the period in question by reference to that information.
There may be compelling evidence to show that an adverse change sufficient to satisfy a MAC clause has occurred, even if an analysis limited to the company's financial information might suggest otherwise.
Propriety securities like mortgages, charges, liens, pledges and retention of title clauses are financial positions which are collateralised using proprietary assets to mitigate the risk exposure of the collateral-taker.
The prevalence and importance of combined positions within the financial markets, has meant that the legal underpinnings of the transactional structures are highly relevant to their enforcement and effectiveness.