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Andrew George QC and Flora Robertson, instructed by Jones Day, successfully represented the Defendant in an important case within the substantial LMA market against a large international investment house.

Exotix acted as an inter-dealer broker in a $10 million trade of Ukrainian debt sold by CVI to VR via two “back-to-back” transactions on LMA standard terms. The trades were subject to registration with the National Bank of Ukraine by a certain date, failing which VR would be entitled to unwind both via a multilateral netting agreement (MNA). However, approaching the deadline for registration the asset dropped dramatically in value. Registration did not occur and VR, refusing to extend the deadline, sought to exercise its contractual option to unwind. Exotix was willing to enter the MNA, but CVI was not.

VR claimed against Exotix for its failure to procure CVI’s entry into the MNA, which claim Exotix “passed on” to CVI. CVI counterclaimed against Exotix, alleging that VR was not entitled to unwind because it had acted in bad faith, seeking only to avoid the fall in the market; and that Exotix was liable to CVI for failing to procure VR’s cooperation in obtaining NBU registration or for extending the deadline. CVI also argued that Exotix had acted as CVI’s agent in certain respects.

Knowles J found in favour of VR as against Exotix and Exotix as against CVI. He noted in particular that there could be no criticism of Exotix’ conduct; there was no absence of good faith in VR’s exercise of its contractual option even if that was also to its economic advantage; and that the agency argument had “no foundation” on the facts. CVI was ordered to pay Exotix’s costs, including both VR’s costs as against Exotix and the adverse costs consequences of a rejected Part 36 offer made by VR to Exotix.

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