>08 FORWARD SALE CONTRACTS: VALUATION AND IMPLIED TERMS Soc/mer International Bank Ltd (In Liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116 (Court of Appeal, Civil Division) (Laws LJ, RixLJ, Lloyd LJ) (22 February 2008) Whether a seller's responsibility to value forward sales of securities on terniination of a contract is to be carried out on the date of termination and whether that responsibility has any implied terms as to thecare to be taken in its execution. Background Socimer International Bank Ltd ('Socimer') as buyer and Standard Bank London Ltd ('Standard') as seller had entered into forward sale transactions. Shortly before Socimer went into liquidation, it owed Standard US$24.5m in unpaid amounts. Under the agreement between the Banks, the relevant clause (the 'valuation sentence') stated that Standard had to liquidate or retain a portfolio (the 'Designated Assets') to satisfy the amount due to it and had to value the portfolio on the termination date. However, instead of complying with the valuation sentence. Standard sold what it could over the ensuing months and credited the proceeds to Socimer as and when the money was realised. In the meantime, Socimer entered into liquidation. Two High Court hearings dealt separately with the construction of the valuation sentence (before Cooke J) and the value of the assets in question (before Gloster J). Standard appealed against Gloster J's adverse judgment where, inter alia, Standard had used an expert witness to justify its valuations of the assets, which evidence was ignored by Gloster J. Condusion 08 3W:: The appeal was upheld, Socimer argued, on solely objective criteria, that there was an implied term in the bank agreement to deliver the true market value of the Designated Assets, sometimes expressed Butterworths Journal of International Banking and Financial Law/ as an obligation to take reasonable care to arrive at the true market value. However, true market value and taking reasonable care are not the same terms. The valuation sentence neither required an objective inquiry into the true market value of the assets in question, nor did it impose a duty of reasonable care on Standard. A breach of obligation to carry out a valuation with reasonable care would not be proved by the mere fact that a preferred expert had arrived a t a different answer, or adopted a different methodology, from that of Standard's hypothetical valuation. Where it was not possible to liquidate an asset on the termination and valuation date, it was unreasonable that there should be any risk at all on Standard. Furthermore, for Gloster J to disregard Standard's expert evidence on value because she was judging against an erroneous objective test of value was unfair when Standard had had no proper pretrial time to respond to what amounted to allegations of bad faith, irra:tionality or negligentre. Socimer had always owed Standard the unpaid amounts, so Standard was entitled to set off Socimer's other credits againstits greater liabilities. "There was nothing to suggest that Standard would have credited Socimer with the value of the spot trade balances of the forwards before the valuation exercise under the valuation sentence. Rix LJ concluded his findings by noting that the consequences of reversing Gloster J's decision would require further submissions from both sides. Therefore, this case has yet to reveal its full ramifications on the drafting ofclauses such as the valuation sentence. • Jonathan Lawrence and: Alexandra Mayson, KSr-LGates / : wwiv.klgates.com April 2008 I