WestLB AG v Nomura Bank International and another [2010] EWHC 2863 (COMM)
The case concerned a claim by WestLB against Nomura Bank in its capacity as calculation agent. WestLB and two Nomura entities had entered into a structured credit transaction pursuant to which Nomura, as calculation agent, was required to value certain shares for the purposes of determining an amount required to be paid to WestLB.
The relevant documentation contained provisions which made the determination by the calculation agent final and binding upon all parties (in the absence of manifest error). There was no dispute that in determining the relevant amount, the calculation agent was bound to act in good faith and not to exercise its discretion in a manner which was irrational (defined as capricious, arbitrary, unreasonable (in the public law sense) or perverse. WestLB alleged that the calculation agent in making its determination had acted both irrationally and in bad faith.
The judge analysed the steps that had been taken and not been taken by the calculation agent and based on the particular facts of this case agreed that the calculation agent had acted irrationally. As a result, it was held that the determination did not bind the parties. However as WestLB had not proven on the balance of probabilities that the shares had a value in excess of Nomura's fees (which would first be deducted from the valuation), it had failed to prove any loss and WestLB's claim was dismissed.
This case is an illustration of how the Court may look behind a conclusive and binding provision in a contract (but note that the implied requirement to make determinations in good faith and in a rational manner was not the subject of the decision). Although the case is banking related, it might apply to many types of transactions. This clause was similar to the "certificates and determinations" clauses that are typically seen in a facility agreements and also similar to provisions typically incorporated into loan notes.
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