The Court of Appeal today handed down judgment in Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Limited [2024] EWCA Civ 639. In allowing Kimura’s appeal, the Court overturned a decision under the Shorter Trials Scheme, which had found that the parties had contracted out of their framework master agreement, leaving the lender of record liable to repay the participant’s capital investment when the underlying borrower (a Chilean mining company) defaulted. The decision at trial, which had required Kimura to repay Yieldpoint’s capital in full, generated interest in the London secondary debt market because it had, in effect, overridden the core features of a sub-participation conducted on the (much-used) BAFT standard form.
The Court of Appeal’s decision restores the orthodox view that where parties in a sub-participation relationship contract on the basis of a standard form, the correct construction is one which gives effect to the conventional features of such an umbrella contract, including that the sub-participant’s capital is at risk as it shares in the risk of default of the underlying borrower.
Although sub-participation lending had previously received judicial consideration in the Privy Council’s decision in Lloyds TSB Bank plc v Clarke [2002] UKPC 27, the Court of Appeal’s decision today becomes the leading decision on this important form of lending.
On appeal, Ben Valentin KC acted for the Appellant, Kimura, with Nathan Searle of Hogan Lovells.
The judgment can be found here.
