LIBOR Cessation, Implied Terms & Alternative Reference Rate: English High Courts Decides

LIBOR cessation is one of the most important issues in commercial law in the recent times. With trillions of dollars with contracts indexed to LIBOR and its recent cessation, it is important that courts world over deal with it in a fair manner. This article may be looked at for how international arbitral tribunals have dealt with LIBOR cessation.

Recently, the English Court in Standard Chartered plc v. Guaranty Nominees Limited, [2024] EWHC 2605 (Comm) has dealt with the issue. As has been noted in the aforementioned Some jurisdictions provided legislative solutions by prescribing the alternative reference rate through statute or delegated legislation. In some jurisdictions, courts read in an implied term of alternative reference rate. Standard Chartered plc v. Guaranty Nominees Limited decided by the English High Court is an example of the latter approach. Here, the English Court decided that where the three month USD LIBOR ceased or was incapable of operation, a reasonable alternative rate to it was an implied term.

The crucial question is how should courts (and arbitral tribunals) arrive at the alternative reference rate. Standard Chartered provides some guidance on the criteria:

• such rate is to be based on “robust underlying market”;
• while determining such alternative reference rate, courts should “have regard to the liquidity of that underlying market over time, market functioning issues, usefulness to all market participants and the ability to produce and maintain the alternative rates…”
• Such rate should “be able to test the rate by reference to historical data…”;
• It should “consider resilience to changing market conditions, structures and regulations; placing weight on the diversity of market participants, the stability of their participation and their credit quality over time; how changes in participation could affect the benchmark; the transparency of the benchmark and the need for an ongoing ability to assess the rate’s quality…”According to the court, such a rate was the “CME Term SOFR and adding the ISDA Spread Adjustment”.

The decision of the English High Court provides important guidance on two aspects. One, on the legal basis for implying a term on alternative reference rate to 3 months USD LIBOR, and two, determination of the alternative reference rate.