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. 

In House Counsels as Judicial Members in Tribunals such as NCLT and NCLAT

 Please refer to the recent decision of the Hon'ble Supreme Court of India in SBI v. The Consortium of Mr. Murari Lal, 2024 INSC 852, where it has been held:

"183. The Members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters in order to properly adjudicate such matters. It has been noticed that the benches of NCLT(s) and NCLAT don’t have the practice of sitting for the full working ours. They are particularly lacking in the capacity to manage the growing number of cases and giving undivided attention required in such matters. There are serious issues in the manner in which the insolvency matters are listed. There is no effective system in place before the NCLTs for urgent listings."

Since liberalisation and globalisation, and after the advent of national law schools, there has been a considerable expansion in the legal profession. One such set of legal professionals are the in house counsels. They are not just legal professionals but also combine as excellent management professionals.

Unfortunately, the Indian legal system has not been able to tap this excellent resource for selection in tribunals and courts. On the one hands higher courts such as High Courts and Supreme Court keep complaining about the lack of professionalism in the tribunal members but on the other hand, excellent and well-qualified professionals are, it is understood, not eligible for being appointed as judicial members of tribunals. It appears as per the current state of law that they are at the most eligible for appointment as technical members.

In this background, the following two solutions could possibly be considered: One, In house counsels could be considered for selection as technical members, in the short run, so that the tribunals are equipped with people who understand not only the mechanics of law but also of business, and two, in the long run, the relevant statutes/ rules can be amended to enable appointment of in house counsels as judicial members of such tribunals.

Govt. Tries to find a Way Around the Atomic Energy Act

In two previous posts in this blog, here and here, we discussed the exclusivity provided by the Atomic Energy Act, 1962 to the Central Government and Central Government Companies to harness atomic energy in India. In the Budget Speech for the FY 2024-25, the finance minister announced that the Union Government would partner with the private sector for establishing Bharat Small Reactors (BSR), which are basically SMRs or Small Modular Reactors. The relevant portion of the budget speech reads as under:

“75. Nuclear energy is expected to form a very significant part of the energy mix for Viksit Bharat. Towards that pursuit, our government will partner with the private sector for (1) setting up Bharat Small Reactors, (2) research & development of Bharat Small Modular Reactor, and (3) research & development of newer technologies for nuclear energy. The R&D funding announced in the interim budget will be made available for this sector.” (emphasis added).

This announcement comes in the wake of Section 14(1) of the Atomic Energy Act which prohibits a direct role by the private sector in the Indian atomic energy industry.

The Government seems to have worked a way out for allowing private participation: the nuclear plant will be operated by the Nuclear Power Corporation of India (NPCIL) but the funding and the land will be provided by private players. It remains to be seen whether the private players will have a share of the revenue. These plants, it has been suggested, could replace or substitute captive power plants. A news item about this development can be accessed from here. 

Supreme Court Dismisses Challenge to Atomic Energy Act

The Supreme Court of India has dealt with an important matter of contemporary relevance: atomic energy in India. This post addresses the recent decision of the Supreme Court in Sandeep TS v. Union of India, Writ Petition(s)(Civil) No(s).564/2024: Order dt. 17.09.2024: SCI. 

A writ petition was filed early this year by one Mr. Sandeep TS, a physicist and an Indian citizen residing in the USA. The writ petition was filed under Article 32 of the Constitution of India raising a grievance against the Atomic Energy Act, 1962 (“Atomic Energy Act”) as it allegedly restricted, unduly, the involvement of private parties in licensing for nuclear energy.

The matter came up before a three judge Bench consisting of the Hon’ble Mr. Chief Justice DY Chandrachud, Hon'ble Mr. Justice J.B. Pardiwala, and Hon'ble Mr. Justice Manoj Misra. The three judge Bench referred to the Long Title of the Atomic Energy Act and Section 14 thereof.

The Long Title to the Atomic Energy Act reads: “An Act to provide for the development, control and use of atomic energy for the welfare of the people of India and for other peaceful purposes and for matters connected therewith.”

Section 2(1)(g) defines the term “prescribed substance” as “any substance including any mineral which the Central Government may, by notification, prescribe, being a substance which in its opinion is or may be used for the production or use of atomic energy or research into matters connected therewith and includes uranium, plutonium, thorium, beryllium, deuterium or any of their respective derivatives or compounds or any other materials containing any of the aforesaid substances;”

Section 14 of the said Act provided for the following:

• Central Government may make rules relating to control over production and use of atomic energy.
• Central Government may prohibit except under a licence activities prescribed in Section 14(1), including the acquisition, production, possession, use, disposal, export or import of a prescribed substance, etc.
• A licence for the acquisition, production, possession, use, disposal, export or import of any plant designed or adopted or manufactured for the production, development and use of atomic energy or for research into matters connected therewith can only be given to a Department of the Central Government or any authority or an institution or a corporation established by the Central Government, or a Government company.
• A licence granted to a Government company under Section 14(1) would stand cancelled when such company ceases to be a Government company.
• The extent of rule making power of the Central Government under this provision.

So, when the petitioner challenged the Atomic Energy Act as unduly restrictive, the Supreme Court rejected the challenge on the following grounds:

• The Parliament has introduced the Atomic Energy Act for a calibrated exploitation of atomic energy and subjected it to strict safeguards considering the adverse effects of misuse or accident.
• Hence, this Act cannot be considered as arbitrary or as interfering with the Petitioner’s fundamental rights.

Accordingly, the three Judge Bench of the Supreme Court dismissed the petition filed under Article 32 of the Constitution. 

Followers of this blog may recollect a post titled "Small Modular Nuclear reactors in India: Liberalisation of Regime & Way Forward last year where we highlighted the same issue. The Supreme Court in this case rightly dismissed the petition since this is a matter for the Legislature to take a call.