Update on MRPA Legal Decision

Last year, ITFA (with support from Sullivan & Worcester) alerted members to the decision of the English High Court in Yieldpoint Stable Value Fund, LP v. Kimura Commodity Trade Finance Fund Limited which related to a sub-participation under a 2018 BAFT MRPA (as updated by ITFA).

The transaction which led to the dispute involved some specific drafting in an Offer which, it was argued successfully in the High Court, resulted in full recourse to the seller of the sub-participation even though the underlying obligor had failed to pay.

This decision has now been reversed by the Court of Appeal. This short note is not a full description of the case before the court and those who wish to read the full judgment can do so here Yieldpoint Stable Value Fund, LP v Kimura Commodity Trade Finance Fund Ltd [2024] EWCA Civ 639 (18 June 2024) (bailii.org).  Our alert of last year summarised the facts of the case.

We instead continue to draw attention to some of the lessons which the market can draw from this judgment, which remains the first court decision on the 2018 MRPA:

• The essence of a sub-participation is a without recourse arrangement between the seller/grantor of the sub-participation and the participant in which the participant take the economic risk of non-payment by the underlying obligor, the seller/grantor being generally only obliged to pay on what he received from the obligor
• Transactions that are trying to achieve a different objective, such as a full recourse loan, are better advised to use different documentation
• If the intention of an Offer is to override any specific provisions in the 2018 MRPA (especially in relation to when monies are to be paid to the participant even without receipt of corresponding funds from the obligor) then the drafting must be absolutely clear.
• Bespoke drafting should be carefully considered and legal advice taken as ambiguity or doubt can lead not just to an unexpected outcome but expensive court proceedings

If you have any queries on this case or on how to use the 2018 MRPA, please contact us at info@itfa.org.

This alert is not complete or exhaustive and does not constitute legal advice or a recommendation nor is it assuming a responsibility to provide advice. If members wish to receive advice, they should seek independent professional advice on the matters discussed.