Metlife Seguros De Retiro SA v JPMorgan Chase Bank, National Association, Court of Appeal - Civil Division, December 07, 2016, [2016] EWCA Civ 1248

Resolution Date:December 07, 2016
Issuing Organization:Civil Division
Actores:Metlife Seguros De Retiro SA v JPMorgan Chase Bank, National Association

Case No: A3/2015/0905

Neutral Citation Number: [2016] EWCA Civ 1248





Claim No: 2012 Folio 1281

Royal Courts of Justice, Strand

London, WC2A, 2LL

Date: 07/12/2016

Before :





- - - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

Philip Marshall QC (instructed by Taylor Wessing LLP) for the Appellant

David Wolfson QC and Patricia Burns (instructed by Allen & Overy LLP) for the Respondent

Hearing dates: 22 November 2016

- - - - - - - - - - - - - - - - - - - - -


Lord Justice Hamblen:


  1. This appeal concerns the proper construction of the terms of structured Notes (``the Notes'') issued by the Respondent (``JPMorgan'') to the Appellant (``MetLife'') under a US$3 billion Structured Euro Medium Term Note Programme.

  2. The dispute between the parties concerns the final redemption amount payable to MetLife on the maturity date of 6 February 2011.

  3. JPMorgan contends that the sum payable is to be calculated by reference to the published CER (an Argentine inflation index) for the maturity date which means that the amount payable is US$176,541,651.36, which sum has been paid.

  4. MetLife contends that because the CER at the maturity date was not a genuine attempt to calculate inflation, but rather was a fabricated figure procured by the Argentine government for its political purposes, a ``CER Event'' had occurred which meant that the redemption amount was to be determined by JPMorgan as Calculation Agent ``in good faith and in a commercially reasonable manner''. As held by the judge (and not challenged on appeal), this would result in an additional sum of US$75,200,000 being payable.

  5. The judge held JPMorgan's construction of the contract to be correct and dismissed MetLife's claim.

    The Terms of the Notes

  6. MetLife subscribed for the Notes on the terms set out in JPMorgan's Final Terms dated 6 February 2006 which were specific to the Notes and were to be read in conjunction with its Base Prospectus for its Medium Term Note Programme dated 24 October 2005 (``the Terms''). The Terms provided for English law to apply.

  7. The CER is defined in the Terms as:

    ``The Argentine Coeficiente de Estabilización de Referencia published in respect of such day by the Banco Central de la Republica Argentina (the ``BCRA'') as reported at on the BCRA's website. The CER is calculated according to Resolution 47/2002 of the Argentine Ministry of Economy''.

  8. Resolution 47/2002 contains a formula for calculating the CER which involves using monthly figures from the ``Indice de Precios al Consumidor'' (Argentina's monthly Consumer Price Index (``CPI'') for Buenos Aires City and Greater Buenos Aires - ``GBA''). The CPI was calculated by the ``Instituto Nacional de Estadistica y Censos'' (the Argentine Institute of National Statistics (``INDEC'')). INDEC announced the monthly CPI on its website by the 7th day of the following month. That figure was then used by BCRA to announce the CER on its website, which it did on a daily basis.

  9. For the 7th day of the month until the end of the month the Resolution 47/2002 formula used the geometric average rate of the CPI for the previous month. For the 1st to 6th days of the month the formula used the geometric average rate calculated on the variation of the CPI between the second and third months previous to the current month.

  10. The ``Final Redemption Amount'' (``FRA'') was a function of the difference between CERINITIAL (the CER on 23 January 2006) and CERFINAL (the CER on the ARS Valuation Date - 3 February 2011 - ARS stands for Argentine pesos). This was to be converted into US$ using the ``ARS Rate'' which was the ARS/US$ exchange rate on the ARS Valuation Date expressed as the number of ARS per one US$. This was agreed at 4.0110. The effect of this formula for calculating the FRA was that the greater the difference between the CERINITIAL and the CERFINAL the greater the sum payable under the Notes.

  11. A different method of calculating the FRA was, however, to be used if a ``CER Event'' had occurred and was continuing on the ARS Valuation Date. This was addressed in clause 22 of the Terms, which is the clause central to the issues of construction raised on the appeal.

  12. Clause 22 of the Terms defines a CER Event as follows:

    ``CER Event'' means the occurrence of one or more of the following:

    (a) The CER is not announced in a timely manner by the BCRA; or

    (b) The CER is replaced by a successor index; or

    (c) The CER is no longer published and has not been replaced by a successor index; or

    (d) The Republic of Argentina, or any of its agencies, instrumentalities or entities (including, without limitation, the BCRA) by means of any law, regulation, ruling, directive or interpretation, whether or not having the force of law, takes any action which legally or de facto prevents or has the effect of restricting or limiting (i) the calculation or (ii) announcement of the CER or any of the values used to determine the CER.''

    The numbering in bold has been added, as it was by the judge, for convenience of reference. This part of the clause was described by the judge as ``the CER Event Provision''.

  13. If there was a CER Event, the Terms required the Calculation Agent to determine CER as at 3 February 2011. In this regard clause 22 provides that:

    ``If a CER Event has occurred and is continuing on the ARS Valuation Date then CERFINAL shall be determined and the CERINITIAL may be recalculated as for January 23, 2006 if determined to be necessary by the Calculation Agent, such determination and recalculation (if any) to be made by the Calculation Agent in good faith and in a commercially reasonable manner based on such available market information and other information as it deems necessary and relevant, including the new calculation method applicable to (i) the successor index or to (ii) the securities issued by the Republic of Argentina linked to CER or other obligations of the Central Bank linked to CER''.

    This part of the clause was described by the judge as ``the CER Calculation Provision''.

    Factual background and developments

  14. MetLife is a company incorporated in Argentina which carries on business as a provider of insurance and financial services.

  15. JPMorgan provides banking and financial services worldwide, including through its branches in Buenos Aires, London and New York.

  16. As part of a US$3 billion Structured Euro Medium Term Note Programme JPMorgan, acting through its London branch, issued ARS denominated ``USD and CER Linked Notes'' in the Aggregate Nominal Amount of ARS 482,048,909.

  17. On or about 6 February 2006 MetLife subscribed for the entirety of the Notes and remained the holder of the Notes when they matured on 6 February 2011.

  18. The evidence at trial concentrated on events after the conclusion of the contract and centred on whether there had been a CER Event. The statement and expert evidence at trial is summarised in the judgment at paragraphs 6 to 9. The only live evidence heard was from two experts on each side: Mr Sebastien Goldenberg and Dr Pablo Guidotti for MetLife and Mr Veeswanaden Patten and Dr Guido Sandleris for JPMorgan. Dr Guidotti and Dr Sandleris were economics experts who gave evidence relating to quantum issues. Mr Goldenberg and Mr Patten were banking experts whose evidence related primarily to the role of a Calculation Agent.

  19. As recorded by the judge at paragraph 10 of the judgment, the following were matters of common ground:

    (1) The INDEC CPI had (prior to the events in question) accurately and reliably recorded inflation in GBA, and had done so since 1924. It is effectively used as an index measuring consumer expenditure and inflation nationally in Argentina, though there are in fact separate indices for 15 Provinces of Argentina.

    (2) Throughout the term of the Notes INDEC published a figure for the CPI on the seventh day of every month and the BCRA published a daily figure on its website for the CER.

    (3) Throughout the term of the Notes, Resolution 47/2002 continued to govern the calculation of the CER.

    (4) Throughout the term of the Notes, and to the date of the trial, the CER was used in securities issued by and in Argentina, and other financial instruments, and the experts for both sides did not know of any case in which a provision for application of the CER index had not been followed.

    (5) The actions taken in relation to CER from the beginning of 2007, as set out in the judge's findings, were accepted to be actions by ``the Republic of Argentina or any of its agencies, instrumentalities or entities''.

  20. In addition, the judge noted that it was not suggested that the Provisions are standard terms. This reflected the evidence recorded at paragraph 7 of the judgment that neither Mr Goldenberg nor Mr Patten ``had seen before a clause such as the CER Calculation Provision (or indeed the CER Event Provision) in this case, although both accept that it is common to have market disruption clauses''.

  21. The factual events established by the evidence at trial are set out in paragraphs 11 to 23 of the judgment. Neither party disputed these factual findings and I adopt them for the purpose of this judgment. It is not necessary to repeat the full factual history found by the judge, but the most salient findings are set out below.

  22. In 2006 the process by which INDEC calculated the CPI was set out in a document entitled Methodology 13. This was an attempt to measure inflation based on international guidelines issued by the International Labour Organisation.

  23. By early 2006 the rate of inflation in Argentina had become a cause of concern for the Argentine government. Ms Bevacqua, the Director for CPI at INDEC (who gave evidence by a read and unchallenged...

To continue reading