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 v
 t
 e

Financial law is the law and regulation of the insurance, derivatives, commercial
banking, capital markets and investment management sectors. [1] Understanding
Financial law is crucial to appreciating the creation and formation
of banking and financial regulation, as well as the legal framework for finance generally.
Financial law forms a substantial portion of commercial law, and notably a substantial
proportion of the global economy, and legal billables are dependent on sound and clear
legal policy pertaining to financial transactions. [2][3][4] Therefore financial law as the law for
financial industries involves public and private law matters. [5] Understanding the legal
implications of transactions and structures such as an indemnity, or overdraft is crucial
to appreciating their effect in financial transactions. This is the core of Financial law.
Thus, Financial law draws a narrower distinction than commercial or corporate law by
focusing primarily on financial transactions, the financial market, and its participants; for
example, the sale of goods may be part of commercial law but is not financial law.
Financial law may be understood as being formed of three overarching methods,
or pillars of law formation and categorised into five transaction silos which form the
various financial positions prevalent in finance.
For the regulation of the financial markets, see Financial regulation which is
distinguished from financial law in that regulation sets out the guidelines, framework and
participatory rules of the financial markets, their stability and protection of consumers;
whereas financial law describes the law pertaining to all aspects of finance, including
the law which controls party behaviour in which financial regulation forms an aspect of
that law.[6]
Financial law is understood as consisting of three pillars of law formation, these serve
as the operating mechanisms on which the law interacts with the financial system and
financial transactions generally. These three components, being market practices, case
law, and regulation; work collectively to set a framework upon which financial markets
operate. Whilst regulation experienced a resurgence following the financial crisis of
2007–2008, the role of case law and market practices cannot be understated. Further,
whilst regulation is often formulated through legislative practices; market norms and
case law serve as primary architects to the current financial system and provide the
pillars upon which the markets depend. It is crucial for strong markets to be capable of
utilising both self-regulation and conventions as well as commercially mined case law.
This must be in addition to regulation. An improper balance of the three pillars is likely to
result in instability and rigidity within the market contributing to illiquidity.[7] For example,
the soft law of the Potts QC Opinion in 1997[8] reshaped the derivatives market and
helped expand the prevalence of derivatives. These three pillars are underpinned by
several legal concepts upon which financial law depends, notably, legal personality, set-
off, and payment which allows legal scholars to categorise financial instruments and
financial market structures into five legal silos; those being (1) simple positions, (2)
funded positions, (3) asset-backed positions, (4) net positions, and (5) combined
positions. These are used by academic Joanna Benjamin to highlight the distinctions
between various groupings of transaction structures based on common underpinnings
of treatment under the law.[7] The five position types are used as a framework to
understand the legal treatment and corresponding constraints of instruments used in
finance (such as, for example, a guarantee or Asset-backed security.)

Contents

 1Three pillars of financial law formation

o 1.1Market practices
o 1.2Case law
o 1.3Regulation and legislation
 1.3.1Financial collateral regulations
 2Legal concepts prevalent in financial law
o 2.1Limited liability and legal personality
o 2.2Financial collateral
 2.2.1Financial collateral regulations
 2.2.1.1Possession
 2.2.1.2Control
o 2.3Set off
o 2.4Payment
 2.4.1Two conceptual points of mutual consent
 3Financial law transactional categories
o 3.1Simple financial positions
 3.1.1Derivatives law
 3.1.1.1Legal issues
 3.1.2Recharacterisation
o 3.2Funded positions
 3.2.1Difference between funded positions and other positions
 3.2.2Debt financing
 3.2.2.1On-demand lending
 3.2.2.1.1Overdraft
 3.2.2.2Committed lending
 3.2.2.2.1Material adverse change clauses
o 3.3Net positions
 o 3.4Asset-backed positions
o 3.5Combined positions
 4References
 5Further reading
 6External links

Three pillars of financial law formation[edit]

Three different (and indeed inconsistent) regulatory projects exist which form the law
within financial law. These are based on three different views of the proper nature of
financial market relationships.[7]
Market practices[edit]
The market practices of participants constitutes a core aspect of the source of law of the
financial markets, primarily within England & Wales.[9] The actions and norms of parties
in creating standard practices creates a fundamental aspect of how those parties self-
regulate. These market practices create internal norms which parties abide by,
correspondingly influencing legal rules which result when the market norms are either
broken or are disputed through formal, court, judgments. [10]
The principle role is to form soft-law; as a source of rules of conduct which in principle
have no legally binding force but have practical effects. [11] This has created standard
form of contracts for various financial trade associations such as Loan Market
Association, which seeks to set guidance, codes of practice, and legal opinions. It is
these norms, particularly those provided by Financial Market Law Committees, and City
of London Law Societies which the financial market operates and therefore the courts
are often quick to uphold their validity. Oftentimes "soft law" defines the nature and
incidents of the relationships that participants of particular types of transactions expect.
[12]

The implementation and value of soft law within the system, is particularly notable in its
relationship with globalisation, consumer rights, and regulation. The FCA plays a central
role in regulating the financial markets but soft law, voluntary or practice created legal
schemes play a vital role. Soft law can fill market uncertainties what are produced by
common law schemes. Obvious risk that that participants become lulled into believing
statements of soft law is the law. However, the perception that an opinion
constitutes ipso facto a clear and widely held opinion is wrong [13] For example, the
consumer relationship in the case of Office of Fair Trading v Abbey National [2009]
UKSC 6 where the bank was fined by the FSA for failing to handle complaints set out
in soft law principle practices on broadly worded business principles which state that the
bank must pay due regard to the interests of its customers and treat them fairly.
[14]
 Oftentimes the self-regulation of soft law can be problematic for consumer protection
policies.
Another example of the expansiveness of soft law in the financial market is the
explosion of Credit Derivatives in London, which has flourished on the back of the
characteristically robust opinion of Potts for Allen & Overy regarding the ISDA Master
Agreement in 1990 which helped the industry separate itself from current market
restrictions. A the time, it was unclear whether Credit Derivatives were to be categorised
as insurance contracts under English legislation of the Insurance Companies Act 1982.
ISDA was firm in rejecting a statutory definition of insurance, stating that
In practice market participants have had few concerns as to the impacts of boundary
issues between CD's and contracts of insurance.
 This was crucial as Insurance companies were restricted from participating in other
[15]

financial market activities and a licence needed to be granted to participate in the

financial market. As a result of the Potts Opinion, credit derivatives were categorised as
outside of insurance contracts, which allowed them to expand without the limitations set
in place by insurance legislation.
Soft law has practical effects in that it is liable in many cases to be turned into "hard
law", but with verified and experienced practice evidence. [16] In the case Vanheath
Turner (1622) the court remarked that custom of merchants is part of the common law
of the United Kingdom. This highlights a long history of incorporating and accounting for
the lex mercatoria into the English law in order to facilitate financial markets. Law
merchant had been so absorbed by the 18th century that the Bills of Exchange Act 1882
could provide common law rules and merchant law in tandem. We might consider Tidal
Energy Ltd v Bank of Scotland, where Lord dyson held that "a many who employee a
banker is bound by the usages of bankers" [17] meaning that if a sort code and account
number was correct, it did not matter if the name did not match.
There are risks on over-reliance on soft law sources, however. [18] English law makes it
difficult to create a type of security and reliance on rules may result in established views
which reinforce errors. This could result in unacceptable security even if legally valid.
Case law[edit]
Further information: case law
The second category which financial law draws most of its pragmatism with regard to
the standards of the markets originates in litigation. Often, courts seek to reverse
engineer matters to make commercially beneficial outcomes and so case law operates
in a similar manner to market practice in producing efficient results. [19]
There are two exceptions, attempting to limit the expectations to reasonable commercial
men and uphold the freedom of contract. Autonomy is at the heart of commercial law
and there is the strong case for autonomy in complex financial instruments. [20] Re Bank
of Credit and Commerce International SA (No 8) highlights the striking effect a
commercially beneficial practice can have on financial law. Lord Hoffman upheld the
validity of a security charge over a chose in action the bank held which it owed to a
client. Despite the formidable conceptual problems in allowing a bank to place a charge
over a debt the bank itself owed to another party, the courts have been driven to
facilitate market practices as best as possible. Thus, they are careful to declare
practices as conceptually impossible. In BCCI, the court held that a charge was no more
than labels to self-consistent rules of law, an opinion shared Lord Goff in Clough Mill v
Martin where he wrote
concepts such as bailment and fiduciary duty must not be allowed to be our masters,
but tools of the trade fashioning to aspects of life
— Clough Mill v Martin [1985] 1 WLR 111, Lord Goff
Unfortunately, case coverage is unsystematic. Wholesale and international finance is
patchy as a result of a preference to settle disputes through arbitration rather than
through the courts.[21] This has the potential to be detrimental to advancing the law
regulating finance. Market participants generally prefer to settle disputes than litigate,
this places a greater level of importance onto the "soft law" of market practices.
[22]
 However, in face of disaster, litigation is essential, especially surrounding major
insolvencies, market collapse, wars, and frauds.[14] The collapse of Lehman
Brothers provides a good example, with 50 judgments from the English Court of
Appeal and 5 from the Supreme Court of the United Kingdom. Despite these problems,
there is a new breed of litigious lenders, primarily hedge funds, which has helped propel
the pragmatic nature of financial case law past the 2008 crisis. [23]
Regulation and legislation[edit]
Main article: Financial Regulation
Further information: Bank regulation
The third category of law formation within the financial markets are those deriving from
national and international regulatory and legislative regimes, which operate to regulate
the practice of financial services. Three regulatory lenses ought to be highlighted
namely arm's length, fiduciary, and consumerist approaches to financial relationships.
In the EU these might be exampled by MiFiD II, payment services directive, Securities
settlement regulations and others which have resulted from the financial crisis or
regulate financial trade.[24] Regulatory control by the Financial Conduct Authority and
Office of Fair trading set out clear rules replacing extra-statutory codes of conduct and
has seen recent resurgence following the 2008 financial crisis. The regulatory policies
have not all been rectified in regard to how they the new rules will be coherent with
current market practices. We may consider In Re Lehman Brothers [2012]
EWHC(Extended liens case) where Briggs J struggled to determine the legislative intent
of the Financial Collateral Directive.
Financial collateral regulations[edit]
In addition to national and cross-national regulations on finance, additional rules are put
into place in order to stabilise the financial markets by reinforcing the utility of collateral.
In Europe, two regimes of collateral carve-outs exist; the Financial Collateral Directive,
and the Financial Collateral Arrangement (No 2) Regulations 2003. The EU's
development of the Financial Collateral Directive is curious if we view it through the lens
of only a regulatory matter. It is clear that the law here developed through market
practice and private law statutory reform. The EU has played a substantial role in this
field to induce and encourage the ease of transfer & realisation of assets and liquidity
within markets. The provisions are well adapted to short term transactions such as
repos or derivatives.
Further harmonisation rules pertaining to commercial conflict of laws matters were
clarified. The additional Geneva Securities Convention set by UNIDROIT provides a
basic framework for minimum harmonised provisions governing rights conferred by the
credit of securities to an account with an intermediary. However, this international
project has as of late been ineffective with only Bangladesh signing.

Legal concepts prevalent in financial law[edit]

Main article: Credit risk
Further information: Financial risk
Several legal concepts underpin the law of finance. Of these, perhaps the most central
concept is that of legal personality, the idea that the law can create non-natural persons
is one of the most important common myths and among the most ingenious inventions
for financial practice because it facilitates the ability to limit risk by creating legal
persons which are separate. Other legal concepts, such as set-off and payment are
crucial to preventing systemic risk by lessening the level of gross exposure of credit
risk a financial participant might be exposed to on any given transaction. This is often
mitigated through the use of collateral. If financial law is centrally concerned with the law
pertaining to financial instruments or transactions, then it can be said that the legal
effect of those transactions is to allocate risk.
Limited liability and legal personality[edit]
Main article: legal personality
Further information: Limited liability
A limited liability company is an artificial creation of legislature which operates to limit
the level of credit risk and exposure a financial market participant will participate
within. Lord Sumption summarised the position by stating
Subject to very limited exceptions, most of which are statutory, a company is a legal
entity distinct from its shareholders. It has rights and liabilities of its own which are
distinct from those of its shareholders. Its property is its own, and not that of its
shareholders [...] [T]hese principles appl[y] as much to a company that [i]s wholly owned
and controlled by one man as to any other company [25]
For financial markets, the allocation of financial risk through separate legal
personality allows for parties to participate in financial contracts and transfer credit
risk between parties. The ambition of measuring the likelihood of future loss, that is of
identifying risk, is a central part of the role legal liability plays in economics. Risk is a
crucial part of financial market sectors:
[I]t is not just legally but economically fundamental, since limited companies have been
the principal unit of commercial life for more than a century. Their separate personality
and property are the basis on which third parties are entitled to deal with them and
commonly do deal with them[25]

Financial collateral[edit]
Financial markets have developed particular methods for taking security in relation to
transactions, this is because collateral operates as a central method for parties to
mitigate the credit risk of transacting with others. Derivatives frequently utilise collateral
to secure transactions. Large notional exposures can be reduced to smaller, single net
amounts. Often, these are designed to mitigate the credit risk one party is exposed to.
Two forms of financial collateralization have been developed from the Lex Mercatoria;

1. Title transfer; or
2. By granting a security interest
A security interest may be granted with a right of use, conferring disposal powers. There
is an increasing reliance on collateral in financial markets, and in particular, this is
driven by regulatory margin requirements set out for derivatives transactions and
financial institution borrowing from the European Central Bank. The higher the collateral
requirements, the greater demand for quality exists. For lending, it is generally regarded
that there are three criteria for determining high-quality collateral. Those being assets
which are or can be:

 Liquid; and
 Easily priced; and
 Of Low credit risk
There are several benefits to having financial collateral provisions. Namely, financial
reduces credit risk, meaning the cost of credit and the cost of transacting will be
lowered. The reduced insolvency risk of the counter-party, combined with more credit
being available to the collateral taker will mean the collateral taker can take additional
risk without having to rely on a counter-party.[26] Systemic risk will be reduced by
increased liquidity,[26] This produces "knock-on effects" by increasing the number of
transactions a collateral taker can safely enter, freeing up capital for other uses.
[26]
 However, there is a need for balance; the removal of limitations on insolvency rules
and security registration requirements, as observed in the FCARs, is dangerous as it
degrades powers and protections which have been conferred deliberately by the law. [26]
Financial collateral regulations[edit]
The primary objective of the Financial Collateral Directive was to reduce systemic risk,
harmonise transactions and reduce legal uncertainty. It achieved this by exempting
qualified "Financial collateral arrangements" from the performance of formal legal
requirements; notably registration and notification. Second, the collateral taker is
provided effective right of use and said arrangements are exempted from being re-
characterised as different security arrangements. Perhaps most significantly, traditional
insolvency rules which may invalidate a financial collateral arrangement; such
as freezing assets upon entering into insolvency, are suspended. This allows a
collateral taker to act without the limitation which may arise from a collateral provider
entering bankruptcy. The FCARs[27] focus on outlining when a financial collateral
arrangement will be exempted from national insolvency and registration rules. In
England, the requirements that a financial collateral arrangements only applies between
non-natural persons with one being a financial institution, central bank, or public body;
the FCAR has been "gold-platted"[28] by allowing any non-natural person to benefit. Thus,
to qualify as a "financial collateral arrangement" under the FCARs, a transaction must
be in writing and regard "relevant financial obligations". [29] The criteria for a "relevant
financial obligations" is set out in Part I Paragraph 3
Security financial collateral arrangement mean[s] any agreement or arrangement, evidenced in writing,
where -

 (a) the purpose of the agreement or arrangement is to secure the

relevant financial obligations[30] vowed to the collateral-taker,
 (b) Collateral Provider creates or there arises a "security interest in
financial collateral"[31] to secure those obligations;
 (c) FC is delivered, transferred, held, registered, or otherwise
designated so as to be in the possession or under the control [32] of the
Collateral Taker; any right of the Collateral Provider to substitute
equivalent financial collateral or withdraw excess,[33] financial collateral
shall not prevent the financial collateral being in the possession or
under the control of the Collateral Taker; and
 (d) Collateral Provider and Collateral Taker are both non-natural
persons[34]

The purpose of the provision is to increase the efficiency of markets and lower the
transaction costs. The disapplied formal and perfection requirements accelerates the
effectiveness of security through FCAR Reg 4(1),(2),(3) and 4(4). Two things might be
said of this. Firstly, academics[35] have highlighted the risk of dappling statute of frauds
and other requirements. It runs real risk of repealing substantial protections which were
developed, at least in English common law, because of real risks of exploitation. [36] Other
forms of protection which has been repealed includes the ability to allow parties to
implement Appropriation if expressly agreed is permitted. [37]
Extensive litigation has resulted from the determination of the FCAR regulations,
specifically the meaning of "possession or control" as set out in paragraph 3.[38] Recital
10 states that possession or control is for the safety of third parties, however, the type of
mischief this is seeking to remove is unclear.[39] In C-156/15 Swedbank,
the CJEU enforced the requirement that practical control was that of legal negative
control.
second sentence of Article 2(2) provides that any right of substation or to withdraw
excess financial collateral in favour of the collateral provider must not prejudice the FC
having been provided to the collateral taker. That right would lack any force if the taker
of collateral consisting in monies deposited in a bank account were also to be regarded
as having acquired "possession or control" of the monies where the account holder may
freely dispose of them […] it follows that the taker of collateral in the form of money
lodged in an ordinary bank account may be regarded as having acquired 'possession or
control' of the monies only if the collateral provider is prevented from disposing of them
What is clear is that (1) possession is more than merely custodial and dispossession is
mandatory. Some legal control is also crucial, meaning practical or administrative
control is insufficient.
Possession[edit]
Requirement that collateral must be in possession is unclear. Is it one, two things? Does
possession apply to intangibles? We do know that you cant. Is the requirement of
control the same as the test for fixed charges. The scope of the regime is not clear.
There are several unanswered questions. Only the collateral providers can have is right
of substitution and right to withdraw surplus. Possession applies to intigble if it is
credited to an account. Gullifer suggests that this is a redundant definition. The directive
drafted with English and Irish laws not being centrally in mind. It was about disposition.
To some extent, ownership discourages transactions for the risk of ostensible wealth.
It was held that the phrase was to be construed in a manner consistent with meaning
and purpose.[40] This is not merely a matter of English law,[41][42] Lord Briggs' judgment in
Client Money [2009] EWHC 3228 held that to interpret the meaning of the directive a
court ought to 1. Interpret the directive. We can look at different language texts and
cases if any. 2. Interpret domestic legislation in light of the directive (as interpreted
through stage 1) This is not restricted by conventional rules. Meaning that the court can
and will depart from literal meaning and may imply words as necessary however, one
cannot go against domestic legislation, nor require the court to make decisions it is not
prepared to make. Repercussions must be and are considered by the court.
Control[edit]
Further information: Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd
By contrast, Control has been shown to not be that of practical (Administrative) control.
[42]
 It is clear that FCARs require a standard of negative legal control. Practical control, is
the Collateral Taker's exclusive ability to dispose and it is suggested this will additionally
be required if the parties are to avoid fraud. It is established by the rights and
prohibitions in the security agreement but there is limited case-law on the
matter[43] Scholars[44] identify two forms of control:

 positive
 negative (Collateral Provider has no rights in relation to
dealing with or disposal of collateral)
Positive and Negative control differ where one either has the right to dispose without
reference to the collateral provider, or where collateral provider is able to do so without
collateral taker. What is undeniable however, is that dispossession is central to both
possession and control. Rights of the Collateral taker must be beyond merely custodial;
he must be able to refuse to hand collateral back.
There are a handful of risks to these arrangements - as previously outlined - the ill
definition of what constitutes the activation of the FCAR arrangements creates a
danger. However, within the context of appropriation, a provider only has a personal
right against a taker for the surplus. There is no proprietary right. Should a taker (like
Lehman) become insolvent, a provider may well be at a loss for the excess. It
encourages the party to reclaim excess value whenever possible/reasonably practical.
This is not always possible due to the variation of the markets. Further, the risk of
appropriation is that these can be used for ulterior purposes. Which as created the
Cukurova problem;[45] there parties had constructed a scheme to capture shares with a
clause preventing the collateral taker from selling large securities at once and spooking
the market, but valuation is not linear which made it difficult, if not impossible to
determine what a commercially reasonable price for securities would be in an illiquid
market.
Set off[edit]
Main article: Set-off (law)
Other concepts, crucial to financial markets include Contingent obligations, the fact that
bank debts operate as money; and Set-off designed to mitigate the net exposure of
transactions. Set-off as a legal concept is crucial part of reducing credit risk and
reducing the knock-on effects of insolvency.[46][47] Collectively, these concepts operate to
underpin financial transactions by further dividing risk. Various combinations of these
legal methods are used to produce various allocations of risk. [48] For example,
the ISDA 2002 master agreement utilises contingent obligations, set-off, and legal
personality to reduce the liabilities of non-defaulting parties in the event of default. [49] The
effect of Clause 2(a)(iii) of the ISDA agreement is to suspend the payment obligations of
parties until the event of default has been cured. Such a cure may not ever occur. There
is substantial academic caution[48][46][47][50] that such a suspension acts to circumvent
insolvency pari passu objectives.[50] However, there is equal evidence that the clause
provides substantial market stability as a result of the standardisation and universality
that the ISDA Master Agreement has within the derivatives market.[50] It further provides
the involved parties to suspend the swap (and any other transactions within the master
agreement), providing them the time to understand the overall effect the event of default
has had on the agreement and the market. [50] In other words, it provides a breather. [50]
Payment[edit]
Main article: Payment
Payment operates as another core legal concept which underpins financial law. It is
crucial because it determines the point at which a party discharges their obligation to
another party. In finance, particularly relating to set-off, guarantees, or other simple and
funded positions; the definition of payment is crucial to determining the legal exposure
of parties. Several of the cases derive predominately from English and U.S. law,
pertaining to the Lex mercatoria, and was developed when finical law historically
focused on maritime trade.
In English and U.S. law, payment is consensual, requiring acceptance from both payee
and payer.[51] Roy Goode suggests that Payment is a;
consensual act and thus requires the accord of both creditor and debtor

— Roy Goode, Goode on Legal Problems of Credit and Security (Sweet & Maxwell, 6th
ed 2013
. Payment as a legal concept is underpinned by the law of contract. In most common
law jurisdictions, a valid contract requires sufficient consideration.[52][53] Payment plays a
crucial role in financial law because it determines when parties are able to discharge
duties. In Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419, the issue concerned
when a debtor was able to discharge the duty to pay under the ISDA Master Agreement
(1992). The requirement for payment arises in English law from a duty in performance
of a money obligation. Whilst normally described and fulfilled in monetary terms,
payment need only satisfy the creditor and does not necessarily involve the delivery of
money,[54] but it cannot constitute payment unless money is involved, even if
performance is fulfilled by some other act. [46]
a gift or loan of money or any act offered and accepted in performance of a money
obligation.

— Brindle and Cox, Law of Bank Payments (Sweet & Maxwell, 4th ed, 2010), [1-001]
Obligation to pay or tender the debt is balanced by the obligation on the part of the
seller not to refuse the whole or part of the debt. This is underpinned by limitations on
part-payment.[55][56][57][58] This traditionally operates in order to proffering money to fulfil
obligations within a contract.[59] In taking it, it is an affirmation of said contract and the
debtor is discharged of his obligation to the creditor. [60] This is crucial. In contracts where
A ('the debtor') owes money to B ('the creditor'), payment operates as the terminus for
A's obligation to B. It was crucially held in Societe des Hotel Le Touquet Paris-Plage v
Cummings[61] that the bilateral contractual process did not require "accord and
satisfaction" to achieve discharge of a debt by payment. The operation of payment
therefore requires mutual compliance from "both creditor and debtor".[46]
Two conceptual points of mutual consent[edit]
Mutual consent must thus occur at two points, ex ante and ex post of the contract
between parties and at what we might call "point Z" for situations where an obligation to
pay does not result from contractual duties. (such as a debt owed to a non-adjusting
creditor, cf Bebchuk and Fried). At both points, mutual consent required from both
parties. First, ex ante consent occurs at the time where parties agree on the obligation.
If a party has specified a method for discharging an obligation through a specific means,
then the parties must have contemplated the sufficiency of the tender to discharge the
debt and therefore consensually agreed to payment of a specified way. [62][46] This will
likely provide specification on when tender may be rejected. Chen-Wishart's discussion
of the importance of consideration within the bargain theory of contracts enunciates the
emphasis the English law has placed on benefit and deliberateness when contracting. [63]
[64][65][62]
 Contracting parties must have contemplated, negotiated, and reached mutual
agreement in regard to how the obligation would be discharged. This does not,
however, prevent or impede the occurrence of "point Z". Parties may duly agree on
payment in principle prior to the execution of the contract and subsequently still fail to
effect payment.[66][67][68] Functionally agreement results in questioning whether or not
payment has been made by the debtor. The debtor must commit a certain level of
formality to proffering the obligation. This formality may take the form of complying with
a contract. Failure to comply, is not payment.
Second, ex post, regardless of whether parties have mutually agreed and specified a
method, or a money of payment, the parties (notably the creditor) must consent to the
debtor's tender in order to crystallise payment and sever the demand for payment.
[66]
 Discharge of a debt is automatic. In other words, a payment of a contractual
obligation requires mutual consent of payment at both the stage of formation and at the
conclusion/distribution to be recognised as 'payment', but upon acceptance of payment
the debt is discharged. In Colley v Overseas Exporters[69] it was shown that even where
tender complies with the contract, it is not payment until the creditor (or Payer) accepts.
This is regardless of whether the creditor's rejection frustrates the contract and is a
breach of their duty. The law does not allow the debtor to coerce the creditor into
accepting a tender.[70] This is the case, even when the debtor has forwarded valid tender.
[71]
 It is the subsequent acceptance or non-acceptance of the tender from the creditor
which crystallises payment and effects discharge.[14] Mere receipt will not suffice.
However, mutual consent is of a lower standard than that in contractual formation.
In TSB Bank of Scotland plc v Welwyn Hatfield District Council [1993] Bank LR 267,
Hobhouse J held that acceptance of payment need not be communicated and his
judgment provides a clear, two-stage test for determining whether payment has been
made. If A;

 places the money unconditionally at the disposal of his

creditor; and
 the conduct of the creditor, viewed objectively, amounts to
acceptance, then payment has passed.
Thus, in Libyan Arab Bank v Bankers Trust Co[72] the court held that when the collecting
bank decided unconditionally to credit the creditor's account, the payment is completed.
Presentation and subsequent rejection of payment provides an absolute defence for to
an action brought by the creditor, but without the action (and opportunity to pay into the
court) and with exceptions,[73] the debtor's proffering of payment does not discharge the
money obligation nor does it constitute as payment. In the case of The Laconia, the
English House of Lords set out clear conditions on timing of payment in relation to the
debtor proffering payment. The charterers had procured a vessel for 3 months, 15 days
with a payment due on April 12, a Sunday. The charterers delivered payment on
Monday. The vessel owners rejected the payment, which was sent back the following
day.[67] Primarily, The Laconia regards the requirement for a tender to be congruent with
the conditions in order to amount to a tendering of payment. However, the case might
also be used to highlight the necessity for the creditor to accept such tendering. Had the
vessel owners merely taken receipt of the payment and not instructed their bank to
return the money, then it seems likely that payment was accepted. The consensual
nature of payment thus derives from the requirement that both debtor must offer, and
creditor must accept, the medium of payment; and secondly from the fact that creditor
rejection of procurement, even if his agent is in receipt of the payment, results in a
failure to effect payment.[67] Goode discusses two forms where receipt does not take
effect as acceptance that fall into the second aforementioned stage of mutual consent;

1. Conditional acceptance. Where a cheque is accepted it

is conditional on such a cheque being met. Here, letters
of Credit come to mind in that their conditional nature is
dependent on the bank effecting payment. In The
Chikuma and The Brimnes the court examined whether
payment was fulfilled on the side of the payer. From
that perspective, it was necessary for the court to
analyse whether the payer had fulfilled the conditions in
order to effect discharge.[66][68]
 2. Receipt by creditor's agent. The Laconia falls within this
category. This is primarily because it is not always clear
whether the agent lacked the authority to accept the
payment.[74]
The fact that rejection of tender is sufficient to prevent 'payment' derives from the fact
that payment is the conferral of property to fulfil the obligation. Property and obligation
aspects of the transaction cannot be separated without the transaction ceasing to be
"payment".[75]

Financial law transactional categories[edit]

As well as being fragmented, financial law is often muddled. Historical segregation of
the industry into sectors has meant each has been regulated and conducted by different
institutions.[76] The approach to financial law is unique depending on the structure of the
financial instrument. The historical development of various financial instruments
explains the legal protections which differ between, say, guarantees and indemnities.
Due to the limited cross-sectoral legal awareness, innovations in finance have been
associated with varying levels of risk. Several different legal "wrappers" provide different
structured products, each with differing levels of risk allocation, for example, funded
positions consist of bank loans, capital market securities, and managed funds.
The primary purpose of financial law is to allocate risk from one person to another and
change the nature of risk being run by the protection buyer into the 'credit risk' of the
risk taker. Five categories of market structures are divided according to how the
contract deals with the credit risk of the risk taker.
Simple financial positions[edit]
Guarantees, insurance, standby letters of credit and performance bonds. The
terms Simple can often be misleading, as often the transactions which fall within this
category are often complicated. They are termed simple not because of the lack of
sophistication but because the transactions do not address the credit exposure of the
protection buyer. Rather, as with a guarantee, the protection buyer simply takes the risk
of protection seller. Derivatives often fall within this regulatory category because they
transfer risk from one party to another.
Derivatives law[edit]
Main article: Derivative (finance)
The second portion of simple transactions are derivatives, specifically
unfunded derivatives of which, four basic types exist. At law, the primary risk of a
derivative is the risk of a transaction being re-characterised as another legal structure.
Thus, the courts have been cautious to make clear definitions of what amounts to a
derivative at law. Fundamentally, a derivative is a contract for difference, it
utilises netting to set obligations between parties. Rarely does delivery of the asset
occur.[77] In English law, the judgment of Lomas v JFB Firth Rixon [2012] EWCA Civ,
quotes the leading test Firth on Derivatives, characterising a derivative as a
transaction under which the future obligations are linked to another asset or index.
Delivery of the asset is calculated by reference to said asset. Derives from the value of
the underlying asset. This creates another asset out of the first type. It is a chose in
action with reference to the value of the underlying asset. They are separate and can be
traded accordingly
As legal instruments, derivatives are bilateral contracts which rights and obligations of
the parties are derived from, or defined by, reference to a specified asset type, entity, or
benchmark and the performance of which is agreed to take place on a date significantly
later than the date in which the contract is concluded. [7]
Types Various types of derivatives exist with even greater variance of reference assets.
English law in particular has been clear to distinguish between two types of basic
derivatives: Forwards and Options.[78][79] Often parties will place limits on the interest rate
differentials when engaging in trades. At law, these are known as "Caps & Collars",
these reduce the cost of the transaction. Regulation has been a key component in
making the market more transparent, this has been particularly useful in protecting
small and medium sized businesses.[80]
Swaps and Credit derivatives also differ in legal function. A credit derivative describes
various contracts designed to assume or distribute credit risk on loans or other financial
instruments. Payment obligations of a seller is triggered by specified credit events
affective defined assets or entities. In a swap, it was held in Hazell v Hammersmith and
Fulham London Borough Council[81] by Woolf LJ that equity swaps were developed under
ISDA's guidance and might be defined as
A transaction in which one party pays periodic amounts of a currency based on a fixed
price/rate and the other party pays periodic amounts of the same currency or different
currency based on the performance of a share of an issuer, an index or a basket of
several issuers.
These are differentiated from credit derivatives, which reference the credit risk of
specified credit event; usually a bankruptcy, failure to make payment, or a breach of a
condition such as a debt-to-equity ratio. Payment as a core concept in finance is crucial
to the operation of derivatives.[82] Credit derivatives which are "self-referenced", i.e.
referencing the parties own credit worthiness have been considered by the courts as
capable of involving fraud.[83]
Legal issues[edit]
A swap derivative with negative interest rates highlights particularly issues at law. It is
unclear how a party pays a negative number. Does it reverse the obligations? According
to the ISDA Master Agreement variation in 2006, a swap has a "zero floor" which means
that if interest rates reverse, the obligations do not reverse. Without the 2006 variation,
the negative interest rate is a deduction off what is owed. An additional area of relevant
derivatives law is shown in the cases of Dharmala[84] and Peekay,[85] both of which
involved arguments of mis-selling derivative transactions. [86] This is closely related with
the argument that parties, particularly government bodies lack the power to enter into
derivative contracts.[87] In Dharmala, the claimant argued unsuccessfully that the bank
misrepresented the transaction. It was held that they did misrepresent but for the
misrepresentation to effect a claim, it was necessary to induce someone to enter into
the contract, which was unable to be proven. In Peekay, the Court of Appeal rejected
the suit for misrepresentation when the defendant mis-sold a synthetic credit
derivative to Peekay which had its reference assets in Russian investments. The
Peekay director ought to have read the documents rather than relying on the
defendant's oral representation. This is a pro-market approach with marked Judaical
disinclination to not strike down transactions, substantial problems exist with enforcing a
contract against a party which argues it lacks the power to enter into an agreement, it
has been likened to pulling oneself up by the bootstraps as the party cannot warrant
that it has the power if it truly doesn't. [88][89]
Documentation of derivatives often utilises standard forms to increase liquidity, this is
particularly the case in exchange traded, or "over the counter" derivatives which are
predominately documented using the ISDA Master Agreement. These agreements
operate to create a singular transaction which lasts the duration of the trading
relationship. Confirmation of trades can be codified by oral contracts made over the
phone. This is only possible because interpretation of the standard form documentation
is done in a manner so that the terms of art used within the documents have their own
autonomous meaning separate from the law of the forum. Flexibility within the contract,
and a court appreciation for the commercial objectives of the master agreements is a
crucial aspect of the long-term operation of the financial markets which they support. [90]
[91]
 The ISDA Master Agreement is dependent on market practices, which attach to
interpretations of intention within a context of long term relationships. The aim is to
differentiate relational contracts from one-off contracts. The concept of a single
agreement is not new. The is an artificial line to sum-off and default netting
practices[92] Payment of a derivative contract, particularly those of standardised forms,
use netting. This minimises credit risk.
Recharacterisation[edit]
In being similar to one another in terms of economic market effects, simple positions are
particularly susceptible to being re-characterised. When this happens, substantial legal
consequences can result, as each legal instrument has different consequences. Whilst
a guarantee and an indemnity have, in substance, the same economic result; the law
characterises each differently because it affords an indemnifier less protection than a
guarantor. Similarly, a derivative or guarantee must not be recharacterised as an
insurance contract, as such contracts are strictly regulated by government regulation. A
re-characterisation into an insurance contract would be fatal to the contract, as only
licensed parties can issue such terms. The characterisation of financial transactions by
the court takes the form of two stages; examining the legal substance, not the form of
the agreement. Thus, stating that a contract is a derivative, does not make it a
derivative. As held by Lord Millet in Agnew v Commissioners of Inland Revenue (Re
Brumark Investments Ltd,[93] characterisation interprets the document and then
categorises it within one of the existing legal doctrines. Intention is not relevant,
however, there are sensitivities to this matter, primarily concerning the insurance
markets. Three key types of recharacterisation can occur to simple positions
 1. Guarantees or Indemnities: In Yeoman Credit Ltd v
Latter[94] the court held perhaps the most important
distinction. The distinction between the two is that a
guarantee is a secondary obligation to pay whilst an
indemnity is a primary obligation.[95][96]
2. Guarantees or Performance bonds: Performance bonds
are similar to a promissory note, this turns again upon
the primacy of the obligations. The courts have been
extremely hesitant to implement a performance bond
onto parties which are not banks.
3. Guarantees or Insurance: Both are protecting creditors
from loss, however a guarantee is narrower. Romer LJ
set out three variables to differentiate the two: [97] (1) the
motives of the parties differ, insurance is a business
contract and cover is provided in consideration for a
premium. Guarantees are provided without payment.
(2) The manner of dealings differ; an insurer usually
deals with the insured and not the reference entity. (3)
The means of knowledge which is disclosed. The
insured must disclose material facts, why a guarantor is
left to himself to determine facts. A guarantee thus is
traditionally drafted to stand behind the debtor rather
than be payable on the occurrence of an event. In
England, prior to the Gambling Act 2005, the courts
often interpreted contracts as gambling and avoided
them. Any contract which exists under the purview of
the Financial Services and Markets Act 2000 is not
avoided by the Gambling Act 1845 provisions. This is,
in part, due to the Potts Opinion which argued the legal
distinctiveness of derivatives
from gambling and insurance contracts. This was
argued by stating that the payment obligation was not
conditional on loss and rights were not dependent on an
insurable interest.
Funded positions[edit]
Further information: Syndicated loan
Lending is perhaps the most central aspect of the financial system. As discussed by
Benjamin, the law attempts to allocate risk in ways which is acceptable to the parties
involved. Bank loans and capital market transactions fall within this category. It may be
defined as situations where the risk-taker is the provider of capital to another party. If
the risk materialise, the exposure is not merely an obligation to pay, but rather the
exposure of the risk-taker is the risk of losing its previously committed capital. That is to
say, a funded position is the risk of repayment. When a bank makes a loan, it pays
money and runs the risk of a lack of repayment.
Difference between funded positions and other positions[edit]
Further information: lending
One might ask what the difference between an asset-backed security and funded
positions. The answer is that funded positions are positions which are acquired without
backing of other assets.
The true difference is that of funded positions and simple positions. Simple positions,
such as guarantees, insurance, standby credits and derivatives. Funded positions differ
from simple positions in that simple positions expose risk as a form of a promise. The
risk taker agrees to pay the beneficiary upon certain events. This relies upon exposure
to credit risk. Funded positions have the risk exposure has the form of a payment, which
is to be restored. The risk exists in that it may not be repaid. It is funding a party with the
risk being a lack of repayment. This includes the bank and non-bank lending
including syndicated loans.
Two overarching forms of funded positions exist between debt and equity, and there are
several ways to raise capital. This might be broken down into Bank loans (debt
financing) and equity issuing (capital markets). Alternatively, a company may retain
profits internally. This may be summarised as:

 Equity Shares
 Debt financing
 Retained profits
Few companies can use equity and retained profits entirely. It would not be good
business to do so either; debt is a crucial aspect for corporate finance. This relates to
the gearing advantages of taking on debt and maximising the value of debt-to-equity to
allow equity to gain maximum returns.[98] Debt is repayable in accordance with the terms;
whereas equity instruments, typically includes rights of shareholders, rights to receive
reports, accounts, pre-emptions (where the company proposes issuing new shares),
and the right to vote on strategic decisions affecting the company.
Debt financing[edit]
Main article: debt finance
Bank lending may be categorised according to a large number of variables including the
type of borrower, the purpose and the form of the loan facility. Where a bank makes a
loan it will typically require a business plan and require security where it has credit
concerns. A commitment letter may be produced during the negotiations for a loan. In
general these are not legally binding.
A loan facility is an agreement where a bank agrees to lend. It is distinct from the loan
itself. Using a loan facility it writes to the bank and the bank makes the loan. LMA
syndicated single currency term facility distinguishes between 1. commitment to lend to
each lender, 2. average of each; and 3. the loan made under the agreement and the
draw down. Three important forms of these are:

 Overdraft facilities[99]
 term loan facilities[100]
 revolving facilities[101]
These may be further categorised into two overarching forms of bank lending, organised
based on the term/repayment criteria of the loan. These are:

 on-demand lending (overdraft and other short term) and; [102]

 committed lending (revolving facility or a term loan) [103]
Economist and finance lawyers categories these and further categorise syndication
separately but within committed lending. This has been a traditional driver for lending
within the debt financing market.
On-demand lending[edit]
Where express terms state that it is repayable one demand, it will be so repayable even
if both bank and borrower envisaged that it would be last for some time. [104] This must be
an express term. In England & Wales, because of S6 Limitation Act 1980, time for
repayment does not start running until the demand is made. This means that the debt,
for example an overdraft, is not repayable without demand but will become repayable if
requested; even if the parties thought it would not be repayable for some time. [105]
In Sheppard & Cooper Ltd v TSB Bank Plc (No 2) [1996] BCC 965; [1996] 2 ALL ER
654, the plaintiff granted a fixed and floating charge over its assets. He then covenanted
to pay or discharge indebtedness on-demand. At any time after indebtedness should
become immediately payable, the debtor was authorised to appoint administrative
receivers. Soon after a demand was made by the defendant. The plaintiff said that the
best that could be done was repayment of half. The defendant appointed administrative
receivers to recover the debt as outlined by the charge. The plaintiff sued and claimed
claim the time was insufficient. The court held that; "It is physically impossible in most
cases for a person to keep the money required to discharge the debt about his person.
Must have had reasonable opportunity of implementing reasonable mechanics of
payment he may need to employ to discharge the debt." But a "reasonable time"
overarching doctrine was found to be too commercially difficult. The courts have held
short timelines as being more than sufficient to satisfy the request of on-demand.
Walton J only accepted 45 minutes as being a reasonable period of time and in Cripps it
was 60 minutes. Therefore the timing of repayment depends on circumstances but is, in
commercial matters, extremely quick. If the sum demanded is of an amount which the
debtor has, the time must be reasonable to enable the debtor to contact his bank and
make necessary arrangements. However, if the party, as in Sheppard admits his
inability to pay, Kelly CB believed that seizure was justified immediately stating "If
personal service is made and the defendants may have seized immediately
afterwards."[106]
Parties will want to avoid insolvency consequences. A bank will normally freeze a
customers account when a winding up petition occurs to avoid dispositions within
insolvency.[107] A payment into an overdrawn account is probably a disposition of the
company's property in favour of the bank. This is crucial differentiation as the money of
an overdrawn account is going directly to a creditor. Payment into an account in credit is
not a disposition of the company's property in favour of the bank, however. [108]
The bank makes a payment out of the company's account in accordance with a valid
payment instruction - there is no disposition in favour of the bank. [109] As a result, banks
traditionally freeze accounts and force insolvent parties to open new accounts.
Overdraft[edit]
Main article: overdraft
An overdraft constitutes a loan, traditionally repayable on demand. [110] It is a running
account facility (categorising alongside revolving loans) where its on-demand nature of
repayment meant immediately.[111] A bank is only obliged to provide overdraft if the bank
has expressly or impliedly agreed to do so[112] Legally, where a client overdraws his
account, the client is not in breach of contract with the bank; if it did constitute a breach,
then the fees charged by the bank would be penalties and corresponding not allowed.
[113]
 If requesting payment when there is no money in the bank account, the customer is
merely requesting an overdraft.[114] This should be noted that this is separate and distinct
from credit cards; as credit cards invariably say a client must not go over the credit limit.
With overdraft requests, the bank has the option not to comply with the request,
although this is rare, as the banks reputation is built upon a willingness and ability to
pay on behalf of clients.[115] Often however, the bank complies and then charges a fee to
'create a loan'.[14]
OFT v Abbey National held that "if a bank does pay, customer has taken to have agreed
to accept the bank's standards," which means that they have asked and the bank has
provided a loan. Banks may charge interest on an overdraft and may compound that
interest[116] The point of an overdraft at law is that it is repayable on demand, however,
payment instructions within the agreed overdraft limit must be honoured until notice has
been given that the facility (the overdraft) is withdrawn. [117]
Committed lending[edit]
Main article: loan
A committed facility is where the bank is committed to lend throughout a certain period.

 Term loan; all at once or in successive tranches. Can be

repayable at once (bullet); or according to a payment
scheme(amortising)
 Revolving facility; borrow repay and reborrow.
 swingline facility; Which is a committed facility providing for
short term advances
Most committed lending facilities will be documented, either by:

 A facility letter or
 A loan agreement
These may be more or less complex, depending on the size of the loan. Oral assurance
can give rise to an obligation to lend prior to any documentation being signed. 'A
statement made by a bank employee over the telephone that approval' had been given.
[118]
 Most facility letters and loan agreements will contain contractual provisions designed
to protect the lender against the credit risk of the borrower. This requires several
aspects. Normally it will require conditions precedent, restrictions on the borrower's
activities, information covenants, set-off provisions, stipulations for events of default.
Lenders will also traditionally take real or personal security. These are designed to
protect the lender against:

1. Non Payment of both interest and capital; and

2. Insolvency
These two objectives are achieved by providing for events that make non-payment or
insolvency unappealing or transfer the risk associated with said events to third party.
This highlights the difference between risk as assessed and actual risk.
Material adverse change clauses[edit]
Main article: material adverse change
A common provision relates to material adverse change clauses. The borrow
represents/warrants that there has been no material adverse change in its financial
condition since the date of the loan agreement. This is a clause which is not often
invoked or litigated and therefore the interpretation is uncertain and proof of breach is
difficult. Consequences of wrongful invocation by the lender are severe.
Interpretation depends on the terms of the particular clause and is up to lender to prove
breach. Cannot be triggered on basis of things lender knew when making the
agreement. Normally done by comparing borrower's accounts or other financial
information then and now. Other compelling evidence may be enough. Will be material if
it significantly affects the borrower's ability to repay the loan in question. We may
examine one of the leading authorities on material adverse change clauses in
committed lending, Grupo Hotelero Urvasco SA v Carey Value Added [2013] EWHC
1039 (Comm), per Blair J
[334] The use of material adverse change clauses is common in financial documentation in differing
contexts, including takeovers and mergers, and loan agreements, as in the present case. In the latter
context, they may relieve a lender of its continuing obligations in the event of a significant deterioration in
the financial condition of the borrower which threatens its ability to repay but which is short of an
insolvency. However, there is little case law, perhaps reflecting the fact that (unlike an insolvency event
which is usually clear cut) the interpretation of such provisions may be uncertain, proof of breach difficult,
and the consequences of wrongful invocation by the lender severe, both in terms of reputation, and legal
liability to the borrower.
[351] In my opinion, an assessment of the financial condition of the company should normally begin with
its financial information at the relevant times, and a lender seeking to demonstrate a MAC should show an
adverse change over the period in question by reference to that information. The financial condition of a
company during the course of an accounting year will usually be capable of being established from
interim financial information and/or management accounts.
[352] I agree with the lender however that the enquiry is not necessarily limited to the company's financial
information. There may be compelling evidence to show that an adverse change sufficient to satisfy a
MAC clause has occurred, even if an analysis limited to the company's financial information might
suggest otherwise. [357] [...] Unless the adverse change in its financial condition significantly affects the
borrower's ability to perform its obligations, and in particular its ability to repay the loan, it is not a material
change. [Similarly, it has been said that:] the lender cannot trigger the clause on the basis of
circumstances of which it was aware at the date of the contract since it will be assumed that the parties
intended to enter into the agreement in spite of those conditions, although it will be possible to invoke the
clause where conditions worsen in a way that makes them materially different in nature" [119] In my view,
this states the law correctly. [363] Finally, I should note one construction point which was not in
dispute. In order to be material, any change must not merely be temporary.
[364] In summary, authority supports the following conclusions. The interpretation of a "material adverse
change" clause depends on the terms of the clause construed according to well established principles. In
the present case, the clause is in simple form, the borrower representing that there has been no material
adverse change in its financial condition since the date of the loan agreement. Under such terms, the
assessment of the financial condition of the borrower should normally begin with its financial information
at the relevant times, and a lender seeking to demonstrate a MAC should show an adverse change over
the period in question by reference to that information. However the enquiry is not necessarily limited to
the financial information if there is other compelling evidence. The adverse change will be material if it
significantly affects the borrower's ability to repay the loan in question. However, a lender cannot trigger
such a clause on the basis of circumstances of which it was aware at the time of the agreement [...]
Finally, it is up to the lender to prove the breach.

Therefore, a change will be material if it significantly affects the borrower's ability to

repay the loan in question. Normally this is done by comparing borrower's accounts or
other financial information then and now.
Net positions[edit]
Further information: Set-off (law)
A net position represents a financial position in which a debtor may "off-set" his
obligation to the creditor with a mutual obligation which has arisen and is owed from the
creditor to the debtor. In financial law, this may often take the form of a simple or funded
position such as a securities lending transaction where mutual obligations set-off one
another. Three crucial types of netting exists:

 Novation Netting
 Settlement Netting
 Transaction Netting
Each party can use its own claim against the other to discharge. Each party bears credit
risk which may be offset. For example, a guarantor who is a depositor with a banking
institution can set-off obligations he may owe to the bank under the guarantee against
the bank's obligation to repay his deposited assets.
Asset-backed positions[edit]
Main article: secured loan
Further information: asset-backed security
Propriety securities like mortgages, charges, liens, pledges and retention of title clauses
are financial positions which are collateralised using proprietary assets to mitigate the
risk exposure of the collateral-taker. The core purpose it to Manage credit risk by
identifying certain assets and ear-marking claims to those assets.
Combined positions[edit]
Further information: structured finance
Combined positions use multiple facets of the other four positions, assembling them in
various combinations to produce large, often complex, transactional structures.
Examples of this category are primarily CDO's and other structured products.[7] For
example, a Synthetic collateralised debt obligations will draw upon derivatives,
syndicated lending, and asset-backed positions to distinguish the risk of the reference
asset from other risks. The law pertaining to CDOs is particularly noteworthy, primarily
for its use of legal concepts such as legal personality, and risk transfer to develop new
products. The prevalence and importance of combined positions within the financial
markets, has meant that the legal underpinnings of the transactional structures are
highly relevant to their enforcement and effectiveness.

References[edit]
Constructs such as ibid., loc. cit. and idem are discouraged by Wikipedia's style
guide for footnotes, as they are easily broken. Please improve this article by
replacing them with named references (quick guide), or an abbreviated title. (June
2020) (Learn how and when to remove this template message)

1. ^ Joanna Benjamin 'Financial Law' (2007) OUP

2. ^ Board, Legal Services (January 2, 2009).  "Legal Services
Board".  research.legalservicesboard.org.uk.
3. ^ "Legal Services 2015"  (PDF). TheCityUK. 20 February 2015.
Retrieved 11 March2015.[permanent dead link]
4. ^ The Law SocietyEconomic value of the legal sector services (March
2016)
5. ^ Vértesy, László (2007). "The Place and Theory of Banking Law - Or
Arising of a New Branch of Law: Law of Financial Industries".  Collega.
2-3. XI. SSRN  3198092.
6. ^ ibid, See the extensive discussion outlined by Goode and Payne
in Corporate Finance Law (Second Ed, Hart Publishing, 2015) which
highlights the broader role of law, particularly market practice and case
law, on the financial markets.
7. ^ Jump up to:a b c d e Benjamin Financial Law(2007 OUP) 6
8. ^ "Structured finance update"  (PDF). www.mayerbrown.com. October
8, 2008.
9. ^ Goodwin v Robarts (1875) LR 10 Exch 337, 346
10. ^ GOOD ON COMMERCIAL LAW (5TH ED 2016, EWAN
MCKENDRICK CH 1
11. ^ (SNYDER 'EFFECTIVENESS OF EC LAW')
12. ^ McCormick Legal Risk in Financial Markets (Oxford University Press
2006), 145
13. ^ Benjamin (18.56)
14. ^ Jump up to:a b c d ibid
15. ^ "Potts opinion". www.bvca.co.uk.
16. ^ Goodwin v Robarts (1875) LR 10 Exch 337
17. ^ Hare v Hently [1861] EngR 575, (1861) 10 CB NS 65, (1861) 142
ER 374
18. ^ McCormick Legal Risk in the Financial Market (Oxford: Oxford
University Press, 2006)
19. ^ Cf Petrofina (UK) Ltd v Magnaload Ltd [1984] AC 127
20. ^ Belmont Park Investments pty ltd v BNY Corporate Trustee Services
2011 UKSC 38 per Lord Collins.
21. ^ Macmillan Inc v Bishopsgate Investment Trust plc (no 3) [1995] 1
WLR 978
22. ^ Benjamin Financial Law, 1.06, p5
23. ^ M Hughes, Legal Principles in Banking and Structured Finance, 2nd
Ed, (Haywards Heath, Tottel, 2006)
24. ^ Lamfalussy Report, 22
25. ^ Jump up to:    Prest v Prest [2013] UKSC 34, [2013] 2 AC 415 at 476, at
a b

[8] per Lord Sumption JSC.

26. ^ Jump up to:a b c d Lousie Gullifer What should we do about Financial
Collateral? (2012) Current Legal Problems Vol 65.1, 377,410
27. ^ Financial Collateral Arrangement No 2 Regulations 2003 and 2010
Financial Markets and Insolvency Amendment Regulation
28. ^ USA v Nolan [2016] UKSC 63
29. ^ FCARs Regulation 3
30. ^ "The obligation which are secured or otherwise covered by the FCA
and such obligations may consist of or include
1. present or future, actual or contingent or prospective
obligations
2. obligations owed to the CT by a person other than the CP
3. obligations of a specified class or kind arising from time to
time"
31. ^ Several types of security interests are set out to be entrapped by the
FCAR regime. This means any legal or equitable interest or any right
in security, other than a title transfer financial collateral arrangement,
created or otherwise arising by way of security including:

1. pledge
2. mortgage
3. lien
4. fixed charge
5. charge created as a floating charge where the FC charged is
delivered, transferred, held, registered or otherwise designated so
as to be in possession and under the control of the collateral
taker. Where there is a right to withdrawal etc.
2. ^ In the matter of Lehman Brothers International (Europe) (In
administration) [2012] EWHC 2997 (CH) [74] - [160]
3. ^ Private Equity Insurance Group Sia v Swedbank AS (C-156/15)
4. ^ meaning "any corporate body, unincorporated firm, partnership or
body with legal personality…"
5. ^ Riz Mokal, Liquidity, Systemic Risk, and the Bankruptcy Treatment
of Financial Contracts10 Brooklyn Journal of Corporate, Financial, and
Commercial Law (2015)
6. ^ Louise Gullifer, Jennifer Payne Corporate Finance: Principles and
Policy (2015) Hart Publishing, 310
7. ^ FCAR Regulation 17
8. ^ The definition in para 3 is rather unhelpful: Possession: of financial
collateral in the form of cash or financial instruments includes the case
where financial collateral has been credited to an account in the name
of the CT provided that any rights the collateral provider may have in
relation to the FC are limited to the right to substitute FC of the same
or greater value or withdraw excess FC.
9. ^ cf Youngna Choi Ostensible Financial Stability Caused by Wealth
Inequality (March 23, 2018). Available at
SSRN: https://ssrn.com/abstract=3147465 or https://dx.doi.org/10.213
9/ssrn.3147465
10. ^ In the matter of Lehman Brothers International (Europe) (In
administration) [2012] EWHC 2997 (CH), [76] Briggs J
11. ^ In the matter of Lehman Brothers International (Europe) (In
administration) [2012] EWHC 2997 (CH) [105]
12. ^ Jump up to:a b Gray v GTP Group Limited [2010] EWHC 1772 Ch, Los J
13. ^ Limited to Gray v GTP Group Limited [2010] EWHC 1772 Ch, Los J
and Cukurova Finance International Ltd v Alfa Telecom Turkey
Ltd [2009] UKPC 19
14. ^ Louise Gullifer ^
15. ^ Cukurova Finance International Ltd v Alfa Telecom Turkey
Ltd [2009] UKPC 19
16. ^ Jump up to:a b c d e Goode and Gullifer on Legal Problems of Credit and
Security (Sweet & Maxwell, 7th ed 2017)
17. ^ Jump up to:a b P Wood Title Finance, Derivatives, Securitisation, Set off
and Netting, (London: Sweet & Maxwell, 1995), 189
18. ^ Jump up to:a b Benjamin, Financial Law (2007 Oxford University Press),
13
19. ^ ISDA Master Agreement Clause 2(a)(iii)
20. ^ Jump up to:          Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419
a b c d e

21. ^ Gloster J in Canmer International v UK Mutual Steamship "The

Rays"
22. ^ Foakes v Beer [1884] UKHL 1
23. ^ Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87
24. ^ Charter Reinsurance Co v Fagan
25. ^ Lord Steyn 'Contract Law: Fulfilling the Reasonable Expectations of
Honest Men' (1997) 113 Law Quarterly Review 433, 437
26. ^ Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR
1153; [1989] EWCA Civ 5
27. ^ Williams v Williams [1957] 1 WLR 14
28. ^ MWB Business Exchange Centers Ltd v Rock Advertising Ltd [2016]
EWCA Civ 553 (Kitchin LJ);
29. ^ Alan Brudner 'Reconstructing Contracts' (1993) 43:1 University of
Toronto Law Journal, 1
30. ^ Chen-Wishart A Bird in the Hand: Consideration and One-Sided
Contract modifications' in Contract Formation and Parties (AS
Burrows, ed and E Peel, ed Oxford University Press 2010) 109
31. ^ (1922) 1 KB 451
32. ^ Jump up to:    Mindy Chen-Wishart In defence of consideration(2013)
a b

Oxford Commonwealth Law Journal, Vol 13.1

33. ^ Jefferson Cumberbatch 'On Bargains, Gifts and Extortion: An Essay
on the Function of Consideration in the Law of Contract' (1990) 19:3
Anglo-American Law Review 239
34. ^ Charles Fried Contract as Promise: A theory of contractual obligation
(Harvard University Press 1981) 38
35. ^ P.S. Atiyah 'Consideration in Contract: A fundamental Restatement
(1971); 'Consideration: A Restatement' in Essays on Contract (Oxford:
Claredon Press 1986) 179
36. ^ Jump up to:a b c The Brimnes Tenax Steamship Co v Owners of the Motor
Vessel Brimnes [1974] EWCA Civ 15
37. ^ Jump up to:a b c Mardorf Peach & Co v Attica Sea Carriers Corp of Liberia
(The Laconia) [1977] AC 850
38. ^ Jump up to:a b The Chikuma [1981] 1 All ER 652
39. ^ [1921] 3 KB 302
40. ^ Mann on the Legal Aspect of Money (OUP, 7th ed 2012 by Charles
Proctor) Chapter 1
41. ^ Cf Hobhouse J in TSB Bank of Scotland plc v Welwyn Hatfield
District Council [1993] Bank LR 267
42. ^ [1989] QB 728
43. ^ Sale of Goods Act 1979 c.54 Section 38 which states; "Unpaid seller
defined. (1)The seller of goods is an unpaid seller within the meaning
of this Act— (a)when the whole of the price has not been paid or
tendered; (b)when a bill of exchange or other negotiable instrument
has been received as conditional payment, and the condition on which
it was received has not been fulfilled by reason of the dishonour of the
instrument or otherwise. (2)In this Part of this Act "seller" includes any
person who is in the position of a seller, as, for instance, an agent of
the seller to whom the bill of lading has been indorsed, or a consignor
or agent who has himself paid (or is directly responsible for) the price."
44. ^ Cleveland v Muslim Commercial Bank [1981] 2 Lloyd's Rep 646
45. ^ See Algoa Milling Co Ltd v Arkell and Douglas 1918 AD 145 at 158
46. ^ Benjamin, Financial Law (Oxford University Press), 9
47. ^ S85 Financial Services and Markets Act 2000
48. ^ Tullett Prebon Group [2008] EWHC
49. ^ Sunrise Brokers v Rogers [2014] EWCH 2633 (QB) at [7]
50. ^ Dexia Crediop S.p.A. v Commune di Prato [2017] EWCA Civ
428 per Paul Walker J
51. ^ [1992] 2 AC 1, [739]-[740]
52. ^ P Ali & de Vires Robbe Synthetic, Insurance, and Hedge Fund
Securitisation (2004 OUP), 11
53. ^ Money Markets International Stockbrokers Ltd v London Stock
Exchange Ltd [2001] Ch D 223
54. ^ Bankers Trust International PLC v PT Dharmala Sakti
Sejahtera [1996] CLC 518
55. ^ Peekay Intermark Ltd and Another v Australia and New Zealand
Banking Group Ltd CA[2006] EWCA Civ 386
56. ^ Alistar Hudson The Uses and Abuses of Derivatives (1998)
Cambridge Symposium on Economic Crime
57. ^ Hazell v Hammersmith and Fulham London Borough Council [1992]
2 AC 1
58. ^ Credit Suisse International v Stichting Vestia Group [2014] EWHC
59. ^ UBS AG v KOMMUNALE WASSERWERKE LEIPZIG GMBH [2014]
EWHC 3615
60. ^ Lomas v JFB Firth Rixon [2012] EWCA Civ
 61. ^ Standard Chartered Bank v Ceylon Petroleum [2011] EWHC 1785
[27] - [36]
62. ^ BNP Paribas v Wockhardt EU Operations (Swiss) AG [2009] EWHC
3116 (Comm)
63. ^ [2001] UKPC 28
64. ^ (1961) WLR 828 per Harman LJ
65. ^ Birkmyr V Darnell. 1704 91 ER 27 1 Salk, 27 & 28
66. ^ Stadium Finance Co v Helm
67. ^ Seaton v Heath [1899] 1 QB 782
68. ^ Benjamin, Financial Law (2007 OUP) Chapter 8, 149
69. ^ Cunliffe Brooks v Blackburn and District Benefit BS (1884)
70. ^ LORDSVALE FINANCE V BANK OF ZAMBIA [1996] 3 ALL ER 156
71. ^ Grupo Hotelero Urvasco SA v Carey Value Added [2013] EWHC
1039 (Comm)
72. ^ SHEPPARD & COOPER LTD V TSB BANK PLC (NO 2) P1996]
BCC 965; [1996] 2 ALL ER 654
73. ^ CARLYLE v RBS [2015] UKSC 13
74. ^ Lloyds Bank v Lampert (1999)
75. ^ Titford Property Co v Cannon Street Acceptances (1975)
distinguished for Lloyds Bank plc v Lampert (1999)
76. ^ Sheppard & Cooper Ltd v TSB Bank Plc (No 2) [1996] BCC 965
77. ^ in the Insolvency Act 1986 s127 limitations on dissipation of assets
after winding-up. This was seen within Re Grays Inn's Construction
Ltd (1980)
78. ^ Re Barn Crown 1995
79. ^ HOLLICOURT (CONTRACTS) LTD V BANK OF IRELAND (2001)
80. ^ RE HONE (1951) Ch 852 All per Harman J.
81. ^ LLOYDS BANK v LAMPERT [1999] 1 All ER (Comm) 161
82. ^ Cunliffe Brooks v Blackburn and District Benefit BS (1884)
83. ^ Parking Eye [2015] UKSC
84. ^ Lloyds bank plc v Independent Insurance Co Ltd [1998] EWCA Civ
1853
85. ^ Barclays Bank v WJ Simms (1980)
86. ^ Kitchen HSBC Bank plc (2000)
87. ^ Rouse v Bradford Banking Co (1894)
88. ^ CARLYLE v RBS [2015] UKSC 13.
89. ^ Rawlings, Avoiding the Obligation to Lend, 2012 JBL 89

Further reading[edit]
 Benjamin, Financial Law (OUP, 2007)
 Chitty on Contracts (Sweet and Maxwell, 32nd ed 2015)
Vols I (General Principles) and II (Specific Contracts)
 Goode on Commercial Law (Penguin, 5th ed 2016 by Ewan
McKendrick)
  Goode & Gullifer on Legal Problems of Credit and Security
(Sweet & Maxwell, 7th ed 2017)
 Gullifer and Payne, Corporate Finance Law: Principles and
Policy (Hart Publishing, 2nd ed 2015)
 Hudson, The Law of Finance (Sweet & Maxwell, 2nd ed
2013)
 Gullifer and Payne Corporate Finance Law (Hart
publishing, 2nd Ed, 2016)

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