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65 million reasons never to suffer in silence — KSF (in administration) v UBS

The Commercial Court (Andrew Smith J) has recently handed down judgment on an intriguing battle between UBS and Kaupthing Singer & Friedlander (in administration) (KSF) (the English subsidiary of the failed Icelandic bank Kaupthing hf, or Khf), in relation to the fate of $65m (£39m) mistakenly paid by UBS to Khf in the first days of the financial crisis.

The judgment contains a number of instructive points both for banks and for their lawyers, but its practical assistance for the former must be in illustrating how an estoppel can arise where payments are misdirected and, by implication, how to avoid that happening. Along the way, the judgment also contains interesting conclusions on the meaning of ‘payment’ in the ISDA Master Agreement.

UBS and KSF entered into a foreign exchange transaction (the FX trade), pursuant to which UBS was to pay $100m to KSF. The dispute related to $65m of that sum, which UBS transferred by SWIFT to JP Morgan on 3 October 2008. Unfortunately, UBS’s (mistaken) instructions to JP Morgan were to credit the sum to an account of Khf, rather than KSF…

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