OTC derivatives, the courts and regulatory reform

What does a frozen food maker concerned about interest rates have in common with a Danish shipping company, a Lehman Brothers entity and an Indonesian holding company? The answer is that they all entered into over-the-counter (OTC) derivatives¹ that, for various reasons, went wrong. We know this because, in each case, a dispute arose that eventually came to be litigated in the English courts.²

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This article begins by exploring why such cases are important. It uses new research covering every available decision handed down by the English courts that involves OTC derivatives on the ISDA terms. On the basis of this data, the article draws out the broader significance of the cases considered by the national courts. Amongst other arguments, it explains how the courts may be said to increase transparency in the markets, not in terms of pricing or other quantitative data, but because the judiciary’s reasoned...