LIBOR Cessation – Implied contract term to replace LIBOR for business efficacy

In a judgment handed down on 15 October 2024, the High Court was willing to imply a contractual term to replace 3 Month USD LIBOR with 3 Month CME Term USD SOFR for the purposes of calculating dividend payments on perpetual preference shares, where reference bank and historic rate contractual fallbacks had failed following LIBOR cessation, and it had not been possible to consensually agree an alternative rate.  This was necessary to give business efficacy to the preference shares to enable dividends to be calculated. 

The alternative argument by some of the shareholders was that a term should be implied so that on cessation of LIBOR the preference shares should be redeemed.  This was rejected. The Court noted that debt instruments reference LIBOR as a measure of the wholesale cost of borrowing over time, but this is not likely to be an essential term of the contract and the cessation of LIBOR should not therefore give rise to immediate repayment of the debt.  

Further reading: on the case can be found here.