Court restraints ComBank payments

Sarath Malalasekera

Colombo Commercial High Court Judge K.T. Chitrasiri issued an Enjoining Order restraining Commercial Bank its servants, agents and all those acting under it from appropriating US$ 15,000,000/- and any other sums payable by the defendant to the plaintiff, People's Bank, pending the hearing and final determination of the application for an interim injunction.

The plaintiff People's Bank, Sir Chittampalam A. Gardiner Mawatha, Colombo 2 cited Commercial Bank of Ceylon, PLC, Commercial House, Bristol Street, Colombo 1 as defendant.

People's Bank pleads that after extensive negotiations and acting in its normal course of business, it entered into a WTI Crude Target redemption Forward Deal ('Hedging Instrument') with the Ceylon Petroleum Corporation ('the CPC') the said Hedging Instrument between the Plaintiff Bank and the CPC resolved, inter alia, the following terms - Volume-25,000/50,000 barrels/month. Total Volume-300,000/600,000 barrels.Trade Date-15.8.2008. Currency US$- Current market reference-US$ 112/80 per barrel of oil.

The Plaintiff further stated determination period-twelve month trading period starting with Commencement Date and ending on the termination Date (1.9.2008 to 31.8.2008). The two strike prices- namely the lower limit strike price of US$ 89/- per barrel of oil and the upper limit strike price of US D 94/- per barrel of oil.

In the event the actual spot price of a barrel of oil was to rise above the upper limit strike price of US$ 94 during the period of the Instrument,the Plaintiff Bank would have to compensate the CPC in a sum of US$ 5 per barrel multiplied by 25,000 per month (Quantity of barrels agreed to be purchased by the Plaintiff Bank).

Thus the maximum liability of the plaintiff bank could, on any given month incur under the said Hedging instrument amount to US$ 125,000/-

The Plaintiff stated in the event of the actual spot price of a barrel of oil is somewhere in between the lower and upper limit strike prices, the Plaintiff bank would have to compensate the CPC in a sum consisting of the difference between the actual spot price and the lower limit strike price multiplied by 25,000 per month (Quantity of barrels agreed to be purchased by the Plaintiff Bank.) (for example if the actual spot price for oil was US$ 92 the Plaintiff bank would only be liable in a sum of US$ 3 x 25,000 = US$ 75,000 per month).

The Plaintiff pleads that there is a large number of transactions that take place between the plaintiff and the defendant on a daily basis. On each given day there are various sums payable by the defendant to the plaintiff on account of transactions.

People's Bank pleads that grave and irreparable loss and damage would be caused to the Plaintiff unless an Enjoining Order and an Interim Injunction is issued in the first instance, pending the hearing and determination of this action.

President's Counsel S. A. Prathalingam instructed by the People's Bank Chief Law Officer, Sarath Hendavitharana appeared for People's Bank.