Credit Agricole Indosuez Luxembourg, S.A. v. National Reserve Bank

The Situation

In 1997, CAILSA purchased a ruble-denominated bond issued by RAO Vysokoskorostnye Magistrali, a Russian company building a high-speed railway between Moscow and St. Petersburg.

Since both the interest and principal payments on the bonds are made in local currency, CAILSA was exposed to the risk that the Russian ruble depreciates relative to its currency of domicile, the U.S. dollar. In order to hedge its exposure to foreign exchange risk, CAILSA entered into a transaction with NRB, structured as a series of foreign exchange option contracts.

In August 1998, the Russian government and the Central Bank of Russia declared a moratorium that, among others, prohibited Russian residents, like NRB, from making payments for 90 days to nonresidents of Russia under foreign currency exchange transactions such as the contract between CAILSA and NRB. Following the moratorium, NRB breached the contract with CAILSA causing the claimant to suffer significant damages.

NERA's Role

A NERA economist testified on common practices in foreign exchange markets, the nature and mechanics of the foreign exchange option contracts subject of the litigation, as to, as well as on the appropriate methodology for the damages calculation given the lack of liquidity and extreme market conditions during the relevant time period.

The Result

The Ad Hoc International Arbitration Tribunal decided in favor of the claimant on all case issues and awarded the claimant the full amount of the claim plus accrued interest and attorneys' fees.