RE: Legal Opinion regarding termination of EFT Network Participation Agreement.
We refer to your letter no. BANK 1/HO/CARD/0531/2007 dated July 02, 2007 on the above subject.
On perusal of your letter, it appears that, BANK 1 (“BANK 1”) had signed an EFT Network Participation Agreement on 25 April, 1999 (“EFT Agreement”) with Company 1(“the Company”). Now BANK 1 wants to cancel the said agreement.
In these circumstances you have requested our legal opinion as to how BANK 1 may terminate the EFT Agreement.
We have perused the EFT Agreement and found that the said agreement may be terminated under three clauses, being clauses 9.2, 9.4 and 9.5.
Under Clause 9.2
Clause 9.2 states as follows:
“9.2 Term The initial Term of this Agreement shall be three (3) years from the initial Transaction performed by a Customer holding an Access Card issued by Participant. After the Initial Term, this agreement shall automatically renew for successive three (3) year renewal terms, unless either party has given written notice to the other party at least ninety (90) days prior to the expiration of the Initial Term or any renewal term of its intent to terminate this Agreement upon expiration of such term…”
In accordance with this clause, ninety (90) days prior to the expiration of the present renewal term, BANK 1 may give written notice to the Company, informing the Company of BANK 1’s intention to terminate this Agreement upon expiration of the present term. If BANK 1 decides to utilise the provisions of this Clause then we advise BANK 1 to calculate the day of the expiration of the present term and sent the said ninety days notice accordingly.
Under Clause 9.4
Clause 9.4 states as follows:
“9.4 Termination by the Participant for Cause. This Agreement may be terminated for good cause by the Participant. Any such termination shall be effective twenty (20) days after Participant gives the Company written notice of termination. Such notice is to comply with the provisions of Section 11.4 hereof. As used herein, the term “Cause for Termination” shall include only the following:
(a) Final conviction or non-appealable adjudication that the Company has violated any Law applicable to the Company which violation is reasonable likely to have an adverse effect upon the existence or operation of the Company or the Network; or
(b) Final non-appealable determination made in proceedings before any Government Entity having jurisdiction over the Company to (i) suspend or revoke the charter or the operations of the Company, or (ii) to take any other action which would prevent the Company’s continued performance of its obligations under this Agreement.”
Under this clause the agreement may be terminated for good cause by BANK 1. We have not been informed about the reason as to why BANK 1 wants to cancel/terminate the Agreement. Therefore, we are of the opinion that BANK 1 may terminate the Agreement under this Clause provided there is “Cause for Termination” in accordance to either Clause 9.4 (a) or Clause 9.4 (b).
Under Clause 9.5
Clause 9.5 states as follows:
“9.5 Automatic Termination of Participation. This Agreement and Participant’s participation in the Network will terminate automatically if, and such termination shall be effective thirty (30) days after:
(a) A bankruptcy or insolvency proceeding is filed by or against Participant or the Company, unless such proceeding is dismissed within such 30 days.
(b) A trustee or receiver is appointed by Participant or the Company or by court order or order of any regulatory agency for any substantial part of either party’s property.
(c) Participant or the Company makes an assignment of all or substantially all of its property for the benefit of creditors or ceases to conduct its operations in the normal course of business.
(d) Participant’s participation in the Network or the Company’s operation and administration of the Network is held to be illegal by any judicial or regulatory authority having jurisdiction over either of them.”
According to Clause 9.5, this agreement shall be automatically terminated if one of the four conditions contained in this clause is satisfied and such termination shall be effective after thirty (30) days of the happening of that condition. We are of the opinion that this Agreement shall be automatically terminated provided that a condition under this clause has occurred.
Please note that, except for the termination of the Agreement under Clause 9.2, BANK 1 is under a duty, in accordance with clause 9.7, to pay an Early Termination Payment equal to the number of months remaining in the Initial Term or any renewal term of this Agreement as of the date of termination, multiplied by the average monthly fee paid to the Company by BANK 1 during the portion of the Initial or any renewal term prior to termination. Therefore, we are of the opinion that, the most cost effective way for BANK 1 to terminate the Agreement is to terminate the agreement in accordance with Clause 9.2. Otherwise, BANK 1 has to pay Early Termination Payment as stated herein above.
Should you have any further query, do not hesitate to revert to us.
For: “The Lawyers & Jurists”