The two contracts did not reference one another, but the US District Court for the Southern District of New York deemed them to be connected. In light of Aon Financial being forced to pay out on the CDS it had issued to Bear Stearns International, Société Générale was made to pay Aon Financial and its parent company $10 million in cash and legal fees – regardless of the physical nature of the disputed contract and its documentation.
In reversing the judgment, the Second Circuit Court looked at the legal specifications of each contract separately. Isda chief executive Robert Pickel praised the ruling, and said the lower court had undermined legal certainty in the CDS market by misconstruing the parties’ obligations.
(See: Isda weighs in on Societe Generale court ruling, Risk, June 2006.)