The City of London breathed a collective sigh of relief this afternoon as the High Court confirmed that despite big technological advancements and cultural changes, the principle of “my word is my bond” was still relevant in the modern world.

In the first case of its kind, a judge ruled that an investment fund could not pull out of a financial transaction after circumstances made the deal substantially less attractive.

In July 2005 Forum Global Equity agreed — in a telephone conversation — to sell a portion of debt in Parmalat, the collapsed Italian dairy group, to Bear Stearns, the US investment bank.

The court was told how deals involving sophisticated financial products — in this case debt that would later convert into equity — are typically agreed via an oral contract with written contracts signed later on.

However, before the written documents had been signed a change in circumstances meant that the terms of the deal became much less favourable for Forum, which tried to pull out.

Bear Stearns insisted that it was entitled to complete the trade as agreed by telephone and took Forum to the High Court in London over the issue.

This afternoon Mr Justice Andrew Smith agreed with Bear Stearns — that the oral agreement meant that a commercial deal had been concluded — and ordered Forum to complete the trade on its original terms.

Robert Turner, a partner at Simmons & Simmons, who represented Bear Stearns, said: “If Forum had been allowed to walk away from its trade, a significant spanner would have been thrown into the certainty of market trading. The Court has upheld the principle of ‘my word is my bond’ and Bear Stearns has done the market a favour by standing by that principle.”

Forum Global Equity, represented by the law firm Masseys, declined to comment.

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