Argo Fund Ltd v Essar Steel Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Auld,Lord Justice Rix,Lady Justice Hallett |
| Judgment Date | 14 March 2006 |
| Neutral Citation | [2006] EWCA Civ 241 |
| Docket Number | Case No: A3/2005/1135 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 March 2006 |
[2006] EWCA Civ 241
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE AIKENS
2003 Folio 582
Royal Courts of Justice
Strand, London, WC2A 2LL
The Right Honourable Lord Justice Auld
The Right Honourable Lord Justice Rix and
The Right Honourable Lady Justice Hallett
Case No: A3/2005/1135
Mr Laurence Rabinowitz QC & Mr David Wolfson (instructed by Cripps Harries Hall) for the Appellant
Mr Mark Howard QC & Mr Jonathan Nash (instructed by Eversheds) for the Respondent
Introduction
This is an appeal by Essar Steel Ltd ("Essar") against a decision of Mr Justice Aikens on 12 th April 2005 concerning the meaning and effect of a provision in an unsecured syndicated loan agreement (the "Agreement") made on 7 th March 1997 between Essar as borrower and a syndicate of nine banks and financial institutions (the "Syndicate") , restricting the Syndicate members' entitlement to transfer their rights and obligations under the Agreement to entities that are "a bank or other financial institution". The case concerns the purported transfer by some of the Syndicate members to the Respondent, The Argo Fund Limited ("Argo") , in 2002 and 2003 in the "secondary debt market" of part of the over-all loan drawn down by Essar.
The Agreement is the standard 1997 Loan Market Association ("LMA") form, which, at the material time, contained no further definition or elaboration of the term "bank or other financial institution". In November 2001 the LMA revised the definition by adding to it "trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets". It did so in order to remove grounds for dispute, illustrated by this appeal, as to the range of entities that could qualify as a "financial institution" within this provision. However, there are apparently many syndicated loan agreements, in addition to this one, in the 1997 LMA un-amended form that are or may be the occasion of similar dispute as to the range of institutions to which syndicate members may transfer debts in the secondary debt market.
The agreed expert evidence before the Judge indicated that restrictions on transferability in such agreements were not uncommon in 1997 when this Agreement was made and that there were a number of reasons why potential parties to such agreements might wish some such restriction. These included the preservation of a continuing relationship between borrower and lenders and between the lenders themselves; minimisation of costs of administration of the loan and to retain replacement lenders who would be likely to observe the law and regulatory guidelines. The question for the Court is whether and to what extent the restriction in this case, in its unadorned 1997 form, was intended by Essar and the Syndicate members to serve such or other purposes and, more particularly, whether it served to exclude Argo from claiming repayment as a transferee under the Agreement.
Argo is an investment company incorporated in 2000 in the Cayman Islands, which, as part of a small group of companies, holds and manages funds and the investments purchased with them. At all material times, it had a portfolio of debt, including bonds, loans, letters of credit and promissory notes, mainly purchased in the secondary debt market from other institutions. Argo described itself as a "Global Emerging Markets Debt Hedge Fund", and had as its investment aim the securing of higher returns for investors at the more risky end of the market, though it had sometimes acted as an original lender.
Following Essar's draw-down of the entirety of the loan provided under the Agreement, Argo acquired from members of the Syndicate a substantial part of the debt, of which it now seeks repayment from Essar. The main issue before the Court is whether Argo is an "other institution" within the transfer restriction in the Agreement, so as to entitle it, as a transferee, to claim repayment against Essar. It is common ground that it is not a "bank" for the purpose.
The facts
I take the facts from the helpful summaries of them by the Judge, in paragraphs 1 to 13 of his judgment, and the skeleton argument of Mr Laurence Rabinowitz QC on behalf of Essar.
In 1996, Essar, in need of funds, sought and obtained approval from the Reserve Bank of India to enter into the Agreement, which was for an unsecured loan of US40m, to be drawn down within 45 days of the date of making of the Agreement and to be repayable within two years. It entered into the Agreement on 7 th March 1997 and, on 22 nd of that month, drew down the whole facility in a single advance, the loan thus becoming repayable on 22 nd March 1999.
By March 2003 Essar had agreed a comprehensive debt restructuring programme with a majority of its secured creditors. At about the same time it also made proposals to its unsecured creditors, including the Syndicate, to make an immediate cash repayment of 25 cents in the dollar or a "bullet" repayment in March 2018 with interest at a rate of 0.25% per annum, paid half-yearly.
However, in November 2002, Argo had begun to buy in the secondary debt market, purportedly pursuant to provisions of the Agreement permitting transfer, tranches of Essar's debt at a substantial discount to its nominal value. In April 2003, following the announcement of Essar's proposal to its unsecured creditors, Argo offered to acquire from the Syndicate all Essar's outstanding debt under the Agreement at a price equal to 25.5% of its nominal value, that is, some 0.5% more than the first of the alternative proposals made by Essar to its unsecured creditors generally.
13. Shortly afterwards, on 26 th June 2003, Argo claimed in the Commercial Court, purportedly as transferee under the Agreement, repayment in full of the tranches of debt it had purchased. Argo issued its claim in London relying on a term in the Agreement providing for non-exclusive jurisdiction of the English courts.
In August 2003, Argo issued an application in the Commercial Court for summary judgment, pursuant to CPR Part 24.
Shortly afterwards, in September 2003, Essar instituted proceedings against the Syndicate, but not Argo, in Singapore claiming among other things a declaration that the transfers to Argo were void and of no effect because Argo was not a "bank or other financial institution" as required by the Agreement, and therefore not a permitted transferee of the Syndicate's rights and obligations under it. The Syndicate, in its defence to those proceedings, relied upon the instruments of transfer, asserting their validity.
Essar, in reliance upon the same contention as that in its proceedings against the Syndicate in Singapore, also applied to the Commercial Court to set aside service of or to stay Argo's claim.
Before continuing with the story, I should set out the relevant provisions of the Agreement.
The Agreement
Clause 27 of the Agreement provided for two modes by which Syndicate members could pass their rights under the Agreement to another, one by way of assignment on notice to Essar, the other by way of transfer, which also operated to transfer obligations as well as rights, amounting to a novation. As to assignment, the Agreement imposed no restriction save as to documentation and notice to Essar, clause 33.1 expressly providing that, where the context permitted, "any 'Bank'" should be construed so as to include "without limitation … Transferees and assigns in accordance with their respective interests". As to transfer, the context did not permit such limitless construction, since clause 1, the interpretation clause, defined a "Transferee" as:
"a bank or other financial institution to which [a Syndicate member] seeks to transfer all or part of such [member's] rights and obligations hereunder in accordance with the provisions of this Agreement." [my emphasis]
Clause 27 provided, so far as material:
"27.1 This Agreement shall be binding upon, and inure to the benefit of each party hereto and their respective successors, Transferees and assignees. … Any Bank may, subject to the execution and completion of such documents as the [Syndicate members'] Agent may specify and with notice to the Borrower, assign all or any of its rights and benefits hereunder or, subject to the payment to the Agent of a transfer fee of 250, transfer in accordance with Clause 27.2 all or any of its rights, benefits and obligations hereunder.
27.2 If any Bank wishes to transfer all or any of its rights, benefits and/or obligations hereunder, then such transfer may be effected by the delivery to the Agent of a duly completed and duly executed Transfer Certificate in which event …:
(i) to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer its rights and obligations hereunder, the Borrower and such Bank shall be released from further obligations towards one another hereunder and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 27.2 as 'discharged rights and obligations') ;
(ii) the Borrower and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from the discharged rights and obligations only insofar as the Borrower and the Transferee have assumed and/or acquired the same in place of the Borrower and such Bank; and
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