Argo Fund Ltd v Essar Steel Ltd

JurisdictionEngland & Wales
JudgeMR JUSTICE CHRISTOPHER CLARKE
Judgment Date18 November 2005
Neutral Citation[2004] EWHC 128 (Comm),[2005] EWHC 2587 (Comm),[2005] EWHC 600 (Comm)
Docket NumberCase No: 2005 FOLIO 526,Case No: 2003 Folio 582
CourtQueen's Bench Division (Commercial Court)
Date18 November 2005
Between
Argo Capital Investors Fund SPC for Argo Global Special Situations Fund SP
Claimant
and
Essar Steel Limited
Defendant

[2005] EWHC 2587 (Comm)

Before

Mr Justice Christopher Clarke

Case No: 2005 FOLIO 526

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr Jonathan Nash (instructed by Eversheds) for the Claimant

Mr David Wolfson (instructed by Cripps Harries Hall LLP) for the Defendant

Hearing dates: 18 th November 2005

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE CHRISTOPHER CLARKE
1

By an Agreement dated 7 th March 1997 ("the facility agreement") a syndicate of 9 banks, listed in Schedule 1 to the Agreement, agreed to extend to Essar Steel Ltd ("Essar") a loan facility of $ 40,000,000 to be drawn down in one advance. One of those banks was KDLC Leasing Singapore Pte. Ltd ("KDLC") whose commitment was $2,000,000. The Banks appointed Bayerische Landesbank Girozentrale, Singapore Branch ("Bayerische") as their agent. The advance was drawn down on 20 th March 1997.

The terms of the facility agreement

2

By clause 3.2 of the facility agreement the rights and obligations of each Bank under the agreement were to be several. By clause 3.3 the outstanding amount owed to each Bank at any given date was to be a separate and independent debt and each Bank had the right to protect and enforce its rights under the agreement without joining any other Bank or the Agent. Under the agreement the advance was to be repaid 24 months later (clause 9). Interest was to be paid at 1% above LIBOR at six monthly intervals.

3

Clause 20.1 provided that payment of principal and interest was to be made to the Agent. Clause 20.2 of the Agreement provided:

"Subject to Clause 20.4 each payment received by the Agent for the account of another person pursuant to clause 20.1 shall:

(ii) in the case of any other payment [i.e. a payment other than one for the account of the Borrower], be made available by the Agent to the person for whose account such payment was received (in the case of a Bank for the account of its Lending Office) for value the same day by transfer to such account of such person with such bank as such person shall have previously notified to the Agent"

4

Clause 27 provided as follows:

"27 BENEFIT OF THE AGREEMENT

27.1. This Agreement shall be binding upon, and inure to the benefit of each party hereto and their respective successors, Transferees and assigns. The Borrower shall not be entitled to assign, transfer or otherwise deal in any way with all or any of its rights, benefits and obligations under this Agreement. Any Bank may, subject to the execution and completion of such documents as the 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, on the later of the effective date of transfer (the "Transfer Date") specified in such Transfer Certificate and the third business day after the date of delivery of such Transfer Certificate to the Agent:

(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 obligation only insofar as the Borrower and the Transferee have assumed and/or acquired the same in place of the Borrower and such Bank; and

(iii) the Agent, the Arrangers, the Co-Arrangers, the Transferee and the other Banks shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the Transferee been an original party hereto as a Bank with the rights and/or obligations acquired or assumed by it as a result of such transfer."

5

As can be seen that clause makes a clear distinction between an assignment of a Bank's rights and benefits under the agreement, which does not effect a novation of the agreement, and a transfer which does.

6

Under the agreement "Transferee" has a defined meaning namely a "bank or other financial institution to which a Bank seeks to transfer all or part of such Bank's rights and obligations hereunder in accordance with the provisions of this Agreement". In The Argo Fund v Essar Steel Ltd [2004] EWHC 128 Steel, J, at an interlocutory stage, doubted whether the then claimant, a fund managed by the same manager as the claimant ("Argo"), was a "bank or other financial institution". At trial Aikens J held that it was; [2005] 2 Lloyd's Rep 203.

7

The facility agreement was subject to English law. By clause 32.5 it was:

"..irrevocably agreed for the exclusive benefit of each of the Agent …and the Banks that the courts of England are to have non exclusive jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with this Agreement and that accordingly, any suit, action or proceeding arising out of or in connection with this Agreement may be brought in such courts."

8

By clause 32.5 of the facility agreement the Borrower agreed:

"…that the process by which any suit, action or proceedings is begun may be served on it by being delivered in connection with any suit, action or proceedings in England, to the Law Debenture Trust Corporation p.l.c. at Princes House, 95 Gresham Street, London EC2V 7LY or otherwise to its principal place of business in London for the time being. The parties agree that the provisions of this Clause 32.5. shall be without prejudice to service of process in any other manner permitted by the applicable law".

Essar

9

Essar is an Indian company registered in the State of Gujarat and listed on the National Stock Exchange. Its business is the manufacture of hot briquetted iron, hot rolled steel coils and other similar products. On 22 nd March 1999 it was due to repay the amount advanced under the facility. By then the price of steel had collapsed dramatically and Essar could not, and did not, repay. By March 2003 a restructuring had been proposed in which Essar's unsecured creditors would receive, at their election, either an immediate payment of 25% of the face value of the principal of their debt or in March 2018 full payment with interest at 0.25% per annum payable semi annually.

KDLC assigns to Dresdner

10

On 16 th August 2004 KDLC entered into an Assignment Agreement ("the First Assignment Agreement") with Dresdner Kleinwort Wasserstein Ltd ("Dresdner"). The Agreement contained the following recitals:

"WHEREAS, the Transferor is the legal and beneficial owner with full title guarantee of the Assigned Asset and has the right to receive certain amounts of principal and interest with respect thereto pursuant to the agreements with various third parties.

WHEREAS, the Transferor desires to transfer the Assigned Asset to the Transferee, together with Accrued Interest (as hereinafter defined)"

11

The terms in capital letters, together with other terms were defined in clause 1. Thus:

(a) "Assigned Asset" means "all right, title and interests in the principal amount of the loan, deposit, advance, security, guarantee or other extension of credit described in the Asset Schedule attached hereto";

(b) "Asset Documentation" means "the agreement and/or instrument described in the Asset Schedule under which the Assigned Asset is outstanding or evidenced, as such agreements may from time to time be amended, supplemented or replaced";

(c) "Asset Schedules" means "with respect to the Assigned Asset the schedules attached hereto relating to the Assigned Asset and setting forth the characteristics of the Assigned Asset…"

12

Clause 2 was headed "Assignment" and provided:

"Subject to payment by the Transferor of the consideration specified in the Asset Schedule…the Transferor agrees to assign and the Transferee agrees to take, with effect from 25th August 2004.. an assignment of the Assigned Amount, together with Accrued Interest, without recourse to the Transferor save as provided herein ….

13

Schedule A is headed "The Asset Schedule". It had the following definitions:

"Assigned Asset"

US$ 40 Million Facility signed on 07.03.1997 with [the parties thereto]….

Obligor

Essar Steel Limited

Assigned Amount

US $ 2,000,000."

14

Clause 4 of the First Assignment Agreement provided:

"(a) If and when any payment of principal is made under the Asset Documentation in respect of the Assigned Asset, and such payment is made by the obligor or borrower under the Asset Documentation (the "Obligor") or the applicable agent or servicing bank under the Asset Documentation (the "Agent") or the guarantor names in the Asset Documentation (the "Guarantor") to the Transferor, then the Transferor will promptly pay to the Transferee an amount equal to such principal payment pro rated in respect of the Assigned Asset together with interest thereon from (and including) the seventh Business Day after the date such payment is made by the Obligor or...

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