Cinnamon European Structured Credit Master Fund v Banco Commercial Potugues S.A.
| Jurisdiction | England & Wales |
| Judge | SIR WILLIAM BLACKBURNE,Sir William Blackburne |
| Judgment Date | 18 December 2009 |
| Neutral Citation | [2009] EWHC 3381 (Ch) |
| Docket Number | Case No: HC09C01952 |
| Court | Chancery Division |
| Date | 18 December 2009 |
[2009] EWHC 3381 (Ch)
Sir William Blackburne
Case No: HC09C01952
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Jonathan Crow QC and Mr Richard Hill (instructed by Mayer Brown International LLP) for the Claimant
Mr Paul Lowenstein QC and Mr David Mumford (instructed by Baker & McKenzie LLP) for the Defendant
Approved Judgment
Hearing date: 8 December 2009
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.
Introduction
This is an application by the defendant, Banco Comercial Portugues SA (“BCP”), under CPR 11 and/or the court's inherent jurisdiction (although I do not see that recourse to any inherent jurisdiction adds anything) to stay a part of these proceedings on the ground that the court has no jurisdiction to try the claim or should not exercise such jurisdiction as it has. As originally formulated, the application was for the whole of the action to be stayed. On 25 November 2009 —just over a week before the hearing in front of me —BCP indicated that it was abandoning its application so far as it related to what was described in argument as “the Vendor Claim”, being one of the two principal heads under which the claimant, Cinnamon European Structured Credit Master Fund (“Cinnamon”), has brought its claims. The other main head of claim is what was described in argument as “the Servicer Claim”. BCP's application has proceeded in relation to that head of claim.
Mr Paul Lowenstein QC and Mr David Mumford have represented BCP instructed by Baker & McKenzie LLP. Mr Jonathan Crow QC and Mr Richard Hill have represented Cinnamon instructed by Mayer Brown International LLP.
Background
BCP is a substantial bank incorporated under the laws of and registered in Portugal. It is accepted by Cinnamon, certainly for the purposes of this application, that BCP is also domiciled in Portugal. Cinnamon is a Cayman-registered fund.
Cinnamon's claims in these proceedings arise out of the securitisation of a portfolio of Portuguese residential mortgages which had been granted to BCP (as so-called “Originator”). What happened was that BCP sold the portfolio to a unitised fund called Fundo Magellan Tres (“the Fund”) pursuant to a Mortgage Sale Agreement dated 30 June 2005. At the time of sale the principal outstanding under the loan was said to amount to slightly in excess of €1,500 million. At the same time BCP (as both Servicer and Collection Account Bank and also as Originator) entered into a Mortgage Servicing Agreement (“the Servicing Agreement”) with the Fund pursuant to which BCP, as Servicer, agreed to administer and service the mortgage portfolio on behalf of the Fund and, as Collection Account Bank, agreed to operate a collection account into which receivables from the mortgage portfolio were to be paid. Also at the same time, the Fund entered into a Unit Subscription Form with Magellan Mortgages ? 3 plc (a company incorporated in Ireland) (“Magellan 3”) pursuant to which Magellan 3 subscribed for all of the units in the Fund. It did so for €1,504,433,910, the price at which the portfolio was being sold.
In turn Magellan 3 funded its subscription by the issue of a quantity of loan notes denominated in six classes constituted by an English law trust deed of the same date (30 June 2005) entered into between Magellan 3 and Citicorp Trustee Company Ltd as trustee. The classes in question were Classes A to E —each for a different overall amount —of Floating Rate Notes due 2058. (The Class E Notes were, I was told, amortised early in the transaction.) The remaining class, the €250,000 Class F Notes due 2058 did not, unlike the other classes, carry an interest coupon. Instead the Class F Notes conferred in effect a right of participation in the residual profit in the mortgage portfolio, ie the remaining profit available from the portfolio after payment of the obligations due under the Notes comprising the other classes (and certain other costs and expenses arising from the securitisation). Another document was also entered into, a so-called Transaction Management Agreement, between the trustee, BCP and Magellan 3 pursuant to which BCP agreed to act as transaction manager for Magellan 3 and the trustee in relation to the assets and obligations of Magellan 3 in accordance with the terms of that agreement. It set out the priorities as between the six classes of Notes. I do not think I need to go further into that document.
The issue of the Notes was the subject of an Offering Circular dated 24 June 2005. It contained various “responsibility statements” among which were that the Circular contained all information which was material in the context of the issue of the Notes, that such information as was contained in the Circular was true and accurate in all material respects and not misleading, and that there were no other facts the omission of which made the Circular as a whole or any of such information misleading in any material respect.
The Class F Notes were acquired by BCP pursuant to a Note Purchase Agreement which it had entered into with Magellan 3. Some months later, in March 2006, BCP chose —unusually, Cinnamon maintains, in the case of European residential mortgage securitisation —to sell its residual profit in the portfolio represented by its holding of Class F Notes. It did so to Goldman Sachs for €51,832,76The contractual arrangements for that transaction were entered into on 29 March 2006 and were contained in two documents, a so-called Securities Purchase Agreement (“the GS Purchase Agreement”) and a letter, executed and delivered as a deed, addressed by BCP to Goldman Sachs. The document was referred to in the GS Purchase Agreement (and before me) as “the Representation Letter”.
The GS Purchase Agreement provided for the sale of the Class F Notes to Goldman Sachs and contained various representations and warranties among which, at clause 4.7, was a representation and warranty that “…no circumstances exists, which might reasonably be expected at any time hereafter to render any of the warranties and representations contained in this Agreement, no longer true or accurate.” At clause 4.20 was a representation and warranty that “all written information provided to the Purchaser (including, for the avoidance of doubt, the information summarised as Schedule 1 to the Representation Letter) is true and accurate in all material respects.” The GS Purchase Agreement also contained a choice of law and jurisdiction clause in the following terms:
“This Agreement is governed by, and shall be construed in accordance with, English law. The Purchaser and the Vendor hereby agree that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as “Proceedings”) arising out of or in connection with this Agreement may be brought in such courts. Nothing contained in this Clause shall limit any right of the Purchaser or the Vendor to take Proceedings against
the other party in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.”
The Representation Letter referred to the GS Purchase Agreement and the Servicing Agreement and stated that, unless otherwise defined, the definitions and rules of interpretation contained in the Representation Letter were as set out in the GS Purchase Agreement. Clause 2.2 of the Representation Letter contained an undertaking to Goldman Sachs by BCP as Servicer:
“…to continue to perform its obligations under the Mortgage Servicing Agreement in accordance with its terms and as if the Servicer was the owner of the economic interests in the Class F Notes but the Servicer shall not be required to do anything which it is prevented from doing by any Portuguese law or any applicable law”
Clause 5 provided that, without prejudice to clause 4.20 of the Securities Purchase Agreement, “BCP has delivered or made available to Goldman Sachs the documents listed in Schedule 1 to this letter…”. The schedule duly set out a number of documents including, in particular, the Offering Circular. Clause 9.1 of the Representation Letter stated that it was “governed by and construed in accordance with English law” and clause 10, headed “Agent for Services of Process” stated that:
“BCP irrevocably appoints its Representative Office in London [address set out] to accept service of any process on its behalf and further undertakes that it will at all times during the continuance of this Agreement maintain the appointment of some person in England as its agent for the service of process and irrevocably agrees that service of any writ, notice or other document for the purpose of any suit, action or proceeding in the courts of England shall be duly served upon it if delivered or sent by registered post to the address of such appointee (or to such other address in England as that party may notify to the other parties hereto).”
Later in 2006 Goldman Sachs sold on the Class F Notes to Cinnamon. This occurred in two tranches. The first was on 11 May 2006. The second was on 13 October 2006. The overall consideration was €56,478,602. By means of various bipartite and tripartite arrangements Cinnamon took the benefit of all rights under the Representation Letter and the GS Purchase Agreement.
Mr Lowenstein had a point concerning the assignment to Cinnamon by Goldman Sachs of the latter's rights under the GS...
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