CPF One Ltd v OSF (UK) II Ltd
| Jurisdiction | England & Wales |
| Judge | Andrew Lenon |
| Judgment Date | 16 August 2023 |
| Neutral Citation | [2023] EWHC 2102 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. BL-2023-000640 |
[2023] EWHC 2102 (Ch)
Andrew Lenon KC
(sitting as a Deputy High Court Judge)
Claim No. BL-2023-000640
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice
Strand, London WC2A 2LL
Lesley Anderson KC instructed by Taylors Solicitors appeared for the Claimants
Zoë Barton KC and Lee Jia Wei instructed by Spector Constant & Williams appeared for the Defendants
Hearing date: 4 July 2023
Introduction
This judgment follows the Defendants' application for an order striking out the claim alternatively summary judgment.
The claim arises out of the parties' participation in a syndicated loan arrangement and raises issues as to the duties owed by the senior participant and by the security trustee to the junior participant in such an arrangement.
The claim arose in the following circumstances. The borrower under the loan arrangement defaulted. The Second Defendant (“Ortus”) as security trustee accepted a settlement offer to compromise the debt owed by the borrower and released the securities. The settlement agreement resulted in the First Defendant (“OSF”) as the senior participant recovering the majority of its capital commitment but left the Second Claimant (“FFF”) as the junior participant with no recovery.
The Claimants allege that Ortus and OSF breached various fiduciary and equitable duties in accepting the settlement offer and releasing the securities. Ortus and OSF contend that there is no real prospect of the Claimants establishing that they owed such duties and that, further or alternatively, the First Claimant (“CPF”) has no real prospect of establishing that it suffered any loss.
The Facts
Each of the Claimants and the Defendants carries on business as (amongst other things) providers of commercial loans. In March 2019 CPF agreed to provide a bridging loan of £2.75m to a company called Laner Limited (“Laner”) (“the Loan”). Laner required the Loan in order to refinance a property in Dagenham (“the Property”). The terms of the Loan were set out in a facility agreement made between CPF and Laner and dated 25 March 2019 (“the Loan Facility Agreement”). The Loan Facility Agreement made provision for security to be provided by Laner, including a charge over the Property, a cross-guarantee and a personal guarantee.
As CPF did not have the capital required to fund the loan itself, it approached OSF and FFF with a view to structuring the Loan as a syndicated loan. The structure that was eventually agreed was that OSF would be the senior participant in the arrangement, providing funding of £2,414,968, and FFF would be the junior participant, providing funding of £335,301.84. CPF would assign the benefit of the debt payable under the Loan Facility Agreement to OSF and FFF in proportion to their respective contributions and CPF would be appointed as security trustee.
On 4 June 2019 CPF advanced the Loan to Laner. On the same day the following arrangements were entered into:
(1) By way of security for the loan, Laner granted CPF a mortgage over the Property and a debenture over its assets and procured a cross-guarantee and a personal guarantee in CPF's favour.
(2) By two assignments in writing, (“the Assignments”) CPF assigned to FFF and OSF respectively its beneficial interest in the debt payable by Laner pursuant to the Facility Agreement (“the Debt”) in proportion to OSF's and FFF's respective contributions to the Loan made by CPF.
(3) By a Security Trust Deed, OSF as Senior Participant and FFF as Junior Participant appointed CFP as Security Trustee to hold the Trust Property, as defined below, on trust for them. The Security Trust Deed governs how decisions were to be made in relation to the Trust Property.
The Security Trust Deed includes the following defined terms:
“Advance” the loan to be made by the Borrower under the Finance Documents
“Assigned Debt” such aggregate amount of the:
(i) principal amount of the Advance;
(ii) interest, fees, commission and other amounts payable to the Security Trustee in its capacity as lender under the Loan Facility Agreement, the benefit of which has been assigned to the respective Participants pursuant to the Deeds of Assignment;
“Finance Documents” together the Loan Facility Agreement and the Security Document;
“Secured Liabilities” all the amounts outstanding from time to time from the Borrower to the Security Trustee (in its capacity as lender) under the Finance Documents including without limitation the Assigned Debt;
“Security” any mortgage, charge (whether fixed or floating, legal or equitable), pledge, lien, assignment by way of security or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect;
“Security Documents” each and every document including but not limited to those specified in the Loan Facility Agreement, creating or evidencing the creation of a guarantee and/or encumbrance in favour of the Security Trustee as security for the obligations of the Borrower under the Loan Facility Agreement concluded from time to time;
“Trust Property” together:
(i) such amount of the Assigned Debt as is held by the Security Trustee or to its order from time to time;
(ii) all rights to receive payment of any part of the Assigned Debt;
(iii) all rights, titles and interest that may now or in the future be given, mortgaged, charged or assigned in favour of the Security Trustee by or pursuant to the Security Documents, and the proceeds of enforcement of the same.
An important feature of the Security Trust Deed is that the right to give directions to the Security Trustee was vested solely in OSF as the Senior Participant. FFF as the Junior Participant had no equivalent right. The Security Trust Deed includes, in particular, the following provisions:
2. DECLARATION OF TRUST
2.1 The Security Trustee shall hold the Trust Property pursuant to the terms of this Deed for the Participants from time to time and the obligations, rights and benefits vested or to be vested in the Security Trustee in its capacity as lender and chargee by the Finance Documents shall (as well before as after enforcement) be performed and (as the case may be) exercised in accordance with the provisions of this Deed. Unless otherwise expressly provided or otherwise agreed by all the Participants, the Security Trustee shall perform such obligations and exercise such rights in accordance with the instructions of the Senior Participant.
3. DEFAULT PROCEDURE
3.1 If at any time there is any default by the Borrower in the performance of any of the Secured Liabilities (the “Breach”), the Security Trustee shall notify the Participants within two Business Days of becoming aware of that fact, specifying the nature of the default. Following such notification the Security Trustee shall consult with the Senior Participant with a view to determining the action to be taken in relation to such Breach.
4. ACTIVITIES OF THE SECURITY TRUSTEE
4.1 The Security Trustee shall seek instructions from the Senior Participant as to the manner in which it should endeavour to carry out any course of action which it is obliged to carry out pursuant to this Deed or the Finance Documents.
4.2 Subject to the provisions of this Deed and, in particular but without limitation, to the provisions of this clause 4, the Security Trustee shall:
4.2.1 act as Security Trustee in accordance with any instructions given to it by the Senior Participant;
4.2.2 if so instructed by the Senior Participant, exercise or refrain from exercising a right, power or discretion vested in it as lender and/or charge[e] under the Finance Documents; and
4.2.3 not exercise any right, power or discretion as lender and/or chargee under the Finance Documents otherwise than in accordance with the instructions of the Senior Participant, provided that if the Senior Participant has failed to supply instructions to the Security Trustee within ten Business Days of being requested in writing to do so, the Security Trustee may exercise such rights, powers and discretions in such manner as the Security Trustee considers in good faith to be in the interests of the Participants.
4.4 The Security Trustee shall not be obliged or required to act in accordance with the directions of the Participants given otherwise than through the Senior Participant.
4.5 The Security Trustee shall have all the powers and discretions conferred upon trustees by the Trustee Act 1925, the Trustee Act 2000 and general law (to the extent that they are not inconsistent with the terms of this Deed) and upon the Security Trustee by this Deed ….”
16. AMENDMENTS AND WAIVERS TO FINANCE DOCUMENTS
Each Participant authorises the Security Trustee to enter into any amendment to the Finance Documents or to grant any waiver of any obligation of any Obligor under the Finance Documents which in either case has either been approved by the Senior Participant or is, in the opinion of the Security Trustee (acting reasonably), of a minor or technical nature and not likely to have any material effect on the obligations of the Obligors under the Finance Documents.
The Security Trust Deed also includes provisions entitling OSF to require the Security Trustee to resign:
7. RESIGNATION OF THE SECURITY TRUSTEE
7.3 The Senior Participant may, by notice to the Security Trustee, require it to resign:
…
7.3.2 for any reason, at the Senior Participant's discretion, following an Event of Default.
By Clause 8 of the Security Trust Deed, all amounts received or recovered by the Security Trustee in connection with the realisation or enforcement of all or any part of the Security constituted by any of the Security Documents were to be applied towards payment in...
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