Credit Suisse International v Stichting Vestia Groep
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Smith |
| Judgment Date | 03 October 2014 |
| Neutral Citation | [2014] EWHC 3103 (Comm) |
| Docket Number | Case No: 2012-1164 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 October 2014 |
[2014] EWHC 3103 (COMM)
Mr Justice Andrew Smith
Case No: 2012-1164
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Timothy Howe QC, Henry King and Natasha Bennett (instructed by Herbert Smith Freehills LLP) for the Claimant
Rhodri Davies QC, Benjamin Strong QC and Alexander Polley (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 24, 25, 26, 27 and 31 March, 1, 2, 3, 7, 9, 10, 14, 15, 16 April and 2 May 2014.
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.
Introduction
In these proceedings Credit Suisse International ("Credit Suisse") claim €83,196,829 from Stichting Vestia Groep ("Vestia"), a Dutch social housing association ("SHA"), as money due under an International Swaps and Derivatives Association ("ISDA") 2002 Agreement (the "Master Agreement"), including a Credit Support Annex (" CSA"). Credit Suisse say that they duly terminated the Master Agreement on 19 June 2012 after Vestia had failed to provide security due under the CSA and that the Early Termination Amount that therefore fell due was €83,196,829. Vestia dispute the claim on the grounds that:
i) Some of the derivative transactions (the "disputed transactions") that Credit Suisse made with Vestia's former Treasury & Control Manager, Mr Marcel de Vries, and recorded in confirmation documents countersigned by their then Chief Executive Officer and Managing Director, Mr Erik Staal, were never binding upon them because the disputed transactions were not within their objects and Vestia did not have capacity to make them. (I shall refer to this as the "capacity defence".)
ii) Neither Mr de Vries nor Mr Staal had authority to enter into the disputed transactions on Vestia's behalf. (I shall call this the "authority defence".)
iii) The termination notice served by Credit Suisse was invalid because, when it was sent, Vestia were not in default of their obligations to provide security. (I shall call this the "notice defence".)
In their particulars of claim Credit Suisse plead alternative claims that they are entitled to €113,223,299 or €93,669,401 on the basis that only some of the disputed transactions were valid and binding on Vestia, but during the trial they elected to limit the principal amount of their claim to €83,196,829.
Vestia do not accept that the sum of €83,196,829 is properly calculated in accordance with the Master Agreement (even assuming that their other defences fail), and they put forward various other figures, the lowest of which was €73.7 million. This dispute did not emerge on the pleadings, but the parties agreed to it being included in the list of issues, where, however, it is couched only in general terms. The parties did not specify the differences between them in any detail in their openings, and the issues were not identified. The time allowed for the trial was in any case inadequate. I therefore decided to defer this dispute for later determination, if necessary. The parties agreed to this, or at least did not oppose it.
If their claim for €83,196,829 as money due fails, Credit Suisse have alternative claims:
i) That they are entitled to that amount as damages for breach of undertakings given by Vestia in the Master Agreement and in a "Management Certificate", including undertakings about their capacity and the authority of Mr Vries and Mr Staal.
ii) That they are entitled in common law negligence to €5,303,508.33 by way of damages for misrepresentations made in the Master Agreement. (In their closing submissions Credit Suisse abandoned their pleaded claim under the Misrepresentation Act, 1967.)
These alternative claims are disputed.
The transactions
It is convenient immediately to describe the transactions that give rise to the litigation. Credit Suisse say that between November 2010 and September 2011 they entered into eleven transactions with Vestia, nine disputed transactions and two others. Vestia say that the nine disputed transactions, although characterised by Credit Suisse as separate transactions, in fact comprise only five separate (putative) contracts, and that the issues about whether they were within Vestia's objects and about Mr de Vries' and Mr Staal's authority are to be determined on this basis. I shall consider this contention later (at paragraphs 158ff), but in this judgment I use the term "transaction" as a useful label without pre-judging whether each transaction is a separate contract.
Transaction 1: Transaction 1 was an interest rate swap in the notional amount of €100 million. For Vestia it was a payer swap, under which they paid Credit Suisse interest at the fixed rate of 1.995% p.a. on a semi-annual basis and they received from Credit Suisse interest at the floating 6 months' Euribor rate, the rate being crystallised and interest being paid on a semi-annual basis. The trade date was 30 November 2010. The transaction had a forward effective start date of 1 July 2033, and a termination date of 1 July 2058.
Transaction 2: Transaction 2 was a "swaption", whereby Vestia sold to Credit Suisse an option to enter into what would from Vestia's perspective be a receiver interest rate swap. If the option was exercised, Vestia would pay Credit Suisse interest on €100 million at the floating 6 months' Euribor rate, the rate being crystallised and interest being paid on a semi-annual basis, and Vestia would receive from Credit Suisse interest on €100 million at the fixed rate of 4.5% p.a. on a semi-annual basis. Like transaction 1, transaction 2 had a trade date of 30 November 2010. The exercise date for the option was 29 June 2033, and, if Credit Suisse exercised it, the resulting swap had an effective date of 1 July 2033, and a termination date of 1 July 2058.
Transaction 3: Transaction 3 was a Constant Maturity Swap (or "CMS") transaction, that is to say a swap under which one party (here Vestia) pays interest at a conventional fixed or floating rate (here a floating rate) on a notional amount in return for amounts that depend on the difference between two constant swap rates of different maturities (here two years and 30 years). The notional amount of transaction 3 was €100 million. The trade date was 16 March 2011, the effective date was 1 April 2011 and the termination date was 1 April 2026. Vestia were to pay interest at the floating 6 months' Euribor rate, the rate being crystallised and interest being paid on a semi-annual basis. Until 1 October 2015 they were to receive from Credit Suisse interest at the fixed rate of 5% p.a. paid semi-annually, and thereafter they were to receive interest which was to be paid and at a rate that was re-set on a semi-annual basis. This rate of interest was to be determined by the following formula: the lesser of (i) (a) 0.85%, plus (b) the 30 years' Euro swap rate for the re-set date, and (ii) (a) 2.75%, plus (b) 10 times (a) the 30 years' Euro swap rate for the re-set date minus (ß) the 2 years' Euro swap rate for the re-set date. It was subject to a "cap" of 6% p.a. and a "floor" of 1.5% p.a., giving Vestia some protection in respect of volatility of the amount to be paid under the structured leg of the CMS. (For the meanings of "cap" and "floor" see paragraph 44 below.)
Transaction 4: Transaction 4 was another interest rate swap in the notional amount of €100 million in similar terms to transaction 1. Vestia paid Credit Suisse interest at the fixed rate of 3.5% p.a. on a semi-annual basis and they received from Credit Suisse interest at the floating 6 months' Euribor rate, the rate being crystallised and interest being paid on a semi-annual basis. The trade date was 16 March 2011. It had an effective date of 3 October 2011, and a termination date of 1 April 2056.
Transaction 5: Transaction 5 was a "swaption", whereby Vestia sold to Credit Suisse an option to enter into what would, from Vestia's perspective, be a receiver interest rate swap, whereby, if the option was exercised, Vestia would pay Credit Suisse interest on a notional €100 million at the floating 6 months' Euribor rate, the rate being crystallised and interest being paid on a semi-annual basis, and Vestia would receive from Credit Suisse interest on the notional €100 million at the fixed rate of 3.5% p.a. on a semi-annual basis. It had a trade date of 16 March 2011. The exercise date for the option was 30 March 2026, and the resulting swap, if the option was exercised, had an effective date of 1 April 2026 and a termination date of 1 April 2056.
Transaction 6: Transaction 6 was originally executed on 8 April 2011, but it was re-structured and the re-structured transaction was executed on 16 June 2011. The notional amount was €50 million, the effective date was 1 May 2012 and the termination date was 1 May 2062: these features were not changed when the instrument was re-structured. Originally the transaction was a swap under which Vestia were to pay a fixed rate of 3.85% p.a. on a semi-annual basis and Credit Suisse were to pay interest at the 6 months' Euribor rate, the rate being crystallised and interest being paid semi-annually. It included a provision under which either party had a right to terminate it at mid-market, which could be exercised on 8 April 2021 and every five years thereafter. Under the re-structured arrangement:
i) Credit Suisse's payments were unchanged;
ii) Vestia were to pay 2.75% p.a. until 1 May 2021 and 3.85% p.a. thereafter; and
iii) Credit Suisse had a right to cancel the transaction on 1 May 2021 without making any payment.
Transaction 7: Transaction 7 was another CMS transaction,...
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