Edgeworth Capital (Luxembourg) S.A.R.L and Another v Ramblas Investments B.v
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 30 January 2015 |
| Neutral Citation | [2015] EWHC 150 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2011-50 |
| Date | 30 January 2015 |
[2015] EWHC 150 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Hamblen
Case No: 2011-50
Mark Phillips QC and William Willson (instructed by Linklaters LLP) for the Claimants
Andrew Stafford QC and Christopher Howitt (instructed by Kobre & Kim (UK) LLP) for the Defendant
Hearing dates: 19 and 20 January 2015
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
The Claimants claim the principal sum of €105,201,095.89 to which they claim to be entitled as a Fee due under an Upside Fee Agreement made with the Defendant ("Ramblas") dated 12 September 2008 ("the UFA") together with interest thereon.
The UFA was part of a suite of financing agreements entered into in relation to the purchase of the Ciudad Financiera ("the Property"), the Madrid Headquarters of Banco Santander SA ("Santander"), by Marme Inversiones 2007 S.L. ("Marme") in September 2008. Ramblas is the ultimate parent company of Marme. It is a special purpose vehicle owned by the property investors Mr Glenn Maud and Mr Derek Quinlan ("the Personal Borrowers").
The financing arrangements for the acquisition of the Property also included:
(1) A Senior Loan Agreement, under which a consortium of banks, including RBS, made a secured loan to Marme of €1,575,000,000 ("the Senior Loan").
(2) A Junior Loan Agreement under which RBS loaned Ramblas €200,000,000 ("the Junior Loan").
(3) A personal loan of €75,000,000 from RBS to Mr Maud and Mr Quinlan ("the Personal Loan").
The purchase price of the Property was approximately €1,900,000,000.
The Claimants were not party to either the Junior Loan or the UFA at the time of execution but on 17 December 2010 there was a transfer of the rights and obligations under the Junior Loan, the UFA and the Personal Loan from RBS to the Claimants.
Breaches of contract by the Personal Borrowers under the Personal Loan triggered cross-default provisions in the Junior Loan, entitling the Claimants to instruct RBS as Facility Agent to accelerate the Junior Loan, which it did by letter dated 30 December 2010.
The Claimants commenced these proceedings in January 2011 seeking payment of the outstanding principal (then €212,912,560) and contractual interest under the Junior Loan and the €105,201,095.89 Fee said to be due under the UFA.
The parties settled the Junior Loan claims under the terms set out in the consent order dated 17 June 2011 ("the Consent Order"). The UFA claim has proceeded to the present trial.
Ramblas disputed the claim on the following main grounds:
(1) On the proper construction of the UFA, a default under the Personal Loan triggering the repayment of the Junior Loan cannot be a "Payment Event" requiring Ramblas to pay a Fee under the UFA;
(2) The very large "upside" Fee for which Ramblas is allegedly liable —€105,201,095.89 – far exceeds any damages for which Ramblas could possibly be liable for a breach of the Junior Loan and is unenforceable as a penalty or disguised penalty;
(3) The Claimants are not entitled to the interest claimed by them either as part of their Fee claim or for non-payment of that claim.
The factual background
The factual background is set out in the pleadings and the witness statement of Mr Maud and in the disclosure provided. The Claimants put forward a witness statement from an employee, Mr Smalley, but neither he nor the Claimants were involved at the time that the UFA was entered into. Ramblas objected to the admissibility of parts of his statement and I accept that his opinions are not admissible evidence. However, in so far as he comments on documents the Claimants adopt those comments as submissions. Mr Smalley's evidence as to market conditions and practice at the material time is admissible. Neither witness was required to be cross examined.
The Property was designed as a "financial city" based around nine office buildings with the capacity to house up to 9,000 employees, and it is said that it continues to be among the most valuable commercial real estate assets in Europe.
Marme's purchase of the Property from Santander for the sum of approximately €1,900,000,000 involved a sale and lease back arrangement, under which Santander took the Property subject to a 40 year lease with no break clause and an inflation proof rent starting at €82.53 million per annum.
At the time Marme contracted to buy the Property in January 2008, it had intended to finance its acquisition by issuing bonds supported by securitization of the rental stream. However, Marme soon turned to traditional forms of secured real estate lending when it became clear that the credit crunch had closed the market for financial instruments of this type.
At first, Marme engaged Bayerische Landesbank ("Bayern LB") to arrange a loan syndicate. But when RBS joined the syndicate it insisted on assuming that role, for which it claimed fees far in excess of anything Bayern LB had previously demanded for performing that role. These included an arrangement fee of 5%, amounting to a sum of €18.3 million (Bayern LB had asked for only 1%); a break fee of €7,500,000 (Bayern LB had requested a break fee of €1,000,000) and pre-payment fees in the first and second years that were double those required by Bayern LB.
In August and early September 2008 the Personal Borrowers, having been unable to raise the balance of the acquisition finance elsewhere, agreed the Junior Loan, Personal Loan and UFA with RBS, taking RBS's lending to a total of €641 million on the acquisition.
The parties envisioned that Ramblas would refinance, dispose of, or otherwise exit its interest in the Property within five years in order to meet the repayment obligations under the Loan Agreements (which had a five year term). However, Marme and Ramblas were unable to find alternative sources of finance, as a consequence of the credit crunch. They commenced voluntary administration proceedings in Spain in March 2014.
The Claimants also highlighted the following background matters which are borne out by the documents or Mr Maud's evidence:
(1) The UFA needs to be considered as part of a wider transaction involving the Senior Loan, the Junior Loan and the Personal Loan, in a total sum of €2,292,291,004.
(2) RBS provided its outline headline terms by email on 14 July 2008 on the basis of a €325,000,000 contribution to the Senior Loan. RBS were providing the single largest tranche of any of the banks in the syndicate. The terms required by RBS in its offer letters were significantly tougher than those required by any of the other banks and requests by the Defendant to amend these terms were refused.
(3) The discussions in relation to the additional funding from the Junior Loan only opened on or around 21 August 2008 (i.e. three weeks before closing) and increased RBS' exposure to the deal by 50%.
(4) Mr Maud informed Santander that RBS had agreed to provide the Junior Loan and may also provide an "equity bridge" and that "the cost of the provision of this equity bridge is likely to be material"
(5) There were serious concerns as to whether the transaction would proceed and this was a time of increasing concern within the financial markets.
(6) The transaction was finalised at a time when bond markets had dried up and Lehman Brothers was about to collapse, with completion being one business day before that collapse.
(7) There was a 6% fee on the Senior Loan but a margin of only 1% on the Junior Loan. In such circumstances one would reasonably expect RBS to be seeking to extract value elsewhere in the deal.
(8) The Defendant's known intention was a swift exit strategy.
The Agreements
The terms of the UFA
The recitals to the UFA provide as follows:
"(A) The Bank has procured the availability of, and arranged and negotiated terms in respect of, the junior loan facility provided for in the Junior Credit Agreement (as defined below) (the Facility).
(B) The Company acknowledges that the benefits derived from the provision of the Facility are real benefits of significant value and are only available to or for the benefit of the Company upon the Company entering the Agreement.
(C) In consideration for the benefits conferred on the Company by the Facility it is appropriate that the Bank should be entitled to the fees set out in this Agreement.
(D) The Company acknowledges that the fees payable under this Agreement together with the terms upon which the Facility have been or will be made available represent a fair return to the Bank for arranging, negotiating and providing the Facility in circumstances in which the Facility has been made available for the benefit of the Company."
The Recitals record the stated benefit on both sides of the transaction for the parties as being that RBS will receive certain fees in consideration for arranging, negotiating and providing the Junior Loan for the benefit of the borrower.
Pursuant to Clause 2.1 of the UFA:
"In consideration of the Bank procuring the availability of and arranging and negotiating the terms of the Facility for the Company, the Company agrees that upon each occurrence of a Payment Event it should pay a Fee to the Bank".
Under the definitions in Clause 1, a "Payment Event" means:
"(a) a mandatory or voluntary prepayment for any reason of the Loan or a Cure Loan or the repayment of the Loan or a Cure Loan (including any repayment made following acceleration or from the proceeds of any...
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