Edgeworth Capital (Luxembourg) S.À.R.L. v Aabar Investments PJS
| Jurisdiction | England & Wales |
| Judge | Mr Justice Popplewell |
| Judgment Date | 29 June 2018 |
| Neutral Citation | [2018] EWHC 1627 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000401 |
| Date | 29 June 2018 |
[2018] EWHC 1627 (Comm)
THE HON. Mr Justice Popplewell
Case No: CL-2016-000401
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTIES COURTS
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Alain Choo Choy QC and John Robb (instructed by Stephenson Harwood LLP) for the Claimant
Sonia Tolaney QC, James MacDonaldandSophie Weber (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant
Hearing dates: 8–11, 14–17, 23–24 May 2018
Judgment Approved
Introduction
The Claimant (“Edgeworth”) is a Luxembourg registered company owned by a Jersey trust of which the ultimate beneficiaries are Mr Robert Tchenguiz and his family. It was created as a special purpose vehicle for the transaction described below. Mr Tchenguiz is its moving spirit, although he is not a director or shareholder. His formal role is as Chairman of R20 Advisory Limited (and its predecessor R20 Limited) (“R20”). R20 acts as advisor to the trustees of the Jersey trust and to the companies within its control.
The Defendant (“Aabar”) is an Abu Dhabi investment company presently a subsidiary of Mubadala Investment Company, an international investment company based in Abu Dhabi and at the material time was a subsidiary of International Petroleum Investment Corporation (“IPIC”), an investment company directly (at the time) and wholly owned by the government of Abu Dhabi.
The dispute arises in connection with a joint investment whose objective was to acquire ownership of the freehold interest in a large building complex outside Madrid known as the “Ciudad Financiera” (“the Property”) and to monetise its rental income stream. The Property is a 400-acre site, estimated to be worth over €3bn, comprising the global headquarters of the Santander Banking Group and is let, under a 40-year lease expiring on 12 September 2048, to a subsidiary of that group. The freehold interest in the Property had been acquired in 2008 by Marme Inversiones 2007 S.L. (“Marme”) a Spanish company. Marme was a wholly owned subsidiary of Delma Projectontwikkeling B.V. (“Delma”), a Dutch company, which was a wholly owned subsidiary of Ramblas Investments B.V. (“Ramblas”), another Dutch company, which was in turn jointly owned by Mr Derek Quinlan and Mr Glenn Maud. The acquisition was financed by (1) senior loans of about €1.6bn to Marme from a syndicate of eight banks and hedge funds, together with interest rate hedging from five of them (sometimes referred to as “the Brick Loan”); (2) a mezzanine loan of €200m from The Royal Bank of Scotland Plc (“RBS”) to Delma (sometimes referred to as “the Block Loan”); and (3) a junior personal loan of €75m from RBS to Mr Quinlan and Mr Maud. Ramblas also entered into an Upside Fee Agreement (“UFA”) with RBS under which a fee was payable by Ramblas to RBS on the occurrence of certain payment events. The junior personal loan to Mr Quinlan and Mr Maud, the mezzanine loan to Ramblas, and the UFA are referred to as “the RBS Loans”. The security for the RBS Loans included pledges from Mr Maud and Mr Quinlan over their shares in Ramblas and pledges from Ramblas over its shares in Delma, together with security over the intercompany debt between Delma and Ramblas.
By September 2010, the RBS Loans were in default. On 30 November 2010, Edgeworth Capital Ltd, a BVI company (“Edgeworth BVI”) and, Aabar Block S.à.r.l., an indirect Luxembourg registered subsidiary of Aabar, entered into an agreement with RBS for each to acquire 50% of the RBS Loans for a total sum of just over €195m. Shortly thereafter Edgeworth BVI assigned its interest to Edgeworth. Edgeworth and Aabar thereby acquired the right to enforce the security attaching to the RBS Loans with a view to obtaining control over the freehold of the Property. It is not generally necessary to distinguish between Aabar Block S.à.r.l. and Aabar and I shall refer to them both as Aabar.
Attempts to obtain control within the timescale originally envisaged were frustrated. The senior lending went into default in 2013 and in March 2014 Marme, Delma and Ramblas went into an insolvency process in Spain, with the result that the Property came under the control of a Spanish insolvency administrator. It remains so to this day.
Edgeworth's share of the investment in the RBS Loans was financed by Aabar. On 20 June 2016 Aabar made a demand for repayment of the sums Aabar had invested on Edgeworth's behalf, together with interest and other costs, under the terms of two written agreements entered into the by the parties on 19 April 2011, namely a Counter-Indemnity Deed (“CID”) and a Security Assignment of Agreements (“SAA”). A right to repayment under the CID and SAA included the right to take over Edgeworth's security interests attached to the RBS Loans; indeed because of the limited recourse provisions in clause 8 of the CID, Aabar's right to repayment was confined to what could be recovered from assuming and exercising Edgeworth's rights under the RBS Loans and attached security.
On 24 June 2016 Edgeworth obtained an ex parte injunction from King J restraining Aabar from enforcing its rights under the CID and SAA. The interim injunction has remained in place pending the trial. Edgeworth contends that Aabar was not entitled to make demand under the CID and SAA, alleging that the written agreements do not represent the totality of the legal relationship between the parties. It relies on three alleged oral agreements whose terms are said to restrict Aabar's rights under the CID and SAA. Aabar denies that any such oral agreements were made or are binding. This is the issue at the heart of the case.
Edgeworth seeks declarations that the demands under the CID and SAA were not validly made and a final injunction restraining Aabar from exercising its rights under the CID and the SAA; alternatively, damages of up to €2bn. Aabar counterclaims c. €113m plus other costs and interest as due under the terms of the CID and SAA. It is common ground that if the claim fails, the counterclaim succeeds, subject to one quantum issue: Edgeworth contends that upon a true construction of the relevant written agreement its liability is capped at €91,275,000. As a result of developments in the course of the trial it was agreed that at this hearing the Court should deal only with issues of liability on the claim, but not remedies; and (if the claim fails) with the disputed issue of the alleged cap on the counterclaim.
Narrative
According to Mr Tchenguiz, he first met the Chairman of Aabar, HE Khadem Al-Qubaisi, during the summer of 2010 in the South of France, and they met again on several occasions that summer. In his second witness statement in these proceedings, Mr Tchenguiz describes these meetings as having given rise to “ an informal partnership arrangement”. In his oral evidence Mr Tchenguiz clarified his use of the word “ informal”: he explained that he used it “ in the sense that there was no written document setting out our respective obligations or defining the relationship”; and that the essence of the agreement was that “ Aabar provided the finance, I identified the opportunity and did the work to make it happen” and that the parties had “ agreed to proceed on a deal-by-deal basis”. Edgeworth characterises this agreement as “the Umbrella Agreement”, but does not contend that it amounted to a legally binding agreement.
It was not in dispute that some sort of cooperative relationship was established prior to or in the autumn of 2010. Mr Tchenguiz's business offices in London came to display the IPIC logo, and IPIC and Aabar used those offices to hold meetings when in London. Aabar and Mr Tchenguiz cooperated on other investment ventures apart from that concerning the Property.
So far as the Property was concerned, Mr Tchenguiz's plan was to purchase the defaulting RBS Loans, enforce the underlying security over the Ramblas and Delma shares as a means of acquiring the Property, and then securitise the rental income once the Property had been acquired. Mr Tchenguiz hoped that the transaction, if successful, would generate a total profit of c.€1.5bn to c.€2bn. By 16 October 2010, Mr Tchenguiz had received confirmation from Citibank NA of a willingness in principle to finance the transaction if Aabar was willing to provide a guarantee for Edgeworth's share. Citibank prepared a presentation of the proposed investment, including a bond issue to securitise the rental income once control of the Property had been obtained. It was described as a presentation for Aabar and R20, and was in existence on or by 21 October 2010.
Mr Tchenguiz's evidence was that on 23 October 2010 he travelled from London to a meeting with HE Al-Qubaisi in Paris at the George V Hotel, at which they agreed to pursue the transaction on express terms which constitute the first oral agreement relied on (“the 2010 Oral Agreement”). The only other person said to be present was HE Al-Qubaisi's assistant, Racem Haoues. The terms of the 2010 Oral Agreement as pleaded in the Particulars of Claim and supported by Mr Tchenguiz in his evidence were the following:
(1) Aabar and Edgeworth would acquire the Santander Loans from RBS, which they would hold equally in divided shares. Aabar's share would be held by a subsidiary of Aabar incorporated under the laws of Luxembourg, Aabar Block S.a.r.l. (“Aabar Block”).
(2) Mr Tchenguiz would be responsible for negotiating with RBS to purchase the Santander Loans; and would negotiate and manage the securitisation of Aabar' s and Edgeworth' s interests in the Property if and when those were acquired.
(3) Aabar and Edgeworth would each finance the purchase of their respective 50% share of the Santander Loans; and Aabar would provide cash security in...
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