Lombard North Central Plc v GATX Corporation
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ANDREW SMITH,Mr Justice Andrew Smith:,and |
| Judgment Date | 25 April 2012 |
| Neutral Citation | [2012] EWHC 1067 (Comm) |
| Docket Number | Case No: 2011–1321 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 April 2012 |
[2012] EWHC 1067 (Comm)
Mr Justice Andrew Smith
Case No: 2011–1321
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mark Hapgood QC and Alexander Pelling (instructed by Berwin Leighton Paisner LLP) for the Claimants
Iain Milligan QC and Michael Collett (instructed by Sidley Austin LLP) for the Defendants
Hearing date: Friday 20 April 2012
I shall refer to the two claimant respondents (represented by Mr. Mark Hapgood QC and Mr. Alexander Pelling) simply as "Lombard" because they need not be distinguished. I shall refer to the defendant applicants (represented by Mr. Iain Milligan QC and Mr. Michael Collett) as "GATX".
Lombard and GATX were party to arrangements first made in 1998 about financing train vehicles: GATX agreed to provide a so-called Residual Value Guarantee ("RVG") and other services, and claim that after the "Residual Value Date", 30 March 2012, they would have been entitled to a share of the profits from the sales or leases of the trains. They were also among the parties to an agreement called the Further Trains Agreement dated 14 July 2000 (the "2000 agreement"), as was Halifax Leasing (September) Ltd ("Halifax"). Clause 9.4 of the 2000 agreement concerned the ownership, leasing and management of the trains after the Residual Value Date, and it allowed GATX in some circumstances to force a sale of them to ascertain their value and so to realise their share of the profits (if any). In 2004, by an agreement dated 6 April 2004 (the "2004 agreement"), the parties to the 2000 agreement made amendments to parts of it, including clause 9.4.
Mr. Hapgood attached some significance to the background to the 2004 agreement. I shall set out the relevant part of his written submissions rather than put it in my own words so as to avoid appearing to take a view about the accuracy or completeness of what is said, lest that be misunderstood at any future hearing. I can proceed on the basis that what is stated in the submissions is correct without so deciding.
"11. On 12 September 2003 [Lombard], Halifax and [GATX] entered into a non-binding term sheet ("the Term Sheet") … in which they set out the steps to be taken in two principal eventualities: (i) if the lessors of the trains, namely Lombard Leasing and Halifax, entered into U.S. lease to service contracts ("LTSCs")—which would be expected to confer certain tax and commercial benefits—and (ii) if the CrossCountry lease were extended by ten years to 1 April 2022 …
12. In the Term Sheet they also contemplated some arrangements for the sharing of profits in the event that the LTSCs were entered into but there was no extension to the CrossCountry lease …. These included amendments to the [2000 agreement] whereby the parties would undertake to create a joint venture ("JV") for the purpose of leasing the trains after 31 March 2012 and sharing the proceeds thereof by reference to the "Lessors' remaining investment balances" although this term was never defined.
13. In fact an LTSC was entered into by Lombard Leasing in September-November 2003, by which it refinanced the capital cost of the trains by buying the trains outright and then selling them. The trains were then leased back to it and leased on to Voyager as before. In order to benefit from the LTSCs, however, it was necessary for Lombard Leasing to ensure that the trains could not be sold while the LTSCs were in effect …
14. A Lease Enhancement Fee of £625,000 was therefore paid to [GATX], in consideration for which [GATX] inter alia waived its rights under the RVG to call for the sale of the trains on 31 March 2012 …. Correspondingly, [Lombard] agreed not to make a demand under the RVG without [GATX's] consent – effectively releasing [GATX] from liability under the RVG ….
16. The result of all these changes was that [GATX] was left in a position where it effectively could no longer be made liable under the RVG without its own consent; it had given up its right to force a sale but had been paid a Lease Enhancement Fee for that (and for co-operating with the LTSCs generally) of £625,000. Perhaps surprisingly, it still retained the possibility of sharing in profits after the end of the original CrossCountry lease in April 2012."
The important parts of the amended clause 9.4 are the introductory words, sub-clause (i) and sub-clause (x). However I should set out most of the clause.
"The parties hereto agree that the leasing and sale of the Vehicles following the Residual Value Date, whether or not a written demand under the RVG is made on the Residual Value Date, shall be conducted in accordance with the provisions of this Section 9.4:
(i) If no arrangement to extend the leasing of the Vehicles is put in place with the Strategic Rail Authority by 30 March 2004, then, no later than 30 June 2011, GATX, Halifax and Lombard shall establish a joint venture (the JV), in a form and manner acceptable to the parties thereto; provided, however, that such JV achieves the commercial and legal objectives set forth in this Clause 9.4 and the arrangement does not impose on any party hereto a greater burden than any alternative arrangement or structure that can achieve the same objectives. If the parties agree that a JV cannot be established that can achieve the objectives of this Clause 9.4 or the parties have been unable to establish a JV by 30 June 2011, the parties agree to negotiate in good faith to achieve such objectives through other means at the earliest opportunity.
(ii) The business of the JV shall be to arrange the leasing of Vehicles after the Residual Value Date, and to arrange subleases of such Vehicles to third parties during the remainder of the US Restructurings and to enter into agreements with the members of the JV to share in the proceeds of such leases and of any sale of the Vehicles by the Current Owners.
(iii) The JV shall provide that GATX, Halifax and Lombard (the Members) shall share in any profits and losses of the JV in their respective proportional (sic) (being 50:25:25 (the Sharing Proportion)).
(iv) The Relevant Lessors shall offer, in writing to be delivered to GATX with a copy to each Member no later than 30 September 2011, to share the profit and losses from leases of the Vehicles with the JV for the period after 1 April 2012, and GATX shall have the right, in its sole discretion, to elect to accept such offer on behalf of the JV, by notice in writing to the Relevant Lessors no later than 30 December 2011. The Relevant Lessors' offer shall state that the terms of any leases of Vehicles (a JV Lease) shall be agreed in accordance with Clause 6 hereof save for the sharing arrangements set out therein, which shall not apply. The profits and losses of such leases shall be available for sharing between the members of the JV in their Sharing Proportions. The profits and losses shall be calculated by deducting from the rental income from such JV Lease all amounts due as priority payments to the Relevant Lessors (Relevant Lessor Amounts), which amounts shall be calculated using software substantially similar to Classic Lease Pricing currently used by Lombard and the [specified] assumptions …
(v) The JV will act as agent for the purposes of releasing the Vehicles and can delegate to an agent selected by a majority in interest of the Members and the terms of the sharing arrangements shall be approved by a majority in interest of the Members….
(vi) …
(vii) If either of the Relevant Lessors decides to sell its Vehicles or its respective interests therein, it shall appoint an agent to act as the sales agent to arrange the sale of the Vehicles. The identity of the sales agent shall be approved by GATX prior to its appointment. If GATX is appointed as sales agent it shall be entitled to appoint a sub-agent, provided that the identity of such sub-agent is approved by the Relevant Lessor in its absolute discretion. The Relevant Lessors shall cause the Current Owners to allocate the proceeds of such sale (after deducting any costs and expenses in connection therewith) in excess of the relevant Lessor's remaining investment balance as follows: ….
(viii) GATX shall have the right to withdraw from the JV after a Trigger Event and upon such withdrawal all of its rights and obligations in the JV shall be apportioned equally between the remaining Members, who shall then have the right to dissolve the JV at their election.
(ix) GATX shall have no liability to the Relevant Lessors or any of the Members, following any such withdrawal under (viii) above, in respect of shortfalls in Relevant Lessor Amounts and interest thereon arising prior to a Trigger Event.
(x) Any disputes relating to the creation of the JV pursuant to this Clause 9.4 that cannot be resolved by the good faith efforts of the parties shall be referred to and finally resolved by arbitration in London. Such arbitration shall be decided pursuant to the Rules of the London Court of International Arbitration from time to time in force."
With regard to clause 9.4(i), it is common ground that:
i) No arrangement with the Strategic Rail Authority to extend the leasing of the trains was put in place by 30 March 2004; and
ii) No joint venture (as contemplated by clause 9.4(i)) was established by 30 June 2011.
Clause 9.4(x) refers to the Rules of the London Court of International Arbitration (the "Rules"). They include the following:
"22.3 The Arbitral Tribunal shall decide the parties' dispute in accordance with the law(s) or rules of law chosen...
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