Lsref III Wight Ltd v Millvalley Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cooke |
| Judgment Date | 08 March 2016 |
| Neutral Citation | [2016] EWHC 466 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014 Folio 1228 |
| Date | 08 March 2016 |
[2016] EWHC 466 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Cooke
Case No: 2014 Folio 1228
Jonathan Nash QC and James MacDonald (instructed by Sidley Austin LLP) for the Claimant
Paul Downes QC and Emily Saunderson (instructed by Gateley) for the Defendant
Hearing dates: 29th February, 1st and 2nd March 2016
LSREF III Wight Ltd (Wight) seeks a declaration as to the construction of an interest rate swap confirmation dated 19th December 2012, alternatively rectification of it. The point at issue is whether the confirmation (referred to as the "Restructured Swap Confirmation") incorporated the terms of an ISDA Master Agreement in the 1992 form or an ISDA Master Agreement in the 2002 form with a Schedule. A subsidiary point arises in relation to an amendment to the Particulars of Claim seeking rectification, so far as necessary, of a 2002 form of ISDA Master Agreement and Schedule dated 13th December 2011 ("the Millvalley 2002 ISDA Master Agreement" and "the Schedule"). There was also an alternative assertion that the defendant (Millvalley) is estopped by convention from relying on the express words of the relevant instruments and cross-claims relating to estoppels to the contrary effect.
The critical point at issue in relation to the Restructured Swap Confirmation arises because of the difference between the 1992 form of ISDA Master Agreement and the 2002 form with the relevant Schedule since the latter included Additional Termination Events which gave rise to an entitlement on the part to Irish Bank Resolution Corporation Ltd ("IBRC") terminate in the event of repayment of a loan. Wight is the successor in title to a claim for an Early Termination Amount which only exists if the restructured swap is governed by the Millvalley 2002 Master Agreement and Schedule which included the early termination provisions which did not apply under the 1992 Master Agreement.
I draw on Wight's skeleton argument for a recitation of the basic facts.
Millvalley is part of a group of private Isle of Man property development companies beneficially owned by a successful property developer and businessman, William McCabe ("WM"). Other members of the group include Glen Properties Limited ("Glen") and LNC Developments Limited ("LNC").
Millvalley and Glen are SPVs initially incorporated to acquire interests in department stores in, respectively, Glasgow (the "Frasers Building") and Edinburgh (the "Jenners Building").
At all material times, Millvalley and Glen acted by professional directors provided by an established corporate services company, relied upon property management and financing advice provided by experienced chartered accountants, and had the benefit of professional legal advice provided by established law firms. They were also assisted by professional interest rate hedging advisors.
On 10th November 2006, Millvalley entered into an interest rate swap with Anglo Irish Bank Corporation plc ("AIB") (the "Original Swap"). The Original Swap was an interest hedging arrangement required by AIB in connection with a £33.7 million facility provided by AIB to Millvalley under the terms of an agreement dated 10th November 2006 (the "Millvalley Facility"). The Termination Date of the Original Swap was 10th November 2016 (coinciding with the repayment date of the Millvalley Facility) and the Notional Amount of the Original Swap was £33.7 million (equivalent to the Millvalley Facility). Millvalley was the Fixed Rate Payer, and AIB was the Floating Rate Payer.
At around the same time, AIB also provided a £29.5 million facility to Glen (the "Glen Facility") and AIB's associate company, Anglo Irish Asset Finance Plc ("AIAF"), lent substantial funds to LNC and associated companies (the "LNC Facility").
The Original Swap was subsequently confirmed in a long-form swap confirmation dated 2nd January 2007 (the "Original Swap Confirmation"). The Original Swap Confirmation stated (so far as relevant):
"This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form"), with such modifications as you and we shall in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form part of, and be subject to, that agreement. All such provisions contained or incorporated by reference in that agreement will upon its execution govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation … shall supplement, form part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form (but without any Schedule except for the election of English law as the governing law) on the Trade Date of the first Transaction between us. In the event of any inconsistency between the provision of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction."
It is common ground that the ISDA Form referred to in the Original Swap Confirmation was a 1992 ISDA Master Agreement. No Master Agreement was, however, executed at this time, and therefore no Schedule.
In July 2010, each of the Glen, Millvalley and LNC Facilities were restructured (the "2010 Facilities" and "the 2010 Glen Facility, "the 2010 Millvalley Facility" and "the 2010 LNC Facility" respectively). The 2010 Facilities were, originally, to be repayable on 30th November 2011: this repayment date was later extended in the case of Glen and LNC as set out below. It is common ground that, as part of the restructuring, the Original Swap was identified as a "Hedging Arrangement" and "Finance Document" for the purposes of the 2010 Glen Facility. Again, however, no Master Agreement and Schedule were entered into at this stage.
In mid-2011, the borrower companies asked AIB for a further extension of the 2010 Glen and LNC Facilities until the end of 2012 and on the basis of a reduction in the overall indebtedness of the Borrower Companies. The extension was agreed on the basis that Millvalley would sell the Frasers Building and use the proceeds to repay the 2010 Millvalley Facility entirely and also reduce the amounts owed under the 2010 Glen Facility. Millvalley did not want to incur the costs of breaking the Original Swap (estimated in October 2011 to be about £5.796 million). Millvalley accordingly proposed that the Original Swap should remain in place after the 2010 Millvalley Facility had been repaid in July 2011, and be utilised as a hedge for the purposes of the 2010 Glen and LNC Facilities.
AIB imposed a number of conditions on the extension of the 2010 Glen and LNC Facilities. These included a requirement that Millvalley enter into an ISDA Master Agreement in order to document Millvalley's "existing hedging arrangements", i.e., the Original Swap which (as is common ground) was the only existing hedging arrangement between Millvalley and AIB at this time. Millvalley expressly confirmed to AIB, in an email dated 4th August 2011, that it was "happy… to proceed" on that basis, and on the basis of the other conditions required by AIB.
On 20 October 2011, AIB's lawyers, DLA Piper LLP ("DLA") sent a draft ISDA 2002 Schedule to Millvalley's lawyers, McGrigors LLP ("McGrigors"). On 24th October 2011, McGrigors confirmed to DLA that, subject to a correction to the Party B notice details, they were "happy with the draft".
On 18th November Glen and LNC signed Facility Amendment Letters which recorded the terms on which IBRC extended their respective facilities until 31st December 2012. There included provisions relating to the execution by Millvalley of an ISDA 2002 Master Agreement and Schedule.
Millvalley and AIB's successor corporation, IBRC executed the finalised ISDA 2002 Master Agreement and Schedule dated as of 13 December 2011 (the "Millvalley 2002 ISDA Master Agreement"). The Millvalley 2002 ISDA Master Agreement was in the 2002 rather than the 1992 form. It contained, in its Schedule, the following material provisions:
(1) Part 5(a):
" Scope of this Agreement. As from the date of this Agreement, any transaction that has been or is now or in the future entered into between [IBRC and Millvalley] which would constitute a "Specified Transaction" as defined in this Agreement … and which fails by its terms expressly to apply the terms and conditions of another form of agreement or alternatively to exclude application of this Agreement, whether or not specific reference to this Agreement is made in any communication confirming the same, shall supplement, form a part of and be subject to this Agreement and shall be a Transaction under this Agreement. Accordingly, the terms and conditions of each such transaction are hereby varied to incorporate the terms of this Agreement and any agreement or confirmation in respect of the same shall henceforth be read and construed as forming part of this Agreement"
(2) Part 1(g)(i):
"Each of the following events shall constitute Additional Termination Events pursuant to Section 5(b)(vi):
(A) Repayment, Prepayment, Cancellation. The repayment, prepayment or cancellation in full of all commitments and amounts outstanding under the Facility Agreements
(B) Repayment,...
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