MHB-Bank AG (MHB) v Shanpark Ltd

Hearing dates: 17th and 18th February 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 claimant (MHB) applies for summary judgment against defendants in two actions which raise identical issues of contractual construction relating to MHB's claims for "Early Termination Amounts", which is a shorthand expression used in this judgment for the sums payable following the termination of ISDA Master Agreements together with their relevant Schedules and Confirmations. Each of the defendants entered into arrangements on materially identical terms with the Irish Bank Resolution Corporation (previously Anglo-Irish Bank Plc) (the Bank).

On 16th May 2014 the right to payment of the Early Termination Amounts was assigned to MHB pursuant to Part 5(p) of the ISDA Master Agreement (the IMA). The total of the early termination amounts sought is some £30.5 million. The exact amount is not in dispute but each of the defendants have alleged that the Bank mis-sold the interest rate swaps governed by the IMA's terms and that the mis-selling claims found a defence of set-off under the terms of ss. 2(c) and 6(f) of the IMAs.

Additionally, the defendants contend that in parallel proceedings, the Bank exercised its contractual right to set-off under clause 31 of the loan agreement which the Bank had with each of the defendants – the Sterling Term Facilities Agreement (the STFA) and/or under s. 6(f) of the IMA, so that, as MHB can be in no better position than its assignor, the Bank, it is bound by the set-off which has already been effected.

The issues raise points of construction in relation to ss. 2(c) and 6(f) of the IMA and their interrelationship with the STFA, as well as arguments relating to the effect of the Bank's statement of case in the parallel proceedings.

The history

Whilst the dates differ as between the various defendants, the essential history follows the same sequence so that it is not necessary to do anything more than set out the facts in relation to the claim against the defendants in Folio 762 (Shanpark).

Shanpark was involved in the purchase and development of commercial and residential property and as part of that business, over a number of years, concluded substantial facility agreements with the Bank, which required the defendants to enter into interest rate hedging (swaps). The swaps which are the subject of the claim against all three defendants in the two Folios were concluded between June 2006 and October 2008. In the case of Shanpark, its swaps were concluded pursuant to an IMA executed on 10 October 2007.

In December 2012 Shanpark entered into the STFA, which replaced all previous loan agreements. Under clause 9, it was a condition of the lending that Shanpark enter into interest hedging arrangements with the Bank, which were governed by the IMA which had been concluded earlier. According to Shanpark, as at 21st December 2012 it was already well known that the Bank was in financial difficulty. Some six weeks later, on 7th February 2013, a Special Liquidation Order was made in respect of the Bank in Ireland. This amounted to an Event of Default under the IMA. Shanpark was entitled to terminate the Agreement in consequence but did not do so. It chose to suspend making payments under the IMA, as it was entitled to do under its terms.

On 26th November 2013 Shanpark issued a Claim Form against the Bank claiming that the interest rate swaps purchased were unsuitable and that they were concluded as a result of the Bank's breaches of contract and/or breaches of statutory duty and/or breaches of a common law duty of care. It seems that the Claim Form was amended and served on 19th/20th December 2013.

Two other events occurred on 20th December 2013. First, Shanpark repaid its loans in full. It is common ground that this constituted an Additional Termination Event within the meaning of the IMA under s. 5(b)(v). Second, and consequent on the repayment, the Bank sent to Shanpark a Notice of Early Termination under s. 6(b)(i).

This gave rise to the obligation on the part of Shanpark to pay the Early Termination Amount which is a figure derived in the manner set out in s. 6(d), s. 6(e), and Part 1(f) of the Schedule to the IMA (Second Method and Market Quotation).

On 6th January 2014 the Bank notified Shanpark of the Early Termination Amount and that amount became payable two business days later on 8th January 2014 under s. 6(d)(ii). There is no issue as to the quantum of that figure.

On 5th February 2014 Shanpark served its Particulars of Claim in the mis-selling action, alleging breaches of contract, namely breaches of the STFA or alternatively a Retail Customer Services Agreement, as well as breaches of statutory duty and a common law duty of care. On 14th May 2014 the Bank served its Defence and Counterclaim. It denied any liability for mis-selling and, in paragraph 68 of the Defence, set out its position in the following words:

"If, which is denied, the claimants have any claims against the Bank, the Bank will by way of defence set off against those claims the amounts claimed by way of Counterclaim herein."

The Counterclaim then set out the Bank's entitlement to the Early Termination Amount, together with a claim for interest thereon.

It has always been Shanpark's case that no sum was due to the Bank because the damages for mis-selling exceeded, and were to be set off against, sums due to the Bank in respect of the early termination. As quantified in the mis-selling action, the claims against the Bank amounted to some £52.1 million.

On 16th May 2014, as part of the winding up of the Bank's business, its claims for the Early Termination Amounts were assigned to MHB, a bank incorporated in Germany. On 30 July 2014, the Bank amended its defence to withdraw the claim to any set-off.

On 24th June 2014 MHB had commenced the present proceedings and then served Particulars of Claim on 1st August. Shanpark served its Defence in August which led to the current application for summary judgment on 22nd September, following which, in December, Shanpark served an Amended Defence, to which I shall refer subsequently.

The issues

It is now accepted by Shanpark that the assignment to MHB is valid. It is also accepted that there is no room for equitable set-off or liquidation set-off. Having originally pleaded both such forms of set-off, Shanpark has abandoned any such arguments. It is common ground therefore that any permissible set-off could only arise from the terms of the IMA and the Schedule as properly construed alongside the STFA.

Shanpark's major concern can be expressed shortly. Its case is that it has good mis-selling claims against the Bank which is insolvent and where the degree of recovery on a successful claim is unknown. It is accepted that, for present purposes, the mis-selling claims are arguable. It is also accepted that MHB has, in the shape of Shanpark's charged property, security which is sufficient to satisfy the claim for the early termination amounts. An undertaking has been given by MHB not to enforce those security rights without giving notice to Shanpark to enable it to apply to the court, so as to hold the position pending the determination of the parties' respective entitlements.

The applicable principles of law

There is no dispute between the parties as to the relevant principles. In essence, if MHB is to succeed on its application for summary judgment, it must show that Shanpark has no realistic prospects of success in its defence of set-off and that there is no other compelling reason why this matter should go to trial.

So far as the approach to construction is concerned, I was referred to ICS v West Bromwich [1998] 1 WLR 896, Chartbook v Persimmon [2009] AC 1101, The Rainy Sky [2012] 1 AER 1137 and Napier Park v Harbourmaster [2014] EWCA Civ 984, particularly at paragraphs 31–37. Both parties prayed in aid "commercial common sense" and the dicta that, where the term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense. Rival interpretations should be placed within their commercial setting and investigated or evaluated for their commercial consequences. Although the wording of an instrument is paramount, the instrument must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument, with the result that detailed semantic analysis may give way to business common sense.

In the context of ISDA, my attention was drawn to paragraph 53 of the decision of Briggs J (as he then was) in Lomas v JFB Firth Rixson [2011] 2 BCLC 120, where he said this:

"The ISDA Master Agreement is one of the most widely used forms of agreement in the world. It is probably the most important standard market agreement used in the financial world. English law is one of the two systems of law most commonly chosen for the interpretation of the Master Agreement, the other being New York law. It is axiomatic that it should, as far as possible, be interpreted in a way that...