Nationwide Building Society v The Bank of New York Mellon, London Branch

Hearing dates: 4 and 5 March 2025, then written submissions 12, 21 and 25 March 2025

Approved Judgment

This judgment was handed down remotely at 1pm on 01 March 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Sean O'Sullivan KC (sitting as a Deputy High Court Judge):

The background to this dispute is a windfall for HMRC and the UK Treasury. If certain notes issued by the Claimant, Nationwide, as part of its US Medium Term Note Programme in 2018 and 2019, had been listed on the London Stock Exchange, they would have qualified for the quoted Eurobond exemption from withholding tax in s.889 of the Income Tax Act 2007. But, as a result of an oversight, no application for listing was made. As a result, Nationwide faced a substantial tax liability.

This case concerns, in simple terms, responsibility for that oversight. The First Defendant (“BNY”) had various powers and duties in relation to the notes as Trustee and Paying Agent. The Second Defendant (“A&O”) was Nationwide's lawyer, assisting with aspects of the issue of the notes. Initially, as I will explain, Nationwide had both BNY and A&O in its sights. Now, as a result of some concessions, its guns are aimed only at A&O.

However, the primary issue with which I am concerned is A&O's Part 20 claim against BNY for a contribution. A&O says that BNY owed a legal duty to Nationwide, either in contract or in tort, to confirm that the notes had been listed and that BNY's failure to do so gives rise to a liability to provide an indemnity for, or at least a contribution to, any damages which A&O is obliged to pay to Nationwide. BNY says that A&O has no real prospect of succeeding on its allegation that BNY owed such a duty and, on that basis, seeks summary judgment on A&O's Part 20 contribution claim. There is also a more limited, and contingent, issue about the costs of an application by Nationwide to amend.

Both the background to the dispute and the procedural history are a little involved, so I will say a little about each before turning to the specific issues which arise on the summary judgment application and then the amendment application.

The factual background

Introduction

What follows is not intended to be comprehensive. I have focussed on the parts of the story which seemed to me potentially relevant to the specific issues which I have to decide. Nor should my short narrative be understood as involving any findings of fact; I am deciding a summary judgment application. For the most part, therefore, I am simply recording what I have been told by one or other party.

The Programme in outline

Nationwide's US Medium Term Note Programme was established in around 2000. I understand it to be a way of raising capital, borrowing money for periods of up to 10 years on the basis of a fixed interest return (or “coupon”), with a fixed redemption date, largely aimed at institutional investors in the US.

A&O acted as US and English law legal adviser to Nationwide from 2006. BNY took over as Trustee and Paying Agent in 2007.

Twenty-four notes were issued between 2009 and 2022 pursuant to the US Medium Term Note Programme. Each series was referred to by the parties by reference to its issue date: so “Series 2018–1” refers to the first series of notes issued in 2018.

The present action concerns Series 2018–1, 2018–2, 2019–1 and 2019–2, all of which were not listed upon issue on the Official List of the UK Listing Authority (i.e. the Financial Conduct Authority), nor admitted to trading on the London Stock Exchange. I will refer to them collectively as “the Unlisted Notes”.

I was shown some of the key documentation which was in place at the time the Unlisted Notes were issued. It is important to understand that there is a high degree of regulation in this regard which is aimed at protecting investors in notes of this kind, despite them not being aimed at “retail” investors. By way of example, it was common ground that EU Directive 2003/71/EC (as amended) applied at the time to require the publication of a prospectus for the issuance of the notes “ to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of any guarantor, and of the rights attaching to such securities. This information shall be presented in an easily analysable and comprehensible form” (see Article 5(1) of that Directive).

The Base Prospectus

I was shown the “Base Prospectus” dated 20 December 2017, which I understand to have been in place when the 2018–1 and 2018–2 series were issued on 8 March 2018. Although slightly updated versions were in place by the time of issue of each of the 2019–1 and 2019–2 series, it was agreed that the specific terms which I was being shown did not change. The updates concerned the detail of disclosures about Nationwide's financial position over time, which is not relevant for my purposes.

The overview explained the role of the prospectus:

“This overview highlights important information regarding, but is not a complete description of, our medium-term note program. We urge you to read the remainder of this Base Prospectus where we set out a description of our medium-term note program in more detail. You should also review the applicable Final Terms for additional information about the particular series of notes that you are considering purchasing. The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Base Prospectus and, in relation to the terms and conditions of any particular tranche of notes, the applicable Final Terms.”

In the opening paragraph of the prospectus, it was stated that an application had been made to list the notes on the LSE and for admission on the FCA's Official List. The prospectus referred to Nationwide's covenant to make good any sums it was obliged to withhold or deduct from interest payments, i.e. to pay interest gross:

“All payments in respect of the notes will be made without deduction for or on account of United Kingdom withholding taxes, unless the withholding is required by law. In that event, we will (subject to certain exceptions as described in “Terms and Conditions of the Notes-Payment of additional amounts”) pay such additional amounts…

as will result in the holder of any notes receiving such amounts as they would have received in respect of the notes had no such withholding been required”.

My attention was drawn by Lord Grabiner KC, Counsel for BNY, to the following provision in the opening part of the prospectus:

“By purchasing the notes, each noteholder (including each beneficial owner) waives any and all claims against The Bank of New York Mellon, London Branch, as trustee, for, agrees not to initiate a suit against the trustee in respect of, and agrees that the trustee will not be liable for, any action that the trustee takes, or abstains from taking, in either case in accordance with the exercise of the UK bail-in power by the relevant UK resolution authority with respect to the notes.”

This was described as a waiver of claims against BNY as Trustee, but I understood it to be accepted by Lord Grabiner that the waiver was only relevant if a “ bail-in power” was being exercised by the UK financial authorities, which is not the present case.

In relation to the terms and conditions of the notes, the prospectus explained that:

“This section describes the material terms and provisions of the notes to which any Final Terms may relate. We will describe in each Final Terms the particular terms of the notes that we offer by that Final Terms and the extent, if any, to which the general provisions described below may apply to those notes….

We will offer the notes under an indenture, dated as at December 19, 2017 and as supplemented and amended from time to time (the “ Indenture”), between us (the “ Issuer”) and The Bank of New York Mellon, London Branch as trustee (the “ Trustee”)…”.

The Indenture

The Indenture dated 20 December 2017 between Nationwide as Issuer and BNY as both Trustee and Paying Agent applied to the Unlisted Notes. I am told that this, in all material respects, reproduced the provisions of the preceding iterations of the Indenture (dating back to 2000).

Mr Johnson, solicitor for BNY, described the Indenture in his evidence in support of the application as a carefully and professionally drafted document, the purpose of which is to define precisely and exhaustively BNY's responsibilities as Paying Agent (as well as its separate but equally tightly circumscribed duties as Trustee). There is no doubt that it is a formal document which outlines how the notes are to operate, how they are authenticated, registered, re-issued if lost, how interest is paid and the principal repaid, events of default, early redemption, etc. Lord Grabiner called it a framework document, to which a Supplemental Indenture and some Final Terms were added for each specific series of notes. He said that the sophisticated parties to the Indenture...