Perpetual Trustee Company Ltd v BNY Corporate Trustee Services Ltd and Another
| Jurisdiction | England & Wales |
| Judge | The Master of the Rolls,Lord Justice Longmore,Lord Justice Patten |
| Judgment Date | 06 November 2009 |
| Neutral Citation | [2009] EWCA Civ 1160 |
| Docket Number | Cases Nos: A3/2009/1794, 2037, 2043, 2047 Case No 10689/2009 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 November 2009 |
[2009] EWCA Civ 1160
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(The Rt Hon Sir Andrew Morritt, Chancellor)
(The Hon Mr Justice Peter Smith)
Before: The Master of The Rolls
Lord Justice Longmore
and
Lord Justice Patten
Cases Nos: A3/2009/1794, 2037, 2043, 2047
(Claims Nos HC09CO1612 and HC09CO1931)
Case No 10689/2009
Mr Richard Snowden QC and Mr James Potts (instructed by Weil, Gotshal & Manges) for Lehman Brothers Special Financing Inc
Mr Gabriel Moss QC and Mr David Allison (instructed by Sidley Austin LLP) for Perpetual Trustee Co Ltd
Mr Richard Salter QC and Mr Jonathan Davies-Jones (instructed by Lawrence Graham LLP) for Belmont Park Investments Pty Ltd
Mr Stephen Midwinter (instructed by Lovells LLP) for BNY Corporate Trustee Services Ltd
Mr Richard Sheldon QC and Mr Barry Isaacs (instructed by Denton Wilde Sapte LLP) for Messrs Butters, Kahn and Dargan
Mr Mark Howard QC, Mr Daniel Jowell and Mr Mark Arnold (instructed by Olswang LLP) for BBC Worldwide Ltd
Mr Edmund Cullen (instructed by Wiggin LLP) for BBC Video Ltd
Hearing dates: 13 th, 14 th and 15 th October 2009
The Master of the Rolls:
Introductory
The main issue raised on these appeals concerns the extent of the so-called anti-deprivation rule (“the rule”). This rule, which has been expressed in slightly different ways in the cases, was put in these terms in Ex p Jay; In re Harrison (1880) 14 Ch D 19, 26 by Cotton LJ: “there cannot be a valid contract that a man's property shall remain his until his bankruptcy, and on the happening of that event shall go over to someone else, and be taken away from his creditors.”
In the Perpetual appeal, those administering the estate of Lehman Brothers Special Financing Inc (“LBSF”) contends that the Chancellor was wrong to hold that the rule did not apply to a number of so-called synthetic collateralised debt obligations, set up through the medium of a special purpose vehicle (“SPV”), so as to vitiate provisions which, on an insolvency event, (a) switched the priority, which was enjoyed over the assets in the SPV between the credit default swap counterparty (LBSF) and the Noteholders, in favour of the Noteholders, and (b) changed the allocation of the so-called “unwind costs” in favour of the Noteholders to the potential detriment of LBSF. The Chancellor held that the rule did not apply for two reasons. First, the nature of the disadvantage suffered by LBSF did not fall within the rule; secondly, even if the rule would otherwise have applied, the two provisions were operated by an event before LBSF filed for Chapter 11 US Bankruptcy Code (“Chapter 11”) protection in the US Bankruptcy Court (which is agreed to be the equivalent of the making of a winding up order for the purposes of the application of the rule). Perpetual Trustee Co Ltd (“Perpetual”) and Belmont Park Investment Pty Ltd (“Belmont”), representing the Noteholders, say the Chancellor was right on each of those two grounds in holding that the rule did not apply. The Trustee adopted a neutral position on the appeal.
In the Butters appeal, the administrators of WW Realisation 8 Ltd (formerly Woolworths Media Plc –“Media”) and of Woolworths Group Plc (“Group”) contend that, while he was right to conclude that the provisions in question, as drafted, offended the rule, Peter Smith J was wrong in the way in which he effectively deleted parts of (a) a provision in a Joint Venture Agreement (“the JVA”) which enabled BBC Worldwide Limited (“BBCW”) to purchase Media's shares in 2 entertain Ltd (“2e”, a company it jointly owned with Media), on an insolvency event, and (b) a provision in a Master Licence (“the MLA”) granted by BBCW to BBC Video Ltd (“Video”, a company owned by 2e), which entitled BBCW to determine the MLA on an insolvency event. BBCW argue that the Judge was wrong to hold that the rule applied at all, as, first, even if the provisions had been operated after Media went into administration, the rule was not apt to apply on the facts, and, alternatively, if it would otherwise have applied, the rule was not engaged as the notice which operated the provisions was served before Media had been placed into administration. In the alternative, BBCW contend that, if the rule applied, the Judge was right to give effect to the two provisions as he did. There is a separate issue, which is whether the Judge was right to conclude that the grant of a temporary licence by BBCW to Video operated to determine the MLA in any event.
I propose first to describe the relevant documentation and events which give rise to the issues in the Perpetual appeal, and then do the same thing in relation to the Butters appeal; next, I shall turn to the cases on, and general approach to, the anti-deprivation rule; I shall then discuss the application of the rule to the facts of the two appeals in turn; I shall finally deal with the temporary licence issue in the Butters appeal.
The facts in the Perpetual appeal
In his judgment, [2009] EWHC 1912 (Ch), the Chancellor set out in summary form the effect of the documentation involved in the Perpetual case, in the following terms:
“(1) the issue of Notes (“the Notes”) to investors by an SPV (“the issuer”) formed by a Lehman company in a tax friendly jurisdiction;
(2) the purchase by the issuer with the subscription money paid for the Notes of government bonds or other secure investments (“the collateral”) vested in a trust corporation;
(3) a swap agreement entered into by a Lehman company and the issuer under which the Lehman company paid the issuer the amounts due by the issuer to the Noteholders in exchange for sums equal to the yield on the collateral;
(4) the amount by which the sum payable under the swap agreement by the Lehman company exceeded the yield on the collateral represented the premium for the, in effect, credit insurance provided by the Noteholders;
(5) the amount payable by the Lehman company to the issuer on the maturity of the Notes (or on early redemption or termination) was the initial principal amount subscribed by the investors less amounts calculated by reference to events defined as credit events occurring during a specified period by reference to one or more reference entities, thereby giving effect to the effective insurance aspect of the programme;
(6) the collateral was charged by the issuer in favour of the trust corporation to secure its obligations to the Noteholders and the Lehman company on terms which changed their respective priorities on the occurrence of certain specified events, including the insolvency of the Lehman company,
(7) each of the transactions summarised above (except the purchase of the collateral) is governed by English law.”
It is necessary, for present purposes, to describe in a little more detail the relevant provisions in the voluminous documentation in which the terms of these arrangements were recorded, and to set out briefly the events which give rise to the dispute.
There are twelve relevant issues of Notes, two being the subject of claims by Perpetual, and ten by Belmont. Subject to a few small exceptions, the documentation in relation to all twelve Notes issues is essentially in the same form, and the facts relating to the Notes are, with one or two possible exceptions, the same so far as they affect the disputes in this appeal. Accordingly, I shall limit myself, for the moment, to the documentation and facts relating to one of the Notes issues in Perpetual's case, known as Saphir I. Some provisions are in more than one document, and I shall not identify such provisions more than once.
Saphir I was governed by three documents, (i) a Principal Trust Deed (“the PTD”) between Dante Finance Public Limited Company (“Dante”, the first issuer under the programme) and the BNY Corporate Trustee Services Limited (“the Trustee”), (ii) a Supplemental Trust Deed and Drawdown Agreement (“the STD”) made between the issuer, the Trustee (together with its associated custodian and paying agent), LBSF (described as the swap counterparty) and the Lehman company which established these Notes issues, Lehman Brothers International Europe (“LBIE”), and (iii) the Terms and Conditions (“the T & C”) which were attached to the prospectus sent to potential investors. The swap agreement was regulated by two documents, (i) an ISDA Master Agreement (“the ISDA”) between Dante and LBSF, and (ii) a swap confirmation.
By clause 5.1 of the PTD, the issuer granted “as continuing security” the charge and security interest set out in the STD. Clause 5.5 of the PTD provided that the security so granted shall become enforceable “if (i) any amount due in respect of the Notes is not paid or delivered when due or (ii) a Swap Agreement terminates with sums due to the Swap Counterparty [i.e. LBSF].” Clause 5.6 provided that the Trustee was bound “at any time after any security…shall have become enforceable” to enforce the security over the collateral, if requested by at least one fifth of the Noteholders, or by LBSF, in certain specified events, or otherwise at its discretion.
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