Royal Bank of Scotland Plc v Highland Financial Partners LP [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Burton J. |
| Judgment Date | 25 May 2012 |
| Date | 25 May 2012 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Burton J..
John Nicholls QC and Louise Hutton (instructed by Linklaters LLP) for the claimant.
Stephen Auld QC, Ben Strong and Laurence Emmett (instructed by Cooke, Young & Keidan LLP) for the first to third defendants.
Graham Dunning QC and Philippa Hopkins (instructed by DaySparkes) for Scott Law LLC.
The following cases were referred to in the judgment:
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Anti-suit injunction — Collateralised debt obligation — Concealment — Defendant borrowers' CDO transaction never closed because of market collapse — Realisation by claimant bank of acquired loans — Claimant entitled to recover outstanding balance of advances but giving credit for value of loans — Separate decisions on liability and quantum — Claimant concealed fact that some loans previously transferred from trading book to banking book to take advantage of accounting treatment — Defendants commencing proceedings in Texas for fraudulent misrepresentation — Whether proceedings in breach of exclusive English jurisdiction clause — Whether Texan proceedings vexatious and oppressive — Whether claimant disentitled to injunctive relief because of unclean hands — Whether liability judgment should be set aside as obtained by fraud.
These were applications by the claimant bank (RBS) for permanent anti-suit injunctive relief and by the first to third defendants to set aside judgment in favour of RBS on the ground that it was obtained by fraud.
The issues arose out of a series of agreements involving the advancing by RBS of some €240 million in respect of a proposed collateralised debt obligation (CDO) transaction called Highlander V. Highlander V involved the Highland companies borrowing from RBS via a special purpose vehicle to acquire a portfolio or warehouse of loans and to issue securities to the market using the loans as collateral. The transaction was a casualty of the market collapse of 2008–9, and there never was a closing date, no securities were ever issued, and RBS sought repayment from the Highland defendants of the balance outstanding after realising the acquired loans.
RBS obtained summary judgment on its claim (see [2010] EWHC 194 (Comm)), with quantum to be assessed. That decision was upheld on appeal: [2010] EWCA Civ 809.
At the quantum hearing the defendants took issue with the method by which RBS had realised the acquired loans, namely an informal quasi-auction known as “bids wanted in competition” (BWIC). The court held ([2010] EWHC 3119 (Comm)) that, before the opening of the BWIC, RBS had already decided to retain 36 of the loans and had transferred them from its trading book to its banking book in order to take advantage of the favourable accounting treatment permitted by IAS/39. In the circumstances RBS was in breach of its contractual obligations and of its equitable obligations as mortgagee.
The result of RBS's failure to comply with its obligation to disclose that it had already decided to acquire the 36 loans was to reduce its recovery from £35m to €21m.
The fact that, in order to take advantage of IAS/39, the 36 loans had been transferred by RBS from its trading book onto its banking book before the BWIC, and that they were thus not for sale to third parties in the BWIC, was referred to in this hearing as the suppressed fact.
The second defendant Highland company and Scott Law, as assignee of the other Highland defendants, then commenced Texan proceedings against RBS, alleging misrepresentation and fraud in relation to the 36 loans.
RBS sought an anti-suit injunction to restrain the Texan proceedings, on the basis that, if the Highland defendants and assignee were entitled to bring the proceedings at all, they were in breach of exclusive English jurisdiction clauses in doing so in Texas; and in any event the matters sought to be litigated in Texas were res judicata, or the litigation was vexatious or an abuse of process because those matters had been, or ought to have been, litigated in the English proceedings. There were jurisdiction clauses in a number of the agreements which governed the CDO, but RBS placed principal reliance on that in the First Loss Deposit Facility Deed.
The Highland defendants and Scott Law argued that the jurisdiction clauses did not prevent the Texan proceedings and/or there were strong reasons not to grant injunctive relief, and that RBS was not entitled to injunctive relief by virtue of the equitable doctrine of “unclean hands”. Further the Highland defendants and Scott Law sought to set aside the liability judgment on the ground that it was obtained by fraud.
Held Held, refusing the defendants' application to set aside the liability judgment and RBS's application for injunctive relief:
1. The liability judgment should not be set aside on grounds of fraud. Despite the fraudulent concealment, the outcome would not have changed. Ordinarily where it was sought to set aside a judgment obtained by fraud, what would happen on a retrial was uncertain, or at any rate unknown, and it might well be difficult, if not impossible, to consider what the decision might be if the matter were re-tried with honest evidence. But in this case, the case had been tried with all the evidence, including the previously suppressed fact. It would be pointless to...
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