Ryan Kevin Grant, Daniel Christopher Imison and Catherine Mary Williamson (in their capacity as Joint Administrators of Olympia Securities Commercial Plc ((in Administration)) v WDW 3 Investments Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Pelling |
| Judgment Date | 23 November 2017 |
| Neutral Citation | [2017] EWHC 2807 (Ch) |
| Date | 23 November 2017 |
| Court | Chancery Division |
| Docket Number | Case No: 2834/2017 |
[2017] EWHC 2807 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (Ch.D)
IN THE MATTER OF Olympia Securities Commercial Plc (In Administration)
AND IN THE MATTER OF the Insolvency Act 1986
Manchester Civil Justice Centre
Manchester M60 9DJ
HIS HONOUR JUDGE Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: 2834/2017
Mr Andrew Shaw (instructed by Addleshaw Goddard LLP) for the Applicants
Mr Tom Smith QC and Mr Matthew Abraham (instructed by Pinsent Masons LLP) for the First Respondent
Mr Richard Morgan QC (instructed by Fladgate LLP) for the Second Respondent
Hearing dates: 30 October 2017
HH Judge Pelling QC:
Introduction
This is the hearing of an application by the Applicants ("the Administrators") for directions made under paragraph 63 of Schedule B1 of the Insolvency Act 1986. In essence the application concerns whether (as the First Respondent ("WDW") maintains) WDW is a secured creditor of Olympia Securities Commercial Plc (In Administration) ("the Company") for the sum of £6,324,214.50 being the sum allegedly due from the Company following the early termination of a series of interest rate swap agreements originally entered into by the Company with Anglo Irish Bank Corporation Limited (now Irish Bank Resolution Corporation Limited) ("IBRC") following various assignments to which I turn in more detail below. The Second Respondent ("Arazim") is the sole shareholder of the Company's sole shareholder and an unsecured creditor of the Company. It disputes both that the Company is indebted as alleged and that any debt that is owed is secured. The Administrators are neutral on the issues that arise but seek directions in order that the dispute can be resolved and all appropriate distributions made. I summarise the issues I have to resolve at paragraph 10 below because they are intelligible only against the factual background set out below.
There are no factual disputes between the parties relevant to the issues I have to resolve on this application. The issues are ones of law and/or that turn upon the true construction of various underlying documents to which I refer in detail below.
The Facts
The Company was part of a group of companies. Its business was commercial and residential property development. On 16 February 2005, the Company entered into a Facility Agreement with IBRC under which IBRC agreed to lend the Company sums of in excess of £50m ("Facility Agreement") in a series of payments identified as " tranche A" to "tranche F" – see clause 2 of the Facility Agreement. The Company subsequently provided guarantees to IBRC in relation to four other companies within the Arazim group. The Facility Agreement was varied on a number of occasions but it is common ground that the relevant version for present purposes is the final amendment and restatement made on 11 December 2009. The material terms of the Facility Agreement are set out as necessary below. The Facility Agreement was further varied by a Supplemental Facility Agreement dated 16 May 2014 ("SFA"), the operative provisions of which are contained in Schedule 3 to the SFA. Clause 7 provided that the definition of Repayment Date contained in the Facility Agreement be deleted and replaced with a provision that defined the Repayment Date as being 30 June 2014.
The facility provided under the Facility Agreement was a floating rate facility. In order to hedge against interest rate fluctuations, the parties entered into three interest rate swap agreements on various dates between 21 March 2005 and 26 March 2008 ("Swaps"). It is common ground for the purposes of this application that each of the Swaps was governed by an International Swap Dealers Association ("ISDA") Master Agreement dated 19 August 2008 ("ISDAMA"). I set out the provisions of the ISDAMA relevant to this application below. It is necessary to note at this stage only that the main body of the agreement consists of standard terms which are supplemented or varied by the terms set out in the schedule to the ISDAMA.
The loan the subject of the Facility Agreement (and any sum due to IBRC under the Swaps) was secured by a debenture granted to IBRC by the Company dated 11 December 2009 ("Debenture"). The terms of the Debenture material to this application are summarised below.
On 7 February 2013, the Minister of Finance in the Republic of Ireland placed IBRC in Special Liquidation under s.4 of the Republic of Ireland's Irish Bank Resolution Corporation Act 2013 for the purpose of achieving an orderly wind up of IBRC which necessarily included the sale of its assets. On 16 February 2014, IBRC acting by its Special Liquidators agreed to sell a portfolio of assets that included the loan to the Company the subject of the Facility Agreement to an entity called LSREF III Wight Limited ("LSREF").
On 2 May 2014, WDW was incorporated in England and Wales with share capital of £1. The agreement between IBRC and LSREF was completed on 16 May 2014 by three agreements under which (a) all IBRC's rights under the Facility Agreement were assigned to WDW as nominee of LSREF, (b) by a Security Assignment Deed ("SAD"), the Debenture was assigned by IBRC to WDW who declared that it held it on trust for itself and for IBRC, and (c) LSREF agreed with IBRC that all or any rights or liabilities arising in respect of the Swaps would accrue to or be borne by LSREF notwithstanding that IBRC remained the Company's counterparty under the Swaps. The relevant agreements giving effect to these arrangements are all in evidence. The detail concerning these arrangements is not material to the issues that arise on this application. On 5 June 2014, WDW gave notice to the Company of assignment to it of IBRC's rights and benefits under the Facility Agreement and the Debenture.
On 30 June 2014, the loans the subject of the Facility Agreement became due for repayment by reason of operation of clause 7 of the SFA but none of the sums due were repaid. This was an Event of Default under the Facility Agreement. WDW notified IBRC that an Event of Default under the Facility Agreement had occurred by reason of the Company's non-repayment. WDW argues that this constituted an Event of Default under the ISDAMA. On 15 July 2014, the Special Liquidators of IBRC terminated the Swaps with effect from 21 July 2014. On 22 July 2014, IBRC's liquidators served a Statement of Payment on Early Termination in purported compliance with the ISDAMA by which they claimed payment from the Company of the £6,324,214.50 ("ETP"). None of the parties before me disputed that this sum had been properly calculated.
On 20 October 2014, by a Deed of that date, IBRC assigned to MHB-Bank AG ("MHB") all the rights it had to or in the ETP. By an amending Deed dated 25 August 2016, the SAD was purportedly varied so as to declare that as and from 25 August 2016, WDW held the Debenture on trust for itself and MHB in place of IBRC.
To date the Administrators have repaid all of the principal sum lent under the Facility Agreement to WDW and the sums due under the intercompany guarantees given by the Company to IBRC referred to in paragraph 3 above. These sums exceed £100m. There remains for distribution £1.54m and €4.04m, gross of the remaining administrators' costs and expenses. The issues that have to be resolved on this application are concerned with three matters in dispute between the Respondents being (a) whether the assignment of the Facility Agreement from IBRC to WDW was valid, which turns in the first instance on whether as a matter of construction WDW is a " financial institution" for the purposes of the Facility Agreement ("Issue 1"); (b) whether in the circumstances that occurred IBRC was entitled to terminate the Swaps and demand payment by the Company of the ETP ("Issue 2") and (c) whether, on the assumption that the ETP became payable by the Company, the sum payable was secured by the Debenture ("Issue 3").
Issue 1
Introduction
As set out in the Application Notice, Issue 1 is whether WDW is:
"… a " financial institution" for the purposes of clause 23.2 of the … Facility Agreement …and, if not, what are the consequences (if any) in relation to the validity of the assignment of IBRC's rights under the Facility Agreement to [WDW] …"
Clause 23 of the Facility Agreement provides:
"23.1 The benefit of the Facility is personal to the Borrower, who may not assign or otherwise part with it in whole or part without the prior written consent of the Lender.
23.2 The Lender may (and the Borrower shall assist as required and irrevocably appoints the Lender to execute any requisite document on its behalf) at any time transfer, assign or novate all or any part of the Lender's rights, benefits or obligations under this agreement to any one or more banks or other financial institutions. All agreements, representations and warranties made in this agreement shall survive any transfers made pursuant to this clause. The Lender may sell down its participation in respect of the Finance Documents without the consent of the Borrower."
The Principles Applicable to Construction
The principles applicable to construing contracts are now well established and are not in dispute between the parties. They are relevant to each of the issues that have to be resolved on this application.
Since Investors Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 896 was decided there has been a tendency in cases where the true meaning and effect of a contract has been in dispute for the proponents of...
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