Secretary of State for Business, Innovation and Skills and Another v Rangos
| Jurisdiction | England & Wales |
| Judge | Lord Justice Aikens,Lord Justice Toulson,Lord Justice Maurice Kay,Lord Justice Patten |
| Judgment Date | 12 April 2013 |
| Neutral Citation | [2013] EWCA Civ 328,[2013] EWCA Civ 360 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2012/1463 & A3/2012/1474,Case No: A2/2012/1111 |
| Date | 12 April 2013 |
[2013] EWCA Civ 328
Lord Justice Maurice Kay
Lord Justice Toulson
and
Lord Justice Aikens
Case No: A3/2012/1463 & A3/2012/1474
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE BURTON
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr John Nicholls QC & Ms. Louise Hutton (instructed by Linklaters LLP) for the Appellant
Mr Stephen Auld QC, Mr Benjamin Strong & Mr Laurence Emmett (instructed by Cooke, Young & Keidan LLP) for the Respondents (1) to (3)
Mr Graham Dunning QC and Mr Jeremy Brier (instructed by DaySparkes) for the Respondent (5)
Hearing dates : 27th-29th of November 2012
I. Brief History of how the litigation arises
Sometimes an attempt to alleviate problems has unexpected consequences. This case is a tale of the consequences of actions taken by employees of the Royal Bank of Scotland ("RBS") who used a change in the International Accounting Standards IAS/39 to augment the value of RBS' banking book during the dark days of the bank's crisis in the financial maelstrom that followed the collapse of Lehman Brothers in September 2008. The result has been extensive litigation in the English courts between RBS and the Highland group of companies, resulting in three judgments of Burton J in January 2010, December 2010 and May 2012, which are, respectively, 52, 78 and 196 paragraphs long and all of which have to be considered on this appeal. The third of Burton J's judgments results from Highland's attempt to bring further proceedings in Texas. Inevitably, there is a lot of ground to cover in this judgment.
In form this is an appeal by RBS from the third of Burton J's judgments ("the May 2012 judgment") and the order of Burton J dated 25 May 2012 whereby he refused to grant RBS final anti-suit injunctions to prevent the present respondents from continuing with proceedings against RBS and two of its employees in Texas, USA, in breach of a jurisdiction clause. The first to third respondents cross-appeal Burton J's dismissal in the same judgment of their claim to set aside Burton J's first judgment in the series ("the Liability judgment") which Burton J had made in favour of RBS against the first to third respondents in January 2010, following an application by RBS for summary judgment on liability only.
The parties: Between 2006 to 2008 the "investment bank" part of RBS was heavily involved in funding projects concerning financial derivatives such as Collateralised Debt Obligations or "CDOs". The Highland Capital Management Group of companies, with which the first to fourth respondents are associated, engaged then and now in investment management and the provision of investment advisory services. The group (which I will refer to collectively as "Highland") is based in the USA. The First Respondent ("HFP") is a limited partnership registered in Delaware. The Second Respondent ("HCC") is a corporation registered in the Cayman Islands. The Third Respondent ("CDO Fund") is a Bermuda exempted limited partnership. Each of these three respondents has its head office in Dallas, Texas. The Fourth Respondent (called in the documentation "the Servicer" or "the Interim Servicer") is an English registered company. It has taken no active part in the English proceedings. The Fifth Respondent ("Scott Law") is a Texan entity. It is the assignee of claims that the First, Third and Fourth Respondents say that they have against RBS.
The CDO and the contractual documentation: In 2006 the Highland group of companies planned to launch a CDO, called "Highlander V", with an "anticipated aggregate issuance size" of €500 million. As is usual with a CDO, this was to be issued by a Special Purpose Vehicle ("SPV") which was named as Highlander Euro CDO V BV which, as usual, was called "The Issuer". The plan was that the Issuer would acquire an investment portfolio, which would be managed by the Interim Servicer. This portfolio would consist principally of European Senior Secured Loans. These are called "the Acquired Loans" in the contracts concerning the transaction and I will use that term in this judgment. RBS was engaged as "Advisor" to the CDO transaction and it would finance the purchase of the Acquired Loans. The Acquired Loans were to be maintained in a portfolio "warehouse facility" (called "the Warehouse Facility") by an entity known as the "Warehouse Provider". These loans would provide the security for the Notes (and other securities) that were to be issued by the Issuer pursuant to the CDO. The Notes would be marketed and offered by RBS. The Notes and other securities were to be issued on a "Closing Date". The sale of the Notes and other securities issued would, eventually, provide the funds to reimburse RBS for its finance used to purchase the Acquired Loans.
All these arrangements were set out in a series of documents. The first was a Mandate Letter, dated 18 December 2006, between the fourth respondent and RBS. In the letter they are called respectively "the Servicer" and the "Advisor". Clause 6 of the Mandate Letter stipulated specific circumstances in which it would terminate, but it also provided that either party could terminate RBS' engagement under it at any time upon written notice to the other party without any continuing liability except as provided for in that clause. I have set out the full terms of Clause 6(a) and (b) in Appendix One to this judgment. The Mandate Letter is stated to be governed by English law.
Further agreements were concluded on 5 April 2007. The first was a €400 million Variable Funding Note Purchase Agreement ("VFNPA") between the Issuer and RBS, by which RBS advanced funds to the Issuer, to be repaid by the proceeds of the sale of the Notes and other securities. Secondly, there was an Interim Servicing Deed ("ISD") between the Issuer, RBS, the Interim Servicer, HCC and CDO Fund. The ISD set out various definitions of terms, the most important of which for present purposes are the "Termination Date" and the "Final Realisation Date". Those definitions are reproduced in Appendix One. Broadly, the Termination Date is the earliest of a number of possible dates on which the project would come to an end, one of which is the termination of the Mandate Letter. I explain the term "Final Realisation Date" further below.
Clause 3.1 of the ISD provided that the Interim Servicer, on behalf of the Issuer, would select and acquire the Acquired Loans for the Loan Portfolio to be held in the Warehouse Facility. Under the same clause RBS agreed to make an Advance to fund these acquisitions. The Acquired Loans were to be transferred to the Issuer (clause 3.6) and could be the subject of security. That security was given, in fact, by clause 3 of a Debenture dated 5 April 2007 between the Issuer and RBS ("the Debenture"). By that clause of the Debenture the Issuer assigned (by way of security) all its rights in the Acquired Loans to RBS. Effectively, therefore, in relation to the Acquired Loans, RBS was in the position of being a mortgagee.
Clause 4.2 of the ISD is fundamental to this litigation. It provided that if, by the time of the Termination Date, the Closing Date (ie. the issue of the Notes etc) had not occurred, then the Acquired Loans had to be sold in accordance with the terms of that clause, in particular in accordance with the terms of clause 4.2(a). I have set out the full terms of both Clause 4.2 and 5.6 of the ISD in Appendix One. In broad terms Clause 4.2(a) stipulates that if there has been no Closing Date prior to the Termination Date then the Interim Servicer has the first right to purchase all the Acquired Loans from the Issuer. If the Interim Servicer does not purchase some or all of the Acquired Loans within 3 days of the Termination Date, then RBS has the option to direct the Issuer to sell one or more of the Acquired Loans that remain in the portfolio in the Warehouse Facility in accordance with sub-paragraphs (i), (ii) and (iii) of clause 4.2(a) and also as RBS "shall determine in a commercially reasonable manner". That manner can include a sale of any of the Acquired Loans to RBS itself or to the Interim Servicer "at a price equal to the sum of the market values for such Acquired Loans".
The "Final Realisation Date" is defined in the ISD as the date by which all amounts realisable in respect of the Acquired Loans have been paid into an identified account. Under clause 5.6 of the ISD, if the Closing Date has not occurred prior to the Termination Date, then on the Final Realisation Date all amounts standing to the credit of each of various Accounts will be applied to pay all amounts due and payable according to the terms of the VFNPA. This would include amounts due to RBS as the financier of the Acquired Loans.
Also under clause 5.6 of the ISD, in the event that all amounts due and payable under the VFNPA (including interest) are not paid in full on the Final Realisation Date, then HCC and the CDO Fund will, upon the demand of RBS (as Variable Funding Noteholder), pay to RBS their share of what is due to RBS under the VFNPA. However, the obligations of HCC and the CDO Fund to RBS under this clause were also subject to the provisions of Schedule 7 of the ISD. The only provision of Schedule 7 possibly relevant to the cross-appeal is clause 2(h) and I have also set out that clause in Appendix One. (On my...
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