The Bank of New York Mellon (London Branch) v Truvo N.v (a company incorporated under the laws of Belgium) (First Defendant) Deutsche Bank AG (London Branch) (Second Defendant) Millar Investments S.À R.L. (Third Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Eder |
| Judgment Date | 05 February 2013 |
| Neutral Citation | [2013] EWHC 136 (Comm) |
| Docket Number | Case No: 2012 FOLIO 1117 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 February 2013 |
[2013] EWHC 136 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Eder
Case No: 2012 FOLIO 1117
and
and
Ben Valentin (instructed by Ashurst LLP) for the Claimant
Laura John and Konrad Rodgers (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the First Defendant
John Higham QC and Amanda Cowell (instructed by White & Case LLP) for the Second Defendant
Richard Snowden QC and Ben Griffiths (instructed by Bingham McCutchen (London) LLP) for the Third Defendant
Hearing dates: 28 January 2013
Introduction
These proceedings concern the proper construction of a Senior Facilities Agreement ("SFA") and an Intercreditor Agreement ("ICA") both dated 30 November 2010. Each of the parties to these proceedings is a party to the SFA and the ICA. In broad terms, the SFA governed the relationship between the First Defendant ("Truvo") (as original borrower) and the syndicate of lenders, while the ICA governed the relationship of lenders as between themselves. The Claimant, the Bank of New York Mellon (the "Agent"), is the agent and security agent under the SFA and the ICA. The Second Defendant, Deutsche Bank AG (London Branch) ("DB"), is one of the "senior lenders" under the SFA and the ICA and the holder of what has been referred to as "Senior Debt" (or "First Lien Debt") and Second Lien Debt of Truvo. In these proceedings, DB acts as a representative party, representing the interests of those lenders who, like DB, presently hold more Second Lien Debt of Truvo than Senior Debt. The Third Defendant, Millar Investments S.á.r.l. ("Millar"), is also one of the "senior lenders" under the SFA and the ICA and the holder of Senior Debt and Second Lien Debt of Truvo. It too acts as a representative party in these proceedings, representing the interests of those lenders who, like Millar, presently hold more Senior Debt than Second Lien Debt.
Fundamentally, this dispute is about what level of consent was required from the lenders under the SFA to amend the terms of the SFA so as to change, as between Senior Lenders and Second Lien Lenders, the application of mandatory prepayments payable by Truvo under the SFA. In broad summary, it is Millar's case that consent was required only from lenders holding at least two-thirds of the total Senior Debt and Second Lien Debt (defined as "Majority Lenders"). In contrast, DB's case is that such amendment could not be made without the consent of all (i.e. 100%) of the lenders including the Second Lien Lenders.
The proceedings were commenced by a Part 8 Claim Form issued by the Agent on 21 August 2012 seeking various declarations with regard in particular to the proper scope of Clause 27 of the ICA and Clause 40 of the SFA, the validity of the purported amendment of Clause 11.3 of the SFA (as referred to below) and the entitlement of the parties to certain monies that have been paid into an escrow account pending the outcome of these proceedings.
By a Consent Order dated 22 October 2012, permission was given for the claim to be continued pursuant to CPR 19.6(1) against DB and Millar. Both the Agent and Truvo have adopted a neutral position. So, the battle has, in effect, been undertaken between DB (represented by Mr John Higham QC) and Millar (represented by Mr Richard Snowden QC) in their representative capacities. All parties have served evidence in the form of witness statements including, in particular, statements from Mr Verle (on behalf of DB) and Ms Harrison (on behalf of Millar). However, given that the principal issue is limited to the proper construction of the SFA and ICA, much of this evidence is, in my view, inadmissible or irrelevant; as were certain parts of the skeleton arguments in particular that were submitted on behalf of DB which relied on such evidence. It is unfortunate that the scope of what evidence was admissible was not properly clarified prior to the commencement of the present hearing. Be that as it may, after discussion with Counsel, it became apparent (thankfully) that there was a large measure of agreement and I set out below a summary of what I believe is common ground with regard to the relevant factual background and the circumstances which have given rise to the present dispute.
Nevertheless, there remained some controversy. In particular, Mr Higham QC made plain that in relation to the main issues of construction, he wished to rely on certain passages in some of the witness statements which, he submitted, were admissible and relevant to show what he described as the "commercial purpose" of the SFA and ICA in particular: (i) paragraphs 15 and 16 of the first statement of Ms Harrison; (ii) paragraphs 40–44 of the first statement of Mr Verle (which related to a phone discussion that he i.e. Mr Verle had with a Mr Iain Gunn on 20 July 2010); and (iii) paragraph 4 of the second statement of Mr Verle. As to (i), Mr Snowden QC had no objection. As to (ii), Mr Snowden QC confirmed that there was no dispute as to the facts stated in these paragraphs by Mr Verle but submitted that such evidence was inadmissible and irrelevant, a submission which I accept on well-established principles. In any event, I do not consider that such evidence, even if admissible, would assist with regard to the present task. As to (iii), reference having been made to the level at which the various debts were traded in March 2011 (i.e. some 4 months or so after the date of the SFA and ICA), the main thrust of this paragraph is contained in the last sentence which states: "The Second Lien Debt would not have traded at such levels had it been the general understanding that the Second Lien Debt's priority in respect of mandatory prepayments could be removed at the whim of the Priority Lenders for the time being." Mr Snowden QC submitted that this evidence was again inadmissible and irrelevant. In my view, that submission is correct. At best, it is evidence of opinion in the nature of expert evidence in respect of which the leave of the Court would be required but has been neither sought nor granted. In any event, it is my view that, as formulated, such evidence, even if admissible, would have no probative value and therefore not assist in the present task given in particular the impossibility of testing the basis of the alleged absence of such "general understanding". Further, as submitted by Mr Snowden QC, it does not appear that it is right to suggest, even on Millar's case, that mandatory prepayments could be removed "at the whim" of the Priority Lenders given, in particular, the terms of Clause 40 of the SFA as referred to below which required the consent of Truvo to any amendment. I revert to certain aspects of these matters later in this Judgment.
Factual Background
Truvo and its corporate group are engaged in the business of directories, including the publication of printed classified directories and alphabetic directories. As a result principally of competition from online search engines, the directories industry has faced very significant challenges in the last decade. Truvo experienced significant financial difficulties in that period. Following negotiations with creditors, on 1 July 2010 certain companies within the Truvo group filed voluntary petitions under Chapter 11 of Title 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.
There then followed detailed financial negotiations between interested parties with a view to establishing a restructuring plan so as to enable the Truvo group to exit the Chapter 11 proceedings and to continue its business operations. The details of such negotiations are not directly relevant save to note that it is common ground that at the time the restructuring plan was being developed, it was anticipated that the Truvo group would receive a potential tax rebate of approximately US$100 million from the US Internal Revenue Service as a result of the restructuring.
In the event, a restructuring plan was agreed. It was filed on 1 July 2010 and subsequently amended on 22 October 2010, following which the Truvo group exited the Chapter 11 proceedings on 30 November 2010 and the SFA and the ICA were executed.
In essence, the restructure involved Truvo acquiring the operating business and 100% of the interests of Truvo USA (Inc) ("Truvo USA") and issuing new debt with a nominal value of €450 million in return for, inter alia, the release of approximately €775 million of senior bank debt owed by subsidiaries of Truvo USA (the "Former Debt"). The terms on which the €450 million new debt was issued are set out in the SFA. In summary, the new debt comprised (i) a Facility A1 debt and a Facility A2 debt, together "the First Lien Debt", in aggregate amounting to €350 million and repayable in full on 31 May 2015 and (ii) a Facility B1 debt and Facility B2 debt, together "the Second Lien Debt", in aggregate amounting to €100 million and repayable in full 6 months later i.e. on 30 November 2015. The holders of the Former Debt were allocated pro rata proportions of the First Lien Debt and the Second Lien Debt. The interest rate on the First Lien Debt was Euribor plus a margin of between 3 and 4 percent per annum whereas the interest rate on the Second Lien Debt was a cash element of Euribor plus 2 per cent per annum and a PIK margin, compounding at 6 monthly intervals, of 4 percent per annum which was added to the principal amount of the Second Lien Debt.
The SFA
At the outset, it is to be noted that Clause 1.2 of the SFA provides that Section,...
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