Torre Asset Funding Ltd and another v Royal Bank of Scotland Plc [Ch D]
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Sales,Mr Justice Sales |
| Judgment Date | 03 September 2013 |
| Neutral Citation | [2013] EWHC 2670 (Ch) |
| Docket Number | Case No: HC11C04086 |
| Court | Chancery Division |
| Date | 03 September 2013 |
[2013] EWHC 2670 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Sales
Case No: HC11C04086
Mr Francis Tregear QC, Ms Erin Hitchens (instructed by Field Fisher Waterhouse LLP) for the Claimants
Mr Adrian Beltrami QC, Mr Jeremy GoldringQC (instructed by Norton Rose) for the Defendant
Hearing dates: 6/6/13-9/7/13
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This claim arises out of structured lending to a property company, Dunedin Property Industrial Fund (Holdings) Limited ("Dunedin") and associated entities, which encountered difficulties resulting in it going into default in 2008 and entering administrative receivership in September 2008. The lending was called in and the security realised at a level well below the amount of the lending outstanding, with the result that lenders at several tiers in the finance structure did not recover their loans.
The claim is brought by the Claimants ("Torre" and "Torre II", respectively), who participated in the finance structure at the Junior Mezzanine (or "B1") level. The Claimants were amongst those who did not recover their loans. The claim is brought against the Defendant ("RBS"). Amongst other roles it had in the finance structure, RBS was the Agent at the Junior Mezzanine lending level. RBS had initially created the finance structure and also retained a number of other roles within that structure, as lender, equity participant, Security Trustee and so on.
The finance structure involved a number of inter-related agreements, including in particular a loan facility agreement applicable to each tier of loans in the finance structure and an Inter-Creditor Deed dated 5 October 2006 ("the Inter-Creditor Deed") which governed the relationship between the lenders at the different tiers in the structure. The Claimants rely on duties they say were owed by RBS as the Agent at the B1 lending tier under the relevant loan facility agreement for that tier (the Junior Mezzanine Facility Agreement dated 5 October 2006: "the JMFA") and on duties they say were owed by RBS as both Agent and as a lender to Dunedin under the Inter-Creditor Deed.
The claim is advanced by the Claimants in relation to three distinct matters:
i) The Claimants maintain that events occurred in July 2007 of which the relevant team at RBS, the Property Ventures Team ("the PV Team"), were aware which constituted an Event of Default for the purposes of the relevant agreements between the Claimants and RBS. The PV Team had a dual role, acting both as Agent for the B1 lenders and also acting on behalf of RBS as Lender at the Junior Subordinated Mezzanine (or "B2") level and as equity participants under loan notes at the bottom of the finance structure. The Claimants contend that RBS, acting by the PV Team, was under a duty under one or other or both of the JMFA and the Inter-Creditor Deed to tell the Claimants, acting by their fund manager, Cambridge Place Investment Management Group ("CPIM"), about those events. The Claimants say that if they had been told, they would have sought to divest themselves of their loans to Dunedin and would have sold their participation in the B1 lending tier into the general market at that stage, and/or would have sought some form of restructuring of the financing for the Industrious transaction, and thus would not have suffered the eventual loss of the value of their loans. I refer to this part of the claim as "the Event of Default claim". RBS denies that events in July 2007 constituted an Event of Default; that (even if they did) there was any duty on it as Agent or as Lender to tell the Claimants about it; and also that (even if there was such a duty) the Claimants suffered any loss in fact, or loss recoverable in law, as a result of the failure to communicate that information to them;
ii) The Claimants maintain that further events occurred in October 2007, involving the provision by Dunedin to the PV Team on 4 October 2007 of a Business Plan ("the Business Plan") and the provision by Dunedin to the PV Team on 16 October 2007 of a related cash-flow spreadsheet to be read with the Business Plan ("the October cashflow"), which triggered an obligation under the JMFA on RBS as Agent for the B1 lenders, acting by the PV Team, to provide those materials to the Claimants, acting by CPIM. Following a similar pattern to the Event of Default claim, the Claimants say that if they had been provided with these materials they would again have been concerned by the prospects for Dunedin's business and would have sold their participation in the B1 lending tier into the general market at that stage, and/or would have sought some form of restructuring of the financing for the Industrious transaction, and thus would not have suffered the eventual loss of the value of their loans. I refer to this part of the claim as "the Business Plan claim". RBS denies that there was any obligation on it as Agent to pass the Business Plan and the October cashflow to the Claimants and that (even if there was such an obligation) the Claimants suffered any loss in fact, or loss recoverable in law, as a result of the failure to provide those documents to them; and
iii) The Claimants maintain that in early January 2008 Roderick Elliott ("Mr Elliott") of the PV Team made negligent mis-statements to CPIM for the Claimants regarding the reason why the PV Team was at that stage seeking the consent of the Claimants to the rolling up of interest due to be paid on the B2 loan held by RBS (acting by the PV Team), so that it should not be paid during the currency of the loan but only at maturity of the loan in 2011. It was common ground that the PV Team sought that consent acting in its capacity as Lender (at the B2 and loan note levels) rather than as Agent for the B1 lenders. The Claimants contend that Mr Elliott negligently gave CPIM the false impression that Dunedin wished to roll up the interest due in respect of the B2 loan ("the B2 interest") so as to make extra cash available for capital expenditure on Dunedin's property portfolio to improve its quality, whereas in fact the rolling up of the B2 interest was a commercial necessity in order to avoid a situation in which Dunedin would have insufficient cash to be able to meet its interest obligations by about mid-2008. Again following a similar pattern to the Event of Default claim, the Claimants say that if Mr Elliott had accurately described the reason why the PV Team was asking the Claimants to agree to the rolling up of the B2 interest they would have been concerned by the prospects for Dunedin's business and would have sold their participation in the B1 lending tier into the general market at that stage, and/or would have sought some form of restructuring of the financing for the Industrious transaction, and thus would not have suffered the eventual loss of the value of their loans. I refer to this part of the claim as "the negligent mis-statement claim". RBS denies that there was any mis-statement or negligence on the part of Mr Elliott and that (even if there was a negligent mis-statement) the Claimants suffered any loss in fact, or loss recoverable in law, as a result of it.
The finance structure
RBS had had a profitable banking relationship with Dunedin dating back to 1996, which grew over the years. Dunedin had a proven track record as effective investors in and managers of property portfolios. RBS had provided lending and equity participation, and had helped secure third party senior lending from other banks, in a series of joint venture property investment transactions with Dunedin up to 2006.
In June 2006 Dunedin acquired a portfolio of multi-let industrial properties from Brixton plc, known as the "Industrious" portfolio. Dunedin decided to amalgamate this portfolio with two other portfolios of industrial properties it had acquired in October 2005 and December 2005, using RBS funding, so as to create a large unified portfolio using the "Industrious" brand name. In the latter part of 2006, Dunedin and RBS sought to re-finance the unified Industrious portfolio using a complex and highly leveraged finance structure.
The size of the loan for the Industrious re-financing transaction was much larger than in Dunedin's previous transactions with RBS. The total finance required was about £630 million.
The idea was to obtain low-cost funding using securitisation and the sale of securitised mortgage backed notes (commercial mortgage backed securities — "CMBS") into the capital markets, known as Super Senior lending in the finance structure eventually put in place, in addition to Senior lending provided by RBS, mezzanine lending at three levels (A loans and B1 loans, also for sale into the market, and a B2 subordinated mezzanine loan provided by RBS), and equity participation by both Dunedin (in the form of shares) and RBS (in the form of loan notes with equity characteristics). Initially, RBS itself lent the whole sum required, but with a view to then selling the CMBS notes and the A and B1 tiers of the mezzanine lending in the market. The CMBS notes were to be issued by a special purpose vehicle set up for that, Epic (Industrious) plc ("Epic").
The seniority of lending within the structure reflected different risk and reward profiles at the different levels along a spectrum from the Super Senior level (where the CMBS noteholders had first call on — and hence the highest level of protection afforded by — the security offered by Dunedin over the properties...
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