Wani LLP v The Royal Bank of Scotland Plc and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 29 April 2015 |
| Neutral Citation | [2015] EWHC 1181 (Ch) |
| Docket Number | Case No: HC-2013-000423 |
| Court | Chancery Division |
| Date | 29 April 2015 |
[2015] EWHC 1181 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Mr Justice Henderson
Case No: HC-2013-000423
Matthew Hardwick QC (instructed by Cooke Young & Keidan LLP) for the Claimant
John Taylor QC and James Cutress (instructed by Matthew Arnold & Baldwin LLP) for the Defendants
Hearing date: 16 April 2015
Introduction
On 16 April 2015 I heard two applications by the claimant, Wani LLP, brought pursuant to an application notice issued a week earlier on 9 April. By the first application, the claimant asks for permission to make extensive amendments to its particulars of claim; by the second, the claimant asks for permission to adduce two short supplemental witness statements (to which a third was subsequently added, but without amendment of the application notice: no technical objection is taken on that point). The second application is opposed only in so far as the new evidence which the claimant wishes to adduce relates to the proposed amendments which form the subject matter of the first application. The primary focus of the hearing was therefore on the application to amend.
The application to amend is on any view made at a late stage. The trial of the action, with a time estimate of 5 days, is scheduled to begin in a window opening on 2 June 2015, which is about eight weeks from the date of issue of the application notice, and about seven weeks from the date of the hearing. It is therefore common ground that the application must be determined in accordance with the principles relating to late amendments laid down in cases such as Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ 14, [2011] 1 WLR 2735 (" Swain-Mason"). Indeed, there was no discernible difference between the parties about the principles which have to be applied. As so often, the dispute is about the application of those principles to the facts, including in particular the prejudice which would be caused to the defendants (which are in the same corporate group, and which I will collectively call "the Bank") if permission to amend were granted so near to the trial date.
I should add that, prior to the hearing, neither side had submitted that it would be necessary to adjourn the trial if permission to amend were granted. I briefly floated that possibility in the course of oral argument, because I was told that the Court of Appeal is due to hear an appeal in July 2015 in a case which (according to the claimant) underpins many of the proposed amendments, and in which the Bank is also the defendant, namely Crestsign Ltd v National Westminster Bank Plc and The Royal Bank of Scotland Plc [2014] EWHC 3043 (Ch) (" Crestsign"). In the event, however, it soon became clear that I had too little information about the precise issues in Crestsign on which permission to appeal had been granted, and their relationship to the issues in the present case, to come to a firm conclusion on the question whether, if permission to amend were granted, it would also be desirable to adjourn the trial until after the Court of Appeal had given its judgment in Crestsign. I am satisfied that, if any such application were to be made, the appropriate occasion for it would be the forthcoming pre-trial review.
The competing arguments were skilfully and economically presented to me by Mr Matthew Hardwick QC for the claimant, and Mr John Taylor QC (leading Mr James Cutress) for the Bank. The hearing nevertheless lasted for nearly a full day, well in excess of its sadly unrealistic two hour time estimate.
Background
A company called Wanis Limited is an English company which specialises in the distribution and wholesale of international food and drink, with a particular emphasis on products originating from the Caribbean region. It is a family run business. The managing director (or, according to the proposed amendments, the business development director) of Wanis Limited is Mr Kapil Wadhwani ("Mr Wadhwani"), who is one of the three children of the founder of the business, the late Mr Tulsidas Wadhwani, and his wife (now widow) Mrs Uma Wadhwani ("Mrs Wadhwani").
In about 2004 Wanis Limited was informed by the London Development Authority ("the LDA") that its premises at Old Golden House in Hackney were to be acquired by way of compulsory purchase order because of the 2012 London Olympic Games. The company therefore needed new premises from which to operate.
On 9 October 2006 Mr Wadhwani and two other shareholders of Wanis Limited incorporated the claimant, Wani LLP, as a special purpose vehicle for the purpose of purchasing from the LDA a new property, to be called New Golden House, at Unit 1, Leyton Business Park, London E10, which it would then lease to Wanis Limited. Following negotiations, the claimant entered into a loan agreement with the Bank on 4 July 2007 ("the Loan Agreement") for the purchase of the new property. The amount of the loan was £10.5 million, with a term of 10 years at the expiry of which the loan was to be repaid in full. Interest was payable at a floating rate of 0.85% per annum over the Bank's base rate from time to time.
It was an express condition of the Loan Agreement that the Bank would not be obliged to make the loan available to the claimant until the claimant "ha[d] entered into an interest rate hedging instrument acceptable to the Bank at a level, for a period and for a notional amount acceptable to the Bank" ("the Hedging Condition"). Pursuant to the Hedging Condition, on 31 July 2007 the claimant entered into an amortising base rate swap with the Bank ("the Swap"). The terms of the Swap were set out in a Confirmation under an ISDA Master Agreement sent to the claimant by the Bank, following a telephone conversation on that date ("the Trade Call") between Mr Wadhwani and Mr Dave Ramasawmy of the Bank. Under the Swap, the interest rate payable by the claimant was a fixed rate of 6.21% per annum, while the rate payable by the Bank was the weighted average of the base rate for each relevant calculation period. The notional principal amount was the full £10.5 million, subject to amortisation. The effective date was 31 July 2007, and the termination date was 31 July 2012, i.e. half way through the term of the Loan Agreement.
The effect of the Swap, therefore, was to protect the claimant from the risk that, over the next five years, the floating rate of interest payable under the Loan Agreement would be higher than 6.21%. In that event, the claimant would still be contractually liable to pay the interest due under the Loan Agreement, but the Bank would be obliged to refund a sum equivalent to the excess of the interest actually payable over the notional fixed interest due under the Swap. On the other hand, if interest rates fell, the claimant would be liable to pay to the Bank the difference between the interest contractually due under the Loan Agreement and the fixed interest notionally due under the Swap. It is of the essence of a fixed rate of interest that it provides protection against subsequent rises in the relevant market rate of interest, but no protection against subsequent falls in that rate.
A fuller description of an interest rate swap of the present type may be found in the judgment of Tomlinson LJ, with whom Richards and Hallett LJJ agreed, in Green v Royal Bank of Scotland Plc [2013] EWCA Civ 1197, [2014] Bus LR 168, at [11] to [12]. The swap in that case was executed in May 2005, with the same basic purpose of protecting the claimants against the risk of a rise in base rate during the term of the relevant loan. The claimants were experienced businessmen who carried on business in partnership buying and developing commercial property: see [7]. Echoing the judge below, Tomlinson LJ described the hedging transaction as "very straightforward": see [7] and [11].
It is worth quoting what Tomlinson LJ said at the end of [11] and [12]:
"11. … It is of the essence of a fixed rate loan that a borrower is protected against increases in base rate but does not get the benefit of a decrease in base rate. Both the bank and the claimants thought at the time that it was a reasonable view that interest rates would come down in the short term and thereafter rise. Neither foresaw the market convulsions of 2008."
12. In fact base rate remained fairly flat until about June 2006 when it started to rise significantly. Between then and October 2008 the claimants did well out of the swap. They were, as it is said, "in the money". But after October 2008, as interest rates fell to an all time low of 0.5% by 5 March 2009, they fared correspondingly badly. But it is necessary to bear in mind that "doing well" and "doing badly" in this context merely reflects the answer to the question whether the market movements, from whose effect the claimants were, so far as concerns the loan, now insulated, had been up or down. Through thick and thin the swap achieved its purpose of, in effect, fixing the interest rate payable under the loan."
In the present case, it is clear with the benefit of hindsight that the effect of the Swap on the claimant was little short of catastrophic. The Swap had only been in place for little over a year before interest rates began their rapid downward descent to 0.5% in March 2009, and base rate has remained at that level ever since. So for most of the period of the Swap the claimant had, in effect, to pay interest at 6.21%, when the floating rate payable under the Loan Agreement would have been less than 1.5%. According to the claimant, the amount which it was eventually obliged to, and did, pay to the Bank under the Swap was no less than £2,287,430.29.
The claim as originally pleaded,...
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