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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Edgeworth Capital (Luxembourg) SARL & Anor v Ramblas Investments BV [2015] EWHC 150 (Comm) (30 January 2015) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2015/150.html Cite as: [2015] EWHC 150 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building, Fetter Lane. London, EC4A 1NL |
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B e f o r e :
____________________
(1) ![]() (2) AABAR BLOCK S.A.R.L |
Claimants |
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- and - |
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RAMBLAS INVESTMENTS B.V |
Defendant |
____________________
Andrew Stafford QC and Christopher Howitt (instructed by Kobre & Kim (UK) LLP) for the Defendant
Hearing dates: 19 and 20 January 2015
Judgment
____________________
Crown Copyright ©
Mr Justice Hamblen:
Introduction
(1) A Senior Loan Agreement, under which a consortium of banks, including RBS, made a secured loan to Marme of €1,575,000,000 ("the Senior Loan").
(2) A Junior Loan Agreement under which RBS loaned Ramblas €200,000,000 ("the Junior Loan").
(3) A personal loan of €75,000,000 from RBS to Mr Maud and Mr Quinlan ("the Personal Loan").
(1) On the proper construction of the UFA, a default under the Personal Loan triggering the repayment of the Junior Loan cannot be a "Payment Event" requiring Ramblas to pay a Fee under the UFA;
(2) The very large "upside" Fee for which Ramblas is allegedly liable - €105,201,095.89 - far exceeds any damages for which Ramblas could possibly be liable for a breach of the Junior Loan and is unenforceable as a penalty or disguised penalty;
(3) The Claimants are not entitled to the interest claimed by them either as part of their Fee claim or for non-payment of that claim.
The factual background
(1) The UFA needs to be considered as part of a wider transaction involving the Senior Loan, the Junior Loan and the Personal Loan, in a total sum of €2,292,291,004.
(2) RBS provided its outline headline terms by email on 14 July 2008 on the basis of a €325,000,000 contribution to the Senior Loan. RBS were providing the single largest tranche of any of the banks in the syndicate. The terms required by RBS in its offer letters were significantly tougher than those required by any of the other banks and requests by the Defendant to amend these terms were refused.
(3) The discussions in relation to the additional funding from the Junior Loan only opened on or around 21 August 2008 (i.e. three weeks before closing) and increased RBS' exposure to the deal by 50%.
(4) Mr Maud informed Santander that RBS had agreed to provide the Junior Loan and may also provide an "equity bridge" and that "the cost of the provision of this equity bridge is likely to be material"
(5) There were serious concerns as to whether the transaction would proceed and this was a time of increasing concern within the financial markets.
(6) The transaction was finalised at a time when bond markets had dried up and Lehman Brothers was about to collapse, with completion being one business day before that collapse.
(7) There was a 6% fee on the Senior Loan but a margin of only 1% on the Junior Loan. In such circumstances one would reasonably expect RBS to be seeking to extract value elsewhere in the deal.
(8) The Defendant's known intention was a swift exit strategy.
The Agreements
The terms of the UFA
"(A) The Bank has procured the availability of, and arranged and negotiated terms in respect of, the junior loan facility provided for in the Junior Credit Agreement (as defined below) (the Facility).
(B) The Company acknowledges that the benefits derived from the provision of the Facility are real benefits of significant value and are only available to or for the benefit of the Company upon the Company entering the Agreement.
(C) In consideration for the benefits conferred on the Company by the Facility it is appropriate that the Bank should be entitled to the fees set out in this Agreement.
(D) The Company acknowledges that the fees payable under this Agreement together with the terms upon which the Facility have been or will be made available represent a fair return to the Bank for arranging, negotiating and providing the Facility in circumstances in which the Facility has been made available for the benefit of the Company."
"In consideration of the Bank procuring the availability of and arranging and negotiating the terms of the Facility for the Company, the Company agrees that upon each occurrence of a Payment Event it should pay a Fee to the Bank".
"(a) a mandatory or voluntary prepayment for any reason of the Loan or a Cure Loan or the repayment of the Loan or a Cure Loan (including any repayment made following acceleration or from the proceeds of any security realisation) or, if earlier, the date on which any such prepayment or repayment falls to be made pursuant to the Junior Credit Agreement".
"(A) €45,000,000 less Deductibles (subject to proportionate reduction or increase pursuant to paragraphs (c) and (d) below);
(B) an amount which generates an IRR of 20 per cent. to the Bank, calculated from Signing Date to the Payment Event, on the amount of the Loan and any Cure Loan that falls to be (p)repaid at that date; and
(c) (where the Payment Event is triggered by a Transaction) an amount equal to 35 per cent. of the Disposal Proceeds, Equity Proceeds or Refinancing Proceeds (as applicable) less the amount of any interest excluding default interest) paid by the Company to the Bank pursuant to the Junior Loan Agreement."
The terms of the Junior Loan
"19.2 Non-payment
19.3 Breach of other obligations
19.4 Misrepresentation
19.5 Cross-default
19.6 Insolvency
19.7 Insolvency proceedings
19.8 Creditors' process
19.9 Cessation of business
19.10 Effectiveness of Finance Documents
19.11 Compulsory purchase
19.12 Major damage
19.13 Principal Lease
19.14 Managing Agent
19.15 Ownership
19.16 Material adverse change
19.17 Death or insanity"
The Issues
Issue 1 - Construction of the UFA
"Whether, upon the outstanding principal amount of the Junior Loan becoming due and payable pursuant to the Events of Default under the Personal Loan, a Payment Event occurred, as contended by the Claimants, pursuant to clause 1.1 of the UFA and, consequently, the Defendant is liable to pay the Claimants a fee calculated in accordance with clause 2 of the UFA.
The Defendant contends that no fee is payable under the UFA as a matter of construction for the following reasons:
(i) the commercial purpose of the UFA was for RBS to share the upside of any disposal, refinancing or other exit, and repayment of principal under the Junior Loan solely by virtue of a cross-default under the Personal Loan is not sufficient to require the payment of any fees to the Claimants under the UFA; and
(ii) fee is only payable upon actual repayment of the Junior Loan; and/or
(iii) the Claimants are required to give credit for interest when calculating the IRR (as defined in the UFA) under clause 2.1 of the UFA.
Issue 2 - True nature of the UFA
If it is found that a fee was payable based on the Claimants' or any other construction of the UFA, whether the provisions of clause 2.1 of the UFA are equivalent to a penalty or a disguised penalty and therefore unenforceable under English law, as advanced by the Defendant; or
Whether as contended by the Defendant the law on penalties is irrelevant in this instance because the Claimants are paying a pre-agreed sum which is due from the Defendant in return for the performance of the Defendant's obligations and because the law of penalties is not relevant where a clause provides for payment upon the happening of an event other than the breach of a contractual duty owed by the contemplated payor to the contemplated payee".
Issue 1 - the construction of the UFA
The law
"...where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense"
"55...the approach of adopting "the interpretation which is most consistent with business common sense" only applies where the court considers that the words in issue have "more than one potential meaning" - per Lord Clarke at [21]. If the court concludes that the words are only capable of one meaning then that is their meaning regardless of considerations of business common sense.
56...where the words in issue have more than one potential meaning there is no rule of law or construction which requires the court to give effect to the interpretation which is most consistent with business common sense. It is "entitled" to prefer that interpretation (per Lord Clarke at [21]) and it may be "generally appropriate" to do so (per Lord Clarke at [30]), but it is not bound so to do. The more ambiguous the meaning and the stronger the business common sense arguments the more likely it is to be appropriate to do so.
57... it will only be appropriate to give effect to the interpretation which is most consistent with business common sense where that can be ascertained by the court. In many cases that is only likely to be so where it is clear to the court that one interpretation makes more business common sense. If, as frequently happens, there are arguments either way the court is unlikely to be able to conclude with confidence that there is an interpretation which makes more business common sense. It is often difficult for a court of law to make nice judgments as to where business common sense lies."
The UFA
(1) The clear purpose of the UFA was to provide RBS with an "upside" share of any disposal, refinancing or other exit, it being envisioned at the time of the UFA and the Junior Loan that there would be such an exit before the maturation of the Junior Loan.
(2) The Claimants' case that any repayment of the Loan would fall within the definition of a "Payment Event" is difficult to square with various terms of the UFA and in particular the various circumstances in which RBS was entitled to call for premature repayment under the Junior Loan; the fee calculation mechanism by which the fee increases the further the "Payment Event" falls from the "Signing Date", and the fact that fee bears no relation to the cost of lending money.
(3) The Claimants' construction is inconsistent with the terms of the Junior Loan which make clear that there is no basis for RBS to look for remuneration for sums lent under it anywhere other than in the terms of the Junior Loan itself. Put another way, the UFA is money for nothing. The Claimants had already sought and obtained a return for arranging the loan under the JLA; they cannot be entitled to look elsewhere for remuneration additional to that which they had already agreed.
(4) The Claimants' construction of clause 2.1 would produce bizarre results and in particular the payment of an "upside" fee in circumstances where there where there was no "upside" and, indeed, where Ramblas would be least likely to be in a position to pay; the payment of a fee by Ramblas for a default under an agreement to which it was not even a party (the Personal Loan) as demonstrated by the present claim, and fee remuneration calculated by reference to factors unrelated to the potential costs of lending.
(5) Ramblas' construction makes commercial sense in that it is consistent with the notion of an "Upside Fee"; does not require the Court to disregard the express terms of the UFA and Junior Loan, and provides the most consistent explanation of the ascending fee scale, and the "greatest of" formula, which underpins the fee calculation mechanism in clause 2.1.
"an amount which generates an IRR of 20 per cent to the Bank, calculated from the Signing Date to the date of the Payment Event, on the amount of the Loan and any Cure Loan that falls to be (p)repaid at that date".
(1) €200,000,000 @ 20% per annum for one year from 12/09/08 - 11/09/09 = €40,000,000.
(2) €240,000,000 @ 20% per annum for one year from 12/09/09 - 11/09/10 = €48,000,000.
(3) €288,000,000 @ 20% per annum for 109 days from 12/09/10 - 30/12/10 = €17,201,095.89.
Issue 2 - Whether clause 2.1 is unenforceable as a penalty or disguised penalty
The law
"The underlying rationale of the doctrine of penalties is that the court will grant relief against the enforcement of provisions for payment (or the loss of rights or the compulsory transfer of property at nil or an undervalue) in the event of breach, where the amount to be paid or lost is out of all proportion to the loss attributable to the breach. If that is so, the provisions are likely to be regarded as penal because their function is to act as a deterrent."
"....the reason why the appellants' submissions failed in the courts below can be simply stated. The clause was not a penalty clause because it provided for payment of money upon the happening of a specified event other than a breach of a contractual duty owed by the contemplated payor to the contemplated payee."
"The question whether the law as to penalties applies to such clauses has given rise to much dispute. It is said, on the one hand, that only a sum payable on breach can be a penalty; and, on the other, that the whole law as to penalties could be evaded, if it did not apply to these clauses, by simply including, among the events on which the sum was payable, one event which was not a breach. The common law does not fully adopt either of these views. If the agreement is in fact determined on the ground of the hirer's breach, the law as to penalties applies. If the agreement is determined on some ground other than the hirer's breach, e.g. because the hirer exercises his right to return the goods, the law as to penalties does not apply...".
(1) "Though the parties to a contract who use the words 'penalty' or 'liquidated damages' may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages.
(2) The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine preestimate of damage.
(3) The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of at the time of the making of the contract, not as at the time of the breach.
(4) To assist this task of construction various tests have been suggested which, if applicable to the case under consideration, may prove helpful or even conclusive. Such are: (a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach. (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. (c) There is a presumption (but no more) that it is a penalty where 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage…. (d) It is no obstacle to a sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties".
"(i) It is for the party who claims that it is to establish that. It may be possible to do so by reference to the terms of the clause itself in the context in which it was agreed: Robophone at 1447F-G. It may, however, be necessary to adduce evidence as to its effect or any other matter which is said to render it unconscionable;
(ii) The contract must be examined as a whole in the circumstances and context in which it was made;
(iii) The court will not be astute to find that a clause contained in a commercial contract is unenforceable because it is penal, especially if the parties are of equal bargaining power and have had high level legal advice. The court recognises the utility of liquidated damages clauses and that to hold them to be penal is an interference with freedom of contract. It is, therefore, predisposed to uphold clauses which fix the damages for breach: per Jackson J in Alfred McAlpine;
(iv) To that end it will adopt a robust approach. If the likely loss is within a range, an average figure or a figure somewhere within the range is likely to be acceptable. If the loss is difficult to assess a figure which is not outrageous may well be acceptable. A pre-estimate does not have to be right to be reasonable: per Jackson J in Alfred McAlpine. The fact that it may result in overpayment is not fatal and the parties are allowed a generous margin. Further the fact that a breach may give rise to trifling or substantial damage may not be determinative if the parties can be regarded as having regarded the trifling as unlikely;
(v) But the fact that the clause has been agreed between parties of equal bargaining power who have competent advice cannot be determinative. The question whether a clause is penal habitually arises in commercial contracts, which enjoy no immunity from the doctrine."
(1) A clause will be a penalty where it is "extravagant and unconscionable with a predominant function of deterrence".
(2) A clause will not be a penalty if it is a genuine pre-estimate of loss.
(3) Even if it is not a genuine pre-estimate of loss it will not be a penalty where it is commercially justifiable and it can be shown that its predominant function is not deterrence.
"(i) A sum will be penal if it is extravagant in amount in comparison with the maximum conceivable loss from the breach;
(ii) A sum payable on the happening or non happening of a particular event is not to be presumed to be penal simply because the fact that the event does or does not occur is the result of several breaches of varying severity;
(iii) A sum payable in respect of different breaches of the same stipulation is not to be presumed to be penal because the effect of the breach may vary;
(iv) The same applies in respect of breaches of different stipulations if the damage likely to arise from those breaches is the same in kind;
(v) But a presumption may arise if the same sum is applicable to breaches of different stipulations which are different in kind;
(vi) There is no presumption that a clause is penal because the damages for which it provides may, in certain circumstances, be larger than the actual loss; and
(vii) Where there is a range of losses and the sum provided for is totally out of proportion to some of them the clause may be penal."
Clause 2.1
Interest
Conclusion