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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> CBRE Loan Servicing Ltd v Gemini (Eclipse 2006-3) Plc [2015] EWHC 2769 (Ch) (07 October 2015) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2015/2769.html Cite as: [2015] EWHC 2769 (Ch) |
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CHANCERY DIVISION
Royal Courts of Justice Fetter Lane, London EC4A 1NL |
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B e f o r e :
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CBRE LOAN SERVICING LIMITED |
Claimant |
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- and - |
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GEMINI (ECLIPSE 2006-3) PLC |
Defendants |
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Richard Lissack QC and Farhaz Khan (instructed by Taylor Wessing LLP) for the 9th Defendant
Richard Sheldon QC and Sue Prevezer QC (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the 10th Defendant
Hearing dates: 22 and 23 April 2015
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Crown Copyright ©
Mr Justice Henderson:
Introduction
The Issue
"(j) The Master Servicer will on or before each Calculation Date identify funds paid under the Credit Agreement [i.e. the agreement governing the Loan] and any Related Security, as principal, interest and other amounts on the relevant ledger in accordance with the respective interests of the Issuer and the Seller (if any) in the Loan.
(k) The Master Servicer will advise the Cash Manager of the determinations made pursuant to Clause 13.1(j) on or before each Calculation Date and the Cash Manager will allocate funds accordingly. Any such amounts to be paid to the Issuer will be paid to the Transaction Account and credited by the Cash Manager to the relevant ledger."
The Proceedings
"The court may order that the identity of any party … must not be disclosed if it considers non-disclosure necessary in order to protect the interests of that party …"
Further background
Class A Notes: £615 million;
Class B Notes: £30 million;
Class C Notes: £110 million;
Class D Notes: £88 million; and
Class E Notes: £75,862,000.
(a) Available Issuer Income must be applied under the Pre-Acceleration Revenue Priority of Payments; and
(b) Available Issuer Principal must be applied under the Pre-Acceleration Principal Priority of Payments.
"(a) All monies … (other than Prepayment Fees, Break Costs and principal (save to the extent that such principal represents any amount to be paid to the Special Servicer as a Liquidation Fee)) to be paid to the Issuer under or in respect of the Credit Agreement less the amount of any expected shortfall in such amount as notified by the Master Servicer or the Special Servicer, as the case may be, to the Cash Manager;
(b) … "
It can be seen, therefore, that the definition of Available Issuer Income excludes "principal", subject only to an exception for Liquidation Fees paid to the Special Servicer.
"Available Issuer Principal means, in respect of any Calculation Date, the Available Pro Rata Principal, the Available Sequential Principal and any Available Voluntary Prepayment Amounts as at that Calculation Date."
"(iii) Available Pro Rata Principal means the Available Allocated Loan Amount Component received in respect of the Loan during the Collection Period then ended;
(iv) Available Sequential Principal means, in respect of any Calculation Date, the aggregate of amounts of:
(A) any Available Release Premium;
(B) any Available Prepayment Redemption Funds;
(C) any Available Final Redemption Funds;
(D) any Available Principal Recovery Funds, and
in each case received in respect of the Loan during the Collection Period then ended;
…
(x) Principal Recovery Funds means the aggregate amount of principal payments received or recovered by or on behalf of the Issuer following the acceleration of the Loan or as a result of actions taken in accordance with the enforcement procedures in respect of the Loan and/or its Related Security … and Available Principal Recovery Funds means, in respect of any Calculation Date, the Principal Recovery Funds received or recovered by or on behalf of the Issuer during the Collection Period then ended as adjusted for:
(i) any amount of Basis Swap Breakage Receipts receivable by the Issuer under the relevant Basis Swap Transaction to the extent utilised in the calculation of Adjusted Loan Principal Loss in respect of that the [sic] Loan; less
(ii) any amount to be transferred to Available Issuer Income on the Interest Payment Date immediately following such Calculation Date for the purpose of paying Liquidation Fees, if any, payable on that Interest Payment Date in respect of the Loan;"
"The inclusion of suitably-rated liquidity support was a requirement of the agencies rating the Notes issued by the Issuer, as the liquidity support helps to ensure the timely payment of coupon to the holders of rated Notes notwithstanding any temporary cash flow issues arising from the underlying asset or assets, and this timely payment is a condition of a high rating."
This evidence also confirms that it was not the function of the liquidity facility to provide credit support, or to cover capital losses or capital repayments of the Notes.
The arguments of the class A Noteholders
"Payments of principal and interest in respect of the class B Notes, the class C Notes, the class D Notes and the class E Notes will be subordinated to payments of principal and interest in respect of the class A Notes …"
The priority afforded to the class A Notes is reflected in their higher ratings by the rating agencies, and in the lower rate of interest payable on them.
"The structure contemplated that Rental Income (and the protections put in place to meet any shortfall) was to be the source of interest repayments on the Notes, and the capital value of the Properties was to be the source of repayments of principal on the Notes, whether by disposals of the Properties or, at the Maturity Date of the Loan, by a refinancing of the Loan secured against the Properties."
"Prior to the service of an Acceleration Notice or the Notes otherwise becoming due and repayable in full, the Notes then outstanding shall be subject to mandatory redemption in part on each Interest Payment Date if on the Calculation Date relating thereto there is Available Issuer Principal in an amount of not less than £1."
The definition of "Available Issuer Principal" included the "Available Pro Rata Principal", which in turn included amounts allocated to a particular property in the event of a disposal as prescribed in Schedule 1 of the Credit Agreement.
"If the Special Servicer is appointed in respect of the Loan, on each Interest Payment Date the Issuer shall pay to the Special Servicer:
…
(b) a liquidation fee (the "Liquidation Fee") equal to an amount of one per cent. (exclusive of VAT) of the aggregate of (i) the proceeds (net of all costs and expenses (including any swap breakage costs) incurred as a result of the default of the loan, enforcement and sale) together with (ii) any swap breakage gains, if any, arising on the sale of a Property or Properties while the Loan was a Specially Serviced Loan;
…"
"If the Facility Agent receives a payment insufficient to discharge all the amounts then due and payable by the Guarantors [i.e. the borrowers] under the Finance Documents, the Facility Agent must apply that payment towards the obligations of the Obligors under the Finance Documents in the order set out in the Intercreditor Agreement."
Following acceleration of the Loan, the full amount outstanding in relation to the Loan is now due from the borrowers under clause 17.5 of the Credit Agreement.
The arguments of the Junior Noteholders
"Where there is no appropriation by either debtor or creditor in the case of a debt bearing interest, the law will (unless a contrary intention appears) apply the payment to discharge any interest due before applying it to the earliest items of principal."
The class A Noteholders do not dispute the existence of this general principle, which is well-established. It is therefore unnecessary for me to examine the cases which establish it, none of which were cited to me.
Discussion and conclusions
"21.The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.
…
23. Where the parties have used unambiguous language, the court must apply it …"
"In complex documents of the kind in issue there are bound to be ambiguities, infelicities and inconsistencies. An over-literal interpretation of one provision without regard to the whole may distort or frustrate the commercial purpose. This is one of those too frequent cases where a document has been subjected to the type of textual analysis more appropriate to the interpretation of tax legislation which has been the subject of detailed scrutiny at all committee stages than to an instrument securing commercial obligations …"
He added, at [37]:
"The instrument must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument and from the nature of the debtor's business. Detailed semantic analysis must give way to business common sense: The Antaios [1985] AC 191, 201."
"It is generally unhelpful to look for an "ambiguity", if by that is meant an expression capable of more than one meaning simply as a matter of language. True linguistic ambiguities are comparatively rare. The real issue is whether the meaning of the language is open to question. There are many reasons why it may be open to question, which are not limited to cases of ambiguity."
"The Master Servicer will on or before each Calculation Date identify funds paid under the Credit Agreement and any Related Security, as principal, interest and other amounts on the relevant ledger in accordance with the respective interests of the Issuer and the Seller (if any) in the Loan."