David Wolfson QC and Nehali Shah, instructed by Boies, Schiller & Flexner LLP, secured a judgment for £168m in favour of holders of long-dated Class A1 notes issued as part of a mortgage-backed securitisation over the Canary Wharf estate.
The claim followed a disposal by the Canary Wharf group of a property within the Canary Wharf portfolio (10 Upper Bank Street) for £795m, which gave rise to a redemption of part of the principal amount of the Class A1 notes (which provide for a 6.455% interest rate and mature in October 2033).
The issue in dispute was whether, as a matter of the proper interpretation of the conditions applicable to the Class A1 notes and the related inter-company loan agreement, the Issuer could (as it contended) redeem the notes at par or whether (as the Class A1 noteholders contended) the issuer was required to pay the Class A1 noteholders a make-whole amount known as a ‘Spens payment’ in order to compensate them for their lost yield as a result of early redemption.
Following the trial, Phillips J found in favour of the noteholders, holding that the relevant contractual provisions required the Issuer to pay the Spens payment to the Class A1 Noteholders, both as a matter of their language, and as a matter of commercial common sense. In particular, Phillips J concluded that it would make a nonsense of the structure of the securitisation and would undermine the value and benefit of the long-dated notes if the Issuer could redeem at par at any time, for example if movements in interest rates made borrowing cheaper than under the notes.
In light of the Court’s conclusions, it did not need to consider (and left open) an issue as to whether statements in the Offering Circulars were admissible as an aid to the interpretation of the conditions governing the notes.
You can view the full judgment here.