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Cite as: [2016] EWHC 969 (Ch)

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Neutral Citation Number: [2016] EWHC 969 (Ch)

Case No: HC-2015-004153, HC-2015-004154,
HC-2015-004155 and
HC-2015-004156

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 28/04/2016

Before :

THE CHANCELLOR OF THE HIGH COURT

- - - - - - - - - - - - - - - - - - - - -

BETWEEN:

CREDIT SUISSE ASSET MANAGEMENT, LLC

Claimant

-and-

1) TITAN EUROPE 2006-1 PLC

2) U.S. BANK TRUSTEES LIMITED

3) ELAVON FINANCIAL SERVICES LIMITED

4) ATTESTOR VALUE MASTER FUND LP

Defendants

AND BETWEEN:

CREDIT SUISSE ASSET MANAGEMENT, LLC

Claimant

-and-

1) TITAN EUROPE 2006-2 PLC

2) U.S. BANK TRUSTEES LIMITED

3) ELAVON FINANCIAL SERVICES LIMITED

Defendants

AND BETWEEN:

CREDIT SUISSE ASSET MANAGEMENT, LLC

Claimant

-and-

1) CORNERSTONE TITAN 2007-1 PLC

2) U.S. BANK TRUSTEES LIMITED

3) ELAVON FINANCIAL SERVICES LIMITED

Defendants

AND BETWEEN:

CREDIT SUISSE ASSET MANAGEMENT, LLC

Claimant

-and-

1) TITAN EUROPE 2007-2 PLC

2) U.S. BANK TRUSTEES LIMITED

3) ELAVON FINANCIAL SERVICES LIMITED

Defendants

Benjamin Strong QC (instructed by Sidley Austin LLP) for the Claimant

Stephen Robins (instructed by Reed Smith ) for the First Defendant

David Head QC (instructed by K&L Gates LLP) for the Second Defendant

Robert Miles QC and Mr Andrew de Mestre (instructed by Allen & Overy LLP) for the Third Defendant

Sue Prevezer QC and Alex Barden (instructed by Quinn Emanuel Urquhart & Sullivan (UK) LLP ) for the Fourth Defendant

Hearing dates: 11th - 13th April 2016

- - - - - - - - - - - - - - - - - - - - -

Judgment

The Chancellor of the High Court :

1. This is my judgment in four sets of proceedings, each of which concerns the proper interpretation of notes in a securitisation structure ("the Notes"). Each of the four structures ("Titan 2006-1", "Titan 2006-2", "Titan 2007-1" and "Titan 2007-2") involves the securitisation of loans secured on commercial properties ("the Loans"). The documents constituting the four transactions are materially the same. Each set of proceedings raises the same issues of interpretation, all of which relate to payments due on the Class X Notes of the series.

2. For convenience, and by way of illustration, the parties made submissions by reference only to Titan 2006-1. Save where I have otherwise stated, the figures and provisions mentioned below relate to that structure.

3. The proceedings are against a background of extensive default on the Loans, with some €20 million in default interest having accrued since 2011, of which only €3,000 has been paid.

The parties

4. The claimant in the four sets of proceedings is Credit Suisse Asset Management LLC ("CSAM"), which is the investment manager of a fund which holds the Class X Notes in the structure and represents the interests of the investors in that fund.

5. The first defendant in each action ("Titan" or "the Issuer") is the issuer of the relevant Note series. The second defendant, U.S. Bank Trustees Limited ("the Trustee") is the Note trustee. The third defendant, Elavon Financial Services ("Elavon" or "the Agent Bank"), is the agent bank whose responsibilities include calculating the interest due to Noteholders. The fourth defendant, Attestor Value Master Fund LP ("Attestor"), owns some of the Class B Notes in Titan 2006-1.

The structure

6. Titan is a special purpose vehicle, which was incorporated for the sole purpose of securitising the Loans made by Credit Suisse International ("the Originator"). Titan has two issued shares of one Euro each, which are held by the two shareholders as trustees of a charitable trust.

7. All the Loans provide for the payment of interest at a fixed rate, except for one on which interest is due at Euribor plus 1.7%. Interest, and instalments of principal if applicable, are payable on the 18 ^th day of January, April, July and October. The Loans have maturity dates ranging from 18 July 2010 to 18 October 2012. The Loan contracts and the related credit agreements in Titan 2006-1 are governed by German and English law (and in Titan 2006-2, Titan 2007-1 and Titan 2007-2 are governed by English, Belgium, Dutch, French, Swiss, and Finnish law, and some are not in English). They do not have identical terms.

8. The Originator assigned the Loans to Titan.

9. The Notes were constituted by a trust deed ("the Trust Deed"), which sets out the terms and conditions ("the Conditions") of the various classes of Notes.

10. The total principal amount of the Notes at the start of the transaction was €723,303,029. All but €100,000 related to the Class A to H Notes. The remaining €100,000 is split equally between the Class X Notes and the Class V Notes. The maturity date of all of the Notes was 25 January 2016.

11. The Conditions provide that interest is payable on the Notes quarterly in arrears on 23rd day of January, April, July and October in each year.

12. Until default in the payment of principal due on them, the Class A-H Notes are entitled to interest at a margin over three month Euribor, ranging from 0.19% for the Class A Notes to 3.75% for the Class H Notes. In the event of such a default, the Trust Deed provides for the rate of interest to be that on "judgment debts", if higher.

13. The Class A-H Notes were assigned S&P/Moody's ratings on a descending scale, ranging from AAA/Aaa for the Class A Notes to B/NR for the Class H Notes. Those ratings were published in the Offering Circular.

14. The proceeds of issue of the Class A-H Notes funded the acquisition of the Loans from the Originator. The principal balance of the Loans was the same as the principal amount of the Class A-H Notes. The outstanding principal of the Class A-H Notes reduces as the principal of the Loans is repaid or becomes irrecoverable. Titan hedged its position by entering into swap agreements in respect of each of the fixed rate Loans so that it would receive from the swap counterparty a Euribor-based rate in respect of each such Loan.

15. The Class X Notes and the Class V Notes are different in nature from the Class A-H Notes. It is not necessary to say anything further about the Class V Notes.

16. The Class X Notes were intended to provide what has been described by some of the parties (other than CSAM) as a "fee" for the Originator and lead manager rather than a return on the capital value of the Notes. The initial principal amount of the Class X Notes was a nominal amount of €50,000. That was paid into a segregated account ("the Class X Account"), the sole purpose of which is to hold the subscription money for the Class X Notes until those Notes are redeemed. The Class X principal is secured by a first charge on the Class X Account. The Class X Notes bear interest at "the Class X Interest Rate" as defined in Condition 5(c) of the Notes. That definition is set out in the Annex to this judgment. Between April 2006 and January 2016 the Class X Interest Rate ranged from 9,024 per cent to 114,508 per cent.

17. Schedule 6 of the cash management agreement sets out the priority order (or "waterfall") for payments out of the Collection Account, which, among other things, holds interest earned on the Loans and any principal received on the Loans in the quarter. First in the order is payment "pro rata, [of] all interest due or overdue and payable on the Class A and Class X Notes together with interest thereon". The broad effect of that and the other waterfall provisions is that payment of interest on the Class A Notes and the Class X Notes ranks equally and in priority to all other payments of interest and principal to Noteholders; Class A principal ranks behind Class X interest and before Class B interest, which ranks before Class B principal and so on in descending order of priority from Class B to Class H. At the very end of the priority order is provision for any surplus to be paid to the Issuer and, if the directors of the Issuer so resolve and may lawfully do so, payment of dividends to the Issuer's shareholders.

18. The waterfall provisions do not contain any reference to Class X principal because that is paid from the Class X Account and not the Collection Account (and similarly the Class V principal out of the Class V Account).

The issues

19. There are four issues of interpretation of the documents comprised in the Note structure which call for determination in these proceedings ("the Issues"). They are as follows:

(1) When calculating the Class X Interest Rate in accordance with the Conditions, is it necessary to take account of any additional interest due under the Loans following a default?

(2) At what rate is interest to be paid on unpaid interest on the Class X Notes?

(3) In circumstances where any of the Notes (excluding any Class X Notes) are outstanding following their Maturity Date and/or a Note Enforcement Notice has been served, are the Class X Notes to be immediately redeemed by the Issuer with the funds held in the Class X Accounts, or should the Class X Notes instead remain outstanding until all of the other Notes have been redeemed?

(4) In the event that the Class X Notes are not immediately redeemed following their Maturity Date and/or a Note Enforcement Notice has been served and instead remain outstanding, how is the rate of interest that accrues in respect of the Class X Notes to be calculated?

The position of the parties in relation to the Issues

20. At the hearing of the proceedings, each of the parties took the following stance.

21. The Trustee took a neutral position on all the Issues.

22. On Issue 1 CSAM submitted that the answer is affirmative, and Titan, Elavon (which has always calculated Class X interest without taking into account default interest due under the Loans) and Attestor (which has, in effect, argued the case for all the Class B-H Noteholders, the Class A notes having been redeemed) submitted that the answer is negative. On Issue 2 CSAM contended that interest is payable on unpaid interest at 8 per cent pursuant to the Trust Deed (being the judgment debt rate), Titan submitted that no interest is payable on interest which has been unpaid because of a miscalculation by the Agent Bank, and Attestor (having accepted that Condition 7(g) does not apply) submitted that interest is payable at 8 percent on judgment being obtained for the arrears. On Issue 3 CSAM submitted that the answer is that the Class X Notes remain outstanding, and Attestor argued that the answer is that they should be redeemed immediately. On Issue 4 CSAM argued that the Class X Interest Rate is to be calculated on the basis that the Class A-H Notes continue to bear interest at the rates specified in Condition 5(c), and Attestor submitted that the Class X Interest Rate is to be calculated on the basis that those Classes of Notes bear an 8 per cent rate of interest pursuant to clause 2.2(b) of the Trust Deed.

Principles of interpretation

23. The parties in their skeleton arguments and in their oral submissions relied upon the usual cohort of authorities: Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook Limited v Persimmon Homes Limited [2009] 1 AC 1101, Rainy Sky SA v Kookmin Bank [2012] UKSC 50, Re Sigma Finance Corporation [2009] UKSC 2, and Arnold v Britton [2015] UKSC 36. [2015] AC 1619. Each of those cases can be, and usually is, cited in argument for its use of slightly different language or emphasis, depending upon the particular facts and the argument the party wishes to emphasise.

24. Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) most recently summarised the correct approach to contractual interpretation as follows in Arnold v Britton at [15]:

"When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focusing on the meaning of the relevant words, ... in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. .."

25. I was particularly pressed by some of the parties to take note of the approach of the Supreme Court in Re Sigma Finance Corporation since that was a case, like the present, which concerned the interpretation of documents relating to a securitisation structure. In that case Lord Mance said the following:

"12 In my opinion, the conclusion reached below attaches too much weight to what the courts perceived as the natural meaning of the words of the third sentence of cl.7.6, and too little weight to the context in which that sentence appears and to the scheme of the security trust deed as a whole. Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving "checking each of the rival meanings against other provisions of the document and investigating its commercial consequences" ... Like him, I also think that caution is appropriate about the weight capable of being placed on the consideration that this was a long and carefully drafted document, containing sentences or phrases which it can, with hindsight, be seen could have been made clearer, had the meaning now sought to be attached to them been specifically in mind ... . Even the most skilled drafters sometimes fail to see the wood for the trees, and the present document on any view contains certain infelicities, as those in the majority below acknowledged ... Of much greater importance in my view, in the ascertainment of the meaning that the deed would convey to a reasonable person with the relevant background knowledge, is an understanding of its overall scheme and a reading of its individual sentences and phrases which places them in the context of that overall scheme. Ultimately, that is where I differ from the conclusion reached by the courts below. In my opinion, their conclusion elevates a subsidiary provision for the interim discharge of debts "so far as possible" to a level of pre-dominance which it was not designed to have in a context where, if given that pre-dominance, it conflicts with the basic scheme of the deed.

26. Lord Collins said as follows in that case:

"35 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 ...

36 Sigma financed its investments over a 13-year period by debt securities issued or guaranteed by it. It entered into liquidity facilities intended to hedge against market liquidity risks. It entered into financial instruments intended to hedge against currency and interest rate risk. Others provided liquidity facilities, or entered into financial hedging instruments. The security trust deed secures a variety of creditors, who hold different instruments, issued at different times, and in different circumstances.

37 Consequently this is not the type of case where the background or matrix of fact is or ought to be relevant, except in the most generalised way. I do not consider, therefore, that there is much assistance to be derived from the principles of interpretation re-stated by Lord Hoffmann in the familiar passage in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 , 912-913. Where a security document secures a number of creditors who have advanced funds over a long period it would be quite wrong to take account of circumstances which are not known to all of them. In this type of case it is the wording of the instrument which is paramount. 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..."

Discussion and conclusions

Issue 1: When calculating the Class X Interest Rate in accordance with the Conditions, is it necessary to take account of any additional interest due under the Loans following a default?

27. In my judgment no account should be taken of additional interest following a default under the Loans.

28. This issue turns on the meaning of the words "the related per annum interest rate due on such Loan" in the definition of the "Net Mortgage Rate" in Condition 5(c).

29. Mr Benjamin Strong QC, for CSAM, argued forcefully and eloquently that (1) the natural and ordinary meaning of the words "interest rate" includes an additional rate payable under the Loans following default in the payment of any sum at any time under the terms of the Loans; (2) that meaning is most graphically illustrated by the situation once the principal of a loan is due but unpaid, at which point the annual rate of interest on the entire outstanding principal is undoubtedly the default rate (and so, on Elavon's logic, would fall to be wholly disregarded); and (3) the parties to the structure could have made it perfectly clear that "interest rate due on such Loan" does not include an additional default rate by incorporating in the definition of the Class X Interest Rate the expression "Loan Interest Rate", which is defined in the Master Definitions Schedule as meaning "the per annum rate at which interest accrues on a Loan without giving effect to its Default Rate", but they did not do so.

30. I do not disagree with those propositions. It is plainly correct to say, as Mr Strong submitted, that default interest is "interest". It is also possible, as CSAM emphasises, to calculate a "per annum interest rate" taking into account default interest on unpaid periodic interest or capital repayments.

31. I consider, however, that several matters could reasonably lead the informed reader to understand that, giving the words their natural and ordinary meaning, "per annum interest rate" was not intended to include default interest. They are that (1) each of the Loans bears a stated annual rate of interest in the loan contract, (2) that is the rate of interest stated in the Offering Circular, which makes no reference at all to default rates or default provisions of the Loans, (3) prospective investors had no means of obtaining the Loan documentation, (4) by contrast, another definition relevant to the calculation of the Class X Interest Rate, namely "the Administrative Cost Rate", expressly refers to a "variable per annum rate" and sets out a specific formula as to how to convert periodic sums into an annual rate, (5) taking into account default interest would undoubtedly add considerably to the complexity of the calculation of the Class X Interest Rate, and (6) the "Net Mortgage Rate" is employed as part of a formula for reaching a "per annum" Class X Interest Rate, the other ingredients of which, including the "Net WAC Rate" and the "Class X Net Weighted Average Strip", all rest on an uncomplicated calculation related to outstanding principal and stated rates of interest.

32. I turn, then, to consider, which interpretation is most likely to carry the commercial outcome intended by the parties in the light of the admissible background facts, the overall scheme of the Notes, and the particular provisions contained in them and in the documents forming part of the same structure.

33. CSAM's central point on commerciality is that Titan is an "orphaned" special purpose vehicle intended to exist solely for the benefit of the Noteholders (consistent with the description given by Mr Justice Popplewell of an issuer in a structured note offering in Europa Plus SCA SIF v Anthracite Investments (Ireland) plc [2016] EWHC 437 (Comm) at [5]), and it was therefore never intended to be left with proceeds from the structure which would have to be applied for charity: only CSAM's interpretation would prevent the possibility of such an outcome in the event of default on the Loans which was subsequently made good together with the payment of default interest. This is because, on CSAM's interpretation, the Class X Notes are, in effect, entitled to any excess over the amount of interest due to the Class A-H Notes.

34. This is a plainly a very powerful argument. I accept that an interpretation of "Net Mortgage Rate" which excludes default interest allows for the possibility of an excess going to Titan's shareholders and so to charity. I consider, however, that such a possibility and CSAM's interpretation are outweighed by a range of contrary indications.

35. First, the effect of including default interest in the calculation of the "Net Mortgage Rate" is that the worse the Loans perform the higher proportion of the Loan income is payable to the Class X Noteholder. That is counter-intuitive bearing in mind that the Class X Notes represent the financial reward to the Originator of the structured note offering, which was intended to attract investors on the basis that the Loans were sound and shown to be such by favourable Moody's ratings for the Notes. The point is not undermined by the fact that the Class X Notes are tradeable and have in fact been traded and transferred by the Originator. The point is also given added weight by the fact that, in contrast to the subscribers for the Class A-H Notes, the Originator paid the relatively insignificant sum of €50,000 for the Class X Notes, none of which was at the risk of non-performance of the Loans: that sum was placed in a separate account, €45,000 was re-payable (and was duly paid) on the first payment date and the Class X Interest Rate was based on the interest rates payable under the Loans rather than what was actually paid under them.

36. Secondly, that point is underscored by the absence of any indication in the Offering Circular that the Class X Notes would perform in that way in the event of default. As I have already observed, the Circular contains no reference at all to default rates or default provisions of the Loans. Nor did investors or potential investors have any right to see the Loan documentation.

37. Thirdly, the fact that the Class X Interest Rate focuses on the margin between the interests rates payable under the Loans, on the one hand, and the interest rates payable on the Class A-H Notes, on the other hand, rather than on what is actually paid pursuant to the Loans, most naturally reflects an assumption (for the purposes of the formula) that the Loans will perform according to their terms.

38. Fourthly, consistently with that assumption, there is no direct evidence that it was envisaged that there would ever be such defaults in the Loans as would generate an excess over the specified margin between the basic annual interest rates payable on the Loans and the rates payable on the Notes.

39. Fifthly, linked to that is the hypothetical nature of CSAM's suggestion of any significant sum, on the argument of the defendants (other than the neutral Trustee), going to charity via the Issuers' shareholders. No doubt all parties to the structure, including investors, anticipated that there might be some default. That risk is reflected in the rates of interest payable on the lower classes of Notes and their Moody's ratings. It is common ground, however, that the extent of the failure of the Loans which has actually occurred was outside the range of expectations of all those involved in the creation, marketing and investing in the Notes structure, let alone the possibility that such an extensive failure might be remedied in full, including the payment of default interest.

40. Sixthly, whereas certain periodic expenses are taken into account in the calculation of the Class X Interest Rate, additional expenses referable solely to the additional costs of recovery of default payments (such as the "Special Servicing Fee", the "Workout Fee", the "Liquidation fee" and other non-recurring fees) are not because they do not fall within the definition of "Administrative Fees" in Condition 5(c). It would, on the face of it, be an extraordinary commercial intention for the Originator to take the benefit of additional payments referable to defaults under the Loans (resulting in the Class X Noteholder receiving a greater proportion of the Loan receipts relative to the Class A-H Noteholders) without bearing any of the cost of securing the making good of such defaults, including the payment of default interest, when (unlike the Class A-H Noteholders) the Class X Noteholder has taken no risk at all in the non-performance of the Loans.

41. Seventhly, the calculation of the "per annum" Class X Interest Rate at any particular Payment Date, if the default rate under a Loan has to be taken into account in respect of defaults under the Loans from time to time, would be a complex one. Moreover, as I have said, the Loans and the related credit agreements are governed by different laws and have different terms, including different terms as to whether default interest or some other form of compensation is payable for non-payment, whether default interest is simple or compound interest and whether default interest is payable on demand or without any demand. It is questionable whether the parties would have intended such complexity to be introduced into the calculation, not least when there was a brief period of only a few days between the "Due Dates" on which interest was payable on the Loans (and for which it had to be calculated) and the "Payment Dates" for payments of interest on the Notes.

42. The fact that, if the Loans were not repaid on their respective final capital repayment dates, there would be a single composite annual interest rate, which would include a default rate, does not meet the complexity issue in relation to earlier periods of default. As I have said above, the assumption was, consistent with the evidence, that no significant default on the Loans was anticipated at the date each Note Class was issued.

43. Eighthly, as Mr Strong accepted, there is inevitably a link between CSAM's case on Issue 1 and its case on Issue 3. If CSAM is correct on its interpretation of the Class X Interest Rate, then, as Mr Strong argued, that provides an irresistible logical and business justification for its contention that even after the Maturity Date for the Class X Notes they must remain outstanding until all the other Notes have been redeemed. That scenario is, however, one which is extraordinary and highly unlikely to have been intended. It would mean that, even though (1) the Originator never risked any capital for the purchase and subsequent non-performance of the Loans, (2) its outlay was limited to a mere €50,000, (3) that sum was placed in a separate account reserved for its repayment, (4) €45,000 was repaid on the first Payment Date, and (5) the remaining €5,000 is available for redemption of the Class X Notes, nevertheless the Class X Notes would remain in existence for an indefinite period creaming off payments from the borrowers to meet the Class X Noteholders' entitlement at the top of the waterfall, an entitlement which is proportionately higher than it would have been if there had been no default under the Loans.

44. In effect, the Class X Notes would remain in existence indefinitely with first claim on payments of arrears of interest from the borrowers, at a higher proportionate rate due to default interest under the Loans, and without bearing any of the additional cost consequences of recovering default payments and default interest, to the prejudice of Class A-H Noteholders who paid huge sums of money for their Notes and who alone bear the risk of default under the Loans. It is highly unlikely that the original parties to the structure ever intended such a remarkable situation.

45. Other arguments have been advanced in opposition to CSAM's case on Issue 1 but they are not as compelling as those I have mentioned above and I do not propose to set them out. I am satisfied that, taken together, the eight matters I have mentioned lead clearly to the conclusion that CSAM is incorrect in its interpretation of the definition of the Class X Interest Rate and that the parties to the structure never intended that, in calculating the Class X Interest Rate, account should be taken of any additional interest due under the Loans following a default. The fact that the position could have been made explicit by using another defined expression, "the Loan Interest Rate", in the definition of the Class X Interest Rate does not carry any particular weight. It is always the case in disputes over the interpretation of contractual documents that the drafter could have made the position clearer. The simple fact is that the expression "Loan Interest Rate" is not used in the Terms and Conditions of the Notes and so is not something which the drafters might have been expected to use in the definition of the Class X Interest Rate in Condition 5(c). In all the circumstances the bespoke definition of the Class X Interest Rate is clear enough without having to work out a formula which incorporates "Loan Interest Rate".

Issue 2: At what rate is interest to be paid on unpaid interest on the Class X Notes?

46. This issue does not arise in view of my decision on Issue 1.

47. Despite the obvious temptation to weigh the arguments and express a view on Issue 2, which has been well and fully argued, I shall not do so. It may be said that it would be helpful to the Court of Appeal for me to do so if an appeal were successful on Issue 1. It may also be said that it would be helpful to the financial markets to know what my decision would have been. In his very recent decision in Hayfin Opal Luxco 3 SARL v Windermere VII CMBS plc [2016] EWHC 782 (Ch) ("the Windermere case") Snowden J, no doubt motivated by such considerations, decided to express his obiter views on points concerning a similarly structured note issue to the one in the present case but where the wording of the note conditions and the other contractual provisions are not identical to those in the present case. The consequence has been that many of the parties before me have referred to those obiter comments and sought to rely on them or to distinguish them. Indeed, Mr Stephen Robins, who is counsel for Titan in the present case and had been junior counsel for the issuer in the Windermere case, said that Snowden J in expressing some of those obiter views had misunderstood one of the arguments made to him.

48. I will not follow Snowden J's example because I am concerned that my obiter views, like those of Snowden J, might be deployed in an argument in future cases where, almost inevitably, the wording of the relevant instruments and the surrounding matrix of fact will not be identical. If that happened, it would be likely to create more rather than fewer difficulties for a judge in such a case.

Issue 3: In circumstances where any of the Notes (excluding any Class X Notes) are outstanding following their Maturity Date and/or a Note Enforcement Notice has been served, are the Class X Notes to be immediately redeemed by the Issuer with the funds held in the Class X Accounts, or should the Class X Notes instead remain outstanding until all of the other Notes have been redeemed?

49. In the light of my decision on Issue 1, the inevitable answer to this issue is that the Class X Notes must be immediately redeemed.

50. Condition 6(a) provides:

"Unless previously redeemed in full and cancelled as provided in this Condition 6, the Issuer shall redeem the Notes at their Principal Amount Outstanding together with accrued interest at the Maturity Date, which is the Payment Date falling in January 2016"

51. That provision is mandatory in its terms. In the case of the Class X Notes compliance is possible because the outstanding principal of €5,000 has at all relevant times been held in a separate account charged with its repayment.

52. That mandatory requirement is also reflected in clause 10.5 of the Cash Management Agreement, which provides that "on any such date [when the principal of €50,000 is due] the Cash Manager shall procure the payment of such amounts on behalf of the Issuer".

53. CSAM's commercial justification for its argument that the Class X Notes should remain outstanding until all of the other Notes have been redeemed is that, in accordance with CSAM's argument on Issue 1, if the Loans are repaid in accordance with their terms, there has to be a Class X Noteholder to receive the difference between the amount due on the Loans and the interest payable on such of the Class A-H Notes as are outstanding at any time. It contends that, if the Class X Notes were redeemed before the Class A-H Notes, a substantial excess could be accumulated by the Issuer, which would remain until the securitisation reached the end of its life, when it would be paid to charity, and that was not the intention of the structure.

54. For the reasons I have already given, however, including particularly the matters in paragraphs 42 and 43 above, that argument is based on a false assumption that CSAM is correct on Issue 1. In view of my decision on Issue 1, there is no discernible business justification at all for not redeeming the Class X Notes at their Maturity Date.

55. Mr Strong relied upon the following words in Condition 6(b):

"Upon payment in full of the Principal Amounts Outstanding of all the Notes (other than the Class X notes and the Class V Notes) by redemption pursuant to any provision under this Condition 6 ( Redemption and Cancellation) or in the event that the aggregate outstanding principal balance of the Loans has been reduced to zero, any amount that is held in a separate account of the Issuer as security for the Class X Notes only, shall be paid in full as a payment of principal to the holders of the Class X Notes."

56. Reading those words in the context of the opening paragraph of Condition 6(b) and in the light of Condition 6 as a whole, it is clear that they are directed to the period before the Maturity Date of the Class X Notes.

57. CSAM also relies upon the subordination provisions in Condition 16 of the Notes, and particularly the following words at the end of that Condition:

"Subject to Condition 6(h) (Mandatory Redemption in part of the Class X Notes and Class V Notes), while any [Class A-H Notes] are outstanding, the Class X Noteholders and the Class V Noteholders shall not be entitled to any repayment of principal in respect of the Class X Notes and the Class V Notes, respectively."

58. That passage is, on its literal terms, directed only at the entitlement of the Class X Noteholders to demand repayment. It does not detract from the obligation of the Issuer to redeem the Class X Notes on their Maturity Date pursuant to the express provisions of Condition 6(a).

59. Mr Strong also relied upon clauses 2.2(b) and 9 of the Trust Deed. He submitted that both of them provided for interest to accrue and be calculated on the Class X Notes after the principal was due and payable. I do not consider that the fact that they provided for interest on non-payment of principal throws any light at all on the question of whether or not there was an obligation to redeem the Class X Notes on their Maturity Date.

60. Ms Prevezer referred me to various passages in the Offering Circular and a pre-sales report by Moody's but it is unnecessary for me to address them.

61. For the sake of completeness, I would add that, by virtue of clause 7.5 of the Deed of Charge and Assignment, on service of a Note Enforcement Notice there is as much a mandatory requirement to repay the principal of the Class X Notes as on their Maturity Date.

Issue 4: In the event that the Class X Notes are not immediately redeemed following their Maturity Date and/or a Note Enforcement Notice has been served and instead remain outstanding, how is the rate of interest that accrues in respect of the Class X Notes to be calculated?

62. The argument on this issue, and this section of my judgment, proceed on the hypothesis, which is the reality at the present time, that the Class X Interest Rate is more than 8 per cent per annum.

63. The Maturity Dates of the Class A to H Notes in Titan 2006-1 and Titan 2006-2 have passed but the respective amounts of their principal have not been repaid. Clause 2.2(b) of the Trust Deed provides that:

"in the event that any payment of principal is not made [...] on or before the due date of that class of Notes or on or after accelerated maturity following a Note Event of Default, interest shall continue to accrue (both before and after any judgment or other order of a court of competent jurisdiction) on the Principal Amount Outstanding of the Notes of such class at the rates aforesaid (or, if higher, the rate of interest on judgment debts for the time being provided by law) ..."

64. It is common ground that the reference to "the rates aforesaid" is a reference to Condition 5. Mr. Strong agrees with Ms Prevezer that the reference to "the rate of interest on judgment debts" is a reference to the rate of interest on judgment debts in Court proceedings in England and Wales, namely 8 per cent per annum. Mr Robins, for Titan, said that it depends on the applicable law in the place where proceedings for payment of outstanding principal are undertaken. In circumstances where the present proceedings are in this jurisdiction, the Class B Noteholders assert that the "rate of interest on judgment debts" is 8 per cent applicable in this jurisdiction, CSAM for the X Class Noteholders agrees, no other Class of Noteholders disagrees and neither the Issuer nor the Note Trustee has expressed any disagreement, I hold that "the rate of interest on judgment debts" specified in clause 2.2(b) of the Trust Deed is 8 per cent per annum for the purpose of determining Issue 4.

65. The rates of interest specified in Condition 5 for the Class A to H Notes are lower than 8 per cent. Accordingly, following the Maturity Date for each of the Class A-H Notes, if principal is unpaid, the rate of interest on the relevant class of Notes increases to 8 per cent.

66. CSAM contends that, nevertheless, the "Rates of Interest of the Notes", for the purpose of calculating the Class X Interest Rate, and specifically the Class X Net Weighted Average Strip Rate component, are those specified in Condition 5(c) and not the actual rate of 8 per cent. That contention rests on the fact that the expressions "Rate of Interest" and "Rates of Interest" in Condition 5(c) are defined, and Condition 5(c) expressly provides that "The Rate of Interest applicable to the Notes of each class (other than the Class X Notes and the Class V Notes) for any Interest Accrual Period will be equal to EURIBOR (as determined in accordance with this Condition 5(c)) plus the Relevant Margin".

67. This is an impossible argument. It introduces an artificiality and unreality into the calculation of the Class X Interest Rate for no possible reason. No reason was advanced by Mr Strong as to why the parties would have agreed to such an interpretation and application of the Class X Interest Rate. Indeed, such an argument is entirely inconsistent with CSAM's argument on Issue 1, namely that the Class X Notes are, in effect, entitled to any excess over the amount of interest due to the Class A-H Notes, which, he also submitted, was made perfectly clear in the Offering Circular. CSAM's skeleton argument itself states (at para. 21) that the "Class X Notes are a senior mechanism creating a right to an income stream equal to the difference between the amount of interest due to the Issuer in respect of the Loans (after taking into account the swap arrangements) and the amount of interest due to the Class A-H Noteholders)". A similar statement is contained in paragraph 48(c) of CSAM's skeleton argument and another was made at the outset of Mr Strong's oral submissions (transcript day 1 pages 3-4) and in his oral submissions in reply with reference to the terms of the Offering Circular (transcript day 3 page 386).

68. What is undoubtedly clear is there is no explanation anywhere in the Offering Circular that the Class X Interest Rate calculation would be made, following the Maturity Dates of the Class A to H Notes, in the way for which CSAM now contends. Critically, the Notes provide that the terms and conditions of the Notes are subject to the detailed provisions of, among other things, the Trust Deed. Reading clause 2.2 of the Trust Deed and Condition 5 together leads inevitably to the conclusion that, for the purpose of calculating the Class X Interest Rate after the Maturity Dates of the Class A to H Notes, the unpaid principal of those Notes are to be treated as bearing interest at 8 per cent.

Annex

"The ' Class X Interest Rate' for any Payment Date is a per annum rate expressed as a percentage calculated as follows: (a) the product of (i) the aggregate outstanding principal balance of the Loans as at the beginning of the related Interest Accrual Period expiring immediately before such Payment Date and (ii) the Class X Net Weighted Average Strip Rate, divided by (b) the Principal Amount Outstanding on the Class X Notes immediately before such Payment Date. ^"

"The ' Class X Net Weighted Average Strip Rate' with respect to any Payment Date will be a per annum rate equal to the excess, if any of (x) the Net WAC Rate for the related Interest Accrual Period over (y) the weighted average of the Rates of Interest of the Notes (other than the Class X Notes and the Class V Notes) (weighted on the basis of the respective Principal Amount Outstanding of such Classes immediately prior to such Payment Date).

"The ' Net Mortgage Rate' for any Loan, with respect to any Payment Date is equal to (a) the related per annum interest rate due on such Loan (which, with respect to each Loan, is the interest rate after giving effect to the related Interest Rate Swap Transaction) less (b) the Administrative Cost Rate."

"The ' Net WAC Rate' with respect to any Payment Date is equal to the weighted average of the Net Mortgage Rates for the Loans weighted on the basis of their respective principal balances as at the preceding Payment Date (after deducting any losses realised on the Loans during the Collection Period immediately preceding such Payment Date upon a Final Recoverability Determination by the Special Servicer) or in the case of the First Payment Date, the first day of the related Interest Accrual Period."