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Cite as: [2007] EWHC 1428 (Comm)

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		Neutral Citation Number: [2007] EWHC 1428 (Comm)
		Case No: 2007/256

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

19/06/2007

B e f o r e :

THE HONOURABLE MR JUSTICE LANGLEY
Between :
____________________

Between:

	(1) BRITISH ENERGY POWER & ENERGY TRADING LIMITED (2) EGGBOROUGH POWER (HOLDINGS) LIMITED (3) EGGBOROUGH POWER LIMITED	Claimants
	-and-
	(1) CREDIT SUISSE (2) AMPERE LIMITED (3) AMPERE 1 LIMITED	Defendants

____________________

Mr Mark Howard QC and Mr Tom Adam (instructed by Barlow, Lyde and Gilbert) for the Claimants
Mr Christopher Symons QC and Miss Sonia Tolaney (instructed by Linklaters LLP) for Credit Suisse
Lord Anthony Grabiner QC and Mr Tom Smith (instructed by Cadwalader, Wickersham & Taft LLP) for the Second and Third Defendants
Hearing dates: 21, 22 and 23 May 2007
____________________

HTML VERSION OF JUDGMENT
____________________

The Hon. Mr Justice Langley :

INTRODUCTION

This dispute relates to the Eggborough power station in North Yorkshire. The Claimants are companies in the British Energy Group. The Third Claimant ("EPL") owns the business and assets of the power station. The Second Claimant ("EPHL") is the holding company of EPL. I shall refer to the Claimants collectively and the Group as "British Energy".

The power-station is coal-fired. It was acquired by British Energy in March 2000 for £646 million. The acquisition was re-financed in July 2000 by a £550 million loan advanced to EPL by a consortium of Banks on the terms of a credit agreement dated 13 July 2000. The power-station has a strategic value to British Energy as it offers operational advantages (largely more flexible output) in comparison with British Energy's portfolio of nuclear power stations.

British Energy suffered well-publicised financial difficulties in the period 2002-04. They resulted in a general restructuring of its finances which was finally achieved in relation to the power station on 30 September 2004 by the execution of four detailed agreements which, it is not in issue, together formed a single transaction and are to be construed as such. The four agreements (which I will refer to collectively as such) are:

(1) An amended and restated version of the July 2000 credit agreement, to which I will refer as "the Restated Credit Agreement";

(2) A Share Option Agreement;

(3) An Asset Option Agreement; and

(4) An Amended and Restated Intercreditor Deed ("the Intercreditor Deed").

In very general terms, the effect of the restructuring was that the Banks agreed to compromise their claims under the July 2000 credit agreement by writing off about £340 million of principal debt due from EPL and agreeing to a new credit facility of £150 million, and British Energy agreed to grant the Options to purchase the shares in or assets of EPL in accordance with the terms of the two Option Agreements. In nearly all relevant respects the terms of the two Option Agreements are the same and references in this judgment are to the Share Option Agreement save where otherwise stated.

The First Defendant, Credit Suisse, is the successor to the rights and obligations of almost 90% of the interests of the Banks. The Second ("Ampere Ltd") and Third ("Ampere 1") Defendants (together "Ampere") are companies incorporated for the purpose of consolidating various sub-participation rights in relation to the facilities granted by the Banks to EPL. The consolidation proposed, and the proposed obligations of Credit Suisse pursuant to it, lie at the heart of the dispute. The consolidation is masterminded by the investment bank, Greenhill & Co International LLP ("Greenhills") and the law firm Cadwalader, Wickersham & Taft LLP, the solicitors for Ampere. I shall refer to it as "the Ampere transaction".

There are two major issues, albeit I think it became apparent, in the course of the hearing, that resolution of the first of those issues is the real key to resolution of the matters before the court.

The Issues

The first issue is whether Credit Suisse is bound by the terms of the Option Agreements at all. Those Agreements contained restrictions on transfer or other dealing with the option rights. The Option Agreements were entered into by Barclays Bank Plc ("Barclays") "as agent and security trustee" for the Banks, including Credit Suisse. British Energy contends that the effect of the quoted words is that Barclays, as their agent, bound the Banks to the terms of, and in particular the restrictions contained in, the Agreements. Credit Suisse and Ampere contend that the words are no more than descriptive of the role of Barclays and Barclays alone is bound by the restrictions. I shall refer to this as "The Party Issue".

The second issue, which was a particular focus of Lord Grabiner QC's submissions for Ampere, is whether, even if Credit Suisse is a party to the Option Agreements, the Ampere transaction is or would be (if executed) a breach of the restrictions and, in particular, the restriction to be found in Clause 31.2.1 of the Share Option Agreement. I shall refer to this as "The Breach Issue." British Energy submits there is or would be a breach.

Ampere also submitted that if the answers to the first two issues resulted in the restrictions being binding upon Credit Suisse, then that result would be contrary to public policy and so void. I shall refer to this as "The Public Policy Issue."

THE FOUR AGREEMENTS

The Restated Credit Agreement

The Restated Credit Agreement related to the Loan of £150 million agreed as part of the restructuring of British Energy. It was expressed to be made between EPL as "the Borrower"; Barclays Capital as "the Arranger"; "The Financial Institutions listed in Schedule 1 as Banks (the Banks)"; Barclays Bank Plc "as Agent (in this capacity the Agent)"; and Barclays Bank Plc "as Security Trustee (in this capacity the Security Trustee)."

The Definitions clause (clause 1.1) included:

"Asset Option Agreement means the asset option agreement between the Borrower and the Security Trustee … under which the Borrower grants an option to the Security Trustee to acquire the Business and Station Assets (as defined …)."

"Commitment means (a) in relation to a Bank … the amount of its participation in the "Loan"; and (b) … the amount of any other Bank's Commitment acquired by it under Clause 25 …"

"Finance Document means:

(a) this Agreement;

(b) …

(c) …

(d) …

(e) the Intercreditor Agreement;

(f) …

(g) an Option Agreement,

…"

"Majority Banks means, at any time, Banks whose participations, in the Loans then outstanding aggregate more than 66 ? per cent of the Loans then outstanding."

"Option means an option to acquire the assets of or shares in the Borrower granted to the Security Trustee under either of the Option Agreements."

"Option Agreement means:

(a) the Asset Option Agreement; or

(b) the Share Option Agreement."

"Security Documents" is defined in terms which Mr Howard accepted for the purpose of the hearing did not include the Option Agreements.

"Share Option Agreement means the agreement between EPHL and the Security Trustee … under which EPHL grants an option to the Security Trustee to acquire all the shares of EPHL in the Borrower."

The Schedule 1 Banks included Credit Suisse.

Mr Symons QC for Credit Suisse placed some emphasis on the description of the Option Agreements as made with and granting the options to "the Security Trustee." He submitted (rightly) that the role of trustee was a principal role. The same point was made in relation to Clause 9 (see below).

Clause 1.4 envisaged and provided for the eventuality that there might be only one "Bank". It is not in issue that Credit Suisse subsequently and validly acquired sufficient participations in the Loans to constitute itself "Majority Banks."

Finance Party was defined in terms wide enough to cover Barclays in each of its capacities and "a Bank." Clause 2.2 provided that:

"2.2. Nature of a Finance Party's rights and obligations.

(a) The obligations of a Finance Party under the Finance Documents are several. Failure of a Finance Party to carry out those obligations does not relieve any other Party of its obligations under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.

(b) The rights of a Finance Party under the Finance Documents are divided rights. A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights."

Clause 9 provided:

"OPTIONS

The Security Trustee will only exercise an Option on the instructions of the Majority Banks and in accordance with the terms of the relevant Option Agreement."

Clause 10 provided that payment "by the Borrower or a Bank under the Finance Documents" should be made to "the Agent".

Clause 19 provided:

"19. THE AGENT AND THE ARRANGER

19.1 Appointment and duties of the Agent

(a) Each Finance Party (other than the Agent) irrevocably appoints the Agent to act as its agent under and in connection with the Finance Documents.

(b) Each party appointing the Agent irrevocably authorises the Agent on its behalf to:

i) perform the duties and to exercise the rights, powers and discretions that are specifically delegated to it under or in connection with the Finance Documents, together with any other incidental rights, powers and discretions; and

ii) execute as agent for that Party each Finance Document to which the Agent is a party.

(c) The Agent has only those duties which are expressly specified in the Finance Documents. Those duties are solely of a mechanical and administrative nature.

19.2 Role of the Arranger ….

19.3 Relationship

The relationship between the Agent and the other Finance Parties is that of agent and principal only. Except as contemplated by the Security Documents, nothing in this Agreement constitutes the Agent as trustee or fiduciary for any other Party or any other person and the Agent need not hold in trust any moneys paid to it for a Party or be liable to account for interest on those moneys.

19.4 Majority Banks' instructions

(a) The Agent will be fully protected if it acts in accordance with the instructions of the Majority Banks in connection with the exercise of any right, power or discretion or any matter not expressly provided for in the Finance Documents. Any such instructions given by the Majority Banks will be binding on all the Banks. In the absence of such instructions, the Agent may act as it considers to be in the best interests of all the Banks.

….

These are clearly important provisions. Mr Howard QC for British Energy understandably placed considerable reliance upon them. By Clause 19(b)(ii) Credit Suisse appointed Barclays to execute as agent for Credit Suisse each of the Option Agreements and, by Clause 19.1(a), to act as its agent under and in connection with the Option Agreements. Further, Barclays' duties under the Option Agreements are said to be "solely of a mechanical and administrative nature" and save as contemplated by the Security Documents Barclays' relationship with Credit Suisse is "that of agent and principal only."

Clause 25 is entitled "Changes to the Parties". It is also an important clause in the context of this dispute. Clause 25.1 prohibited EPL from transferring any interest it had under the Finance Documents to, in effect, any entity but EPHL. So far as material, Clause 25.2 provides:

"25.2. Transfers by Banks

a) A Bank (the Existing Bank) may, subject to paragraph (b) below, at any time assign, transfer or novate any part of its Commitment and/or any of its rights and/or obligations under the Finance Documents to either:

(i) another bank or financial institution; or

(ii) to a limited liability company, provided that:

(A) and, for so long as, such company's entire share capital is owned by banks and financial institutions;

(B) such company has been established for the sole purpose of owning power generation assets in the United Kingdom; and

(C) all other existing Banks also transfer their rights and/or obligations under the Finance Documents and the Share Subscription Agreement to such company.

(the New Bank) ….

b) Any assignment, transfer or novation pursuant to Clause 25.2(a) shall:

(i) if of part of a Commitment only, be in a minimum amount of at least £5,000,000; and

(ii) require the prior written consent of the Borrower unless (A) the New Bank is another Bank or an Affiliate of a Bank; or (B) the New Bank is an OECD Bank. However, the prior consent of the Borrower must not be unreasonably withheld or delayed and will be deemed to have been given if, within five days of receipt by the Borrower of an application for consent, it has not been expressly refused.

c) ….

(d) A transfer of obligations will be effective only if….

(e) Nothing in this Agreement restricts the ability of a Bank to sub-contract an obligation if that Bank remains liable under this Agreement for that obligation.

The effect of these provisions is that a Bank can "assign, transfer or novate any part of its Commitment and/or any of its rights and/or obligations" under the Finance Documents (which include the Option Agreements) to another Bank (or an OECD Bank as defined) without consent but to a "financial institution" only with the consent of EPL. Transfer to a limited liability company requires both consent and that 100% of the interests of all the Banks are so transferred.

It is this provision which, it is agreed, entitled Credit Suisse to acquire the interests of other Banks and so to acquire majority voting rights.

Credit Suisse and Ampere placed some reliance on sub-clause (e) of Clause 25.2. The submission was that it entitled the Bank to agree sub-participations and, as "obligations" was shorthand for or would normally include "rights", so sub-contracting by way of sub-participation of Option rights or rights to require Barclays to exercise the Options was expressly permitted. I do not agree. Where the Agreement refers to "rights" it says so expressly. An example is Clause 25.2(a). Clause 25.2.(k), which I have not quoted, is another. I think the sub-clause essentially is addressing sub-contracting the obligation to make the Loans and has no relevance to the issues apart, perhaps, from being consistent with British Energy's submission that only sub-participation of the Loan but no more was envisaged. Certainly, I see no basis on which it can be said that Clause 25.2(e) is inconsistent with the provisions of Clause 31 of the Share Option Agreement.

Clause 27 included a provision that a Bank "may disclose" to any person "with whom it is proposing to enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement" various information provided the other person entered into a confidentiality undertaking. The emphasis is mine. It demonstrates (as is accepted) that "participation" was contemplated. For reasons I will express (paragraphs 54 to 56) I do not find that conclusion advances resolution of the issues. Moreover, the Clause addresses "participation" in relation to "this" Agreement, not the Finance Documents (which would include the Option Agreements) generally.

The Intercreditor Deed

The Intercreditor Deed was made between EPL "as Borrower" and the other Claimant companies, the Banks as "Finance Parties" (including Credit Suisse) and Barclays described on the title page as "Security Trustee and Agent for the Finance Parties and in its personal capacity."

The "appointment and duties of the Security Trustee" are provided for in Clause 12 at 1.2.1. The provisions are comparable to Clause 19 of the Credit Agreement which addresses the appointment and duties of the Agent. The Clause provides (the Banks are "Secured Creditors"):

"a) Each Secured Creditor (other than the Security Trustee) appoints the Security Trustee to act as its agent in respect of the Security.

a) Each Secured Creditor (other than the Security Trustee) irrevocably authorises the Security Trustee to:

i) perform the duties and to exercise the rights, powers and discretions that are specifically given to it under the Security Documents, together with any other incidental rights, power and discretions; and

ii) execute each Security Document expressed to be executed by the Security Trustee.

b) The Security Trustee has only those duties which are expressly specified in this Deed and the Security Documents. Those duties are solely of a mechanical and administrative nature."

The Security Documents did not include the Option Agreements. The Share Option Agreement.

It is the construction of the Option Agreements and, in particular, the terms of Clause 31 of the Share Option Agreement, which is in materially the same terms as Clause 39 of the Asset Option Agreement, on which the outcome of this dispute depends.

The Agreement states that it is made between:

(1) EPHL as the "Seller";

(2) Barclays "acting as agent and security trustee for the Finance Parties (the "Buyer")";

(3) EPL "the Company"; and

(4) The First Claimant "BEPET".

The "Interpretation" clause is Clause 1. The "Finance Parties" again mean the Banks, including Credit Suisse. The "Close Period" was the period from the date of the Agreement until the earlier of an Option Completion Date or 31 March 2010. The "Option Shares" are all the share capital of EPL, the owners of the power station. "Purchase Price" means 105% of the price for a disposal agreed between the Buyer and a Third Party.

The Agreement provided for two Options referred to as the "Break Option" and the "Enforcement Option". The Options were mutually exclusive; the latter applying only on breach by British Energy of its obligations. It is the former which is relevant.

Clause 3 of the Share Option Agreement provided:

" 3. GRANT OF CALL OPTION TO BUY SHARES

3.1 In consideration of £2,500,000 satisfied by the Buyer agreeing to the reduction by that amount of the amount owing by the Seller to the Buyer under the Novated Debt, the Seller irrevocably grants to the Buyer:

3.1.1 an option to buy, and to require the Seller to sell, all of the Option shares on the Break Option Completion Date (the "Break Option"); and

3.1.2 an option to buy, and to require the Seller to sell, all of the Option Shares at any time after the Enforcement Notice Date but prior to 31 August 2009 (the "Enforcement Option"),

in each case, in accordance with the terms and conditions of this Agreement.

…."

The Break Option Completion date is 31 March 2010. Mr Howard placed some limited reliance on this clause (mirrored in the Asset Option Agreement) because the £2,500,000 price for the Option was satisfied by reduction in the debt agreed to by the Buyer. Barclays, of course, was not owed the debt nor entitled to the money. Thus, submitted Mr Howard, this was a clear example of Barclays acting as agent for the Banks so as to bind them. I agree. Mr Symons' submission that all payments were to be made and received via Barclays (paragraph 17) does not, I think, address the point as the language and reality is reduction not payment.

Clause 4 provides:

"4. EXERCISE OF BREAK OPTION

4.1 The Break Option may be exercised by the Buyer only:

4.1.1 in whole and not in part; and

4.1.2 by the delivery by the Buyer to the Seller of a Share Option Notice at any time after the Restructuring Date but no later than 31 August 2009.

….

4.4 It shall be a condition of the exercise of the Break Option that on the Break Option Completion Date, the Buyer (acting in its capacity as security trustee for the Finance Parties) shall fully and irrevocably discharge, or procure the full and irrevocable discharge of, all the Finance Party Liabilities and fully and irrevocably release, or procure the full and irrevocable release of, the Security."

The effect of this clause is that exercise of the Break Option can only be achieved for 100% (and so by all the Banks with the Majority able to bind the minority) and by delivery to the Buyer of the prescribed Notice by no later than 31 August 2009 for completion 7 months later on 31 March 2010. The prescribed Notice for the exercise of both the Break and Enforcement Options (and the Asset Option) provided for signature "for and on behalf of Barclays…acting as agent and security trustee for the Finance Parties." The emphasis is mine. Again unsurprisingly, Mr Howard placed considerable reliance upon this.

Exercise of the Break Option required payment by "the Buyer" to "the Seller" of a significant sum: Clause 7. The details of the calculation do not matter but they are based on a "Break Fee" of £104 million.

There are several clauses in both Option Agreements which, as Mr Symons submitted, "do not work" if they are to be read as obligations undertaken by Barclays only as agent for the Finance Parties (the Banks). The clauses are too numerous to state. Mr Howard's short point in response was that such clauses all relate to the "mechanical" function of Barclays acting on behalf of all the Banks, but, as the Notices state, in doing so Barclays is indeed acting as agent for the Banks. It is of course entirely possible for an agreement to impose primary obligations on an agent, or a person acting as agent, as well as binding the principal to obligations contained in it. The fact that Barclays has a principal role to play is not inconsistent with the Banks being parties to the Agreement. For my part, I do not derive much assistance on the first issue from this submission of Mr Symons.

Clause 31

Clause 31 is at the heart of the dispute. It provides:

"31. ASSIGNMENT

31.1 No party may (nor purport to) assign or transfer, or declare a trust of the benefit of, or in any other way dispose of any of its rights under this Agreement, in whole or in part, without first having obtained the other parties prior written consent, save that:

31.1.1 the Buyer shall be entitled to make a Disposal to a Third Party in accordance with Clauses 32 to 35; and

31.1.2 The Seller shall be entitled to assign and/or transfer all (but not part only) of its rights under this Agreement to BEH by way of security for the First Intercompany Loan Agreement.

31.2 Subject to Clause 31.1.1, during the Close Period the Buyer may not enter into any agreement or other arrangement:

31.2.1 that relates to the exercise of any of its rights under this Agreement; or

31.2.2 to assign or transfer or declare a trust of the benefit of or in any other way dispose of all or any of the Option Shares after an Option Completion Date."

The effect of Clause 31.1.1 (read with the definition of "Disposal") is that "the Buyer" can (without consent) only assign or transfer all (and not part) of the Buyer's rights under the Agreement to a Third Party after making an offer to EPL to sell the rights to EPL on substantially the same terms as those offered to the Third Party for "the Purchase Price", that is 105% of the price offered by or agreed with the Third Party. Clause 32 requires the Buyer to serve a Disposal Notice to that effect "signed by the Buyer". The prescribed form of Notice is again to be signed by Barclays "as agent and security trustee for the Finance Parties". This right of pre-emption would therefore operate to protect British Energy against the loss of the power station provided that it could and commercially wished to meet 105% of the price agreed with a potential third party purchaser.

The effect of Clause 31.2.1 is that until 31 March 2010 "the Buyer" may not enter into "any agreement or other arrangement" that "relates to the exercise of any of its rights under this Agreement." The emphases are mine. The questions are whether or not the Banks (in the event Credit Suisse) are bound by this restriction on the ground that they are parties to it and the Agreement; whether or not Credit Suisse has rights under the Agreement and whether or not the Ampere transaction "relates to" those rights.

The rationale for this restriction applying until 31 March 2010 must be to provide extra protection for British Energy than can be found in the pre-emption rights. Exercise of the Break Option was not subject to pre-emption rights but had its own price (see paragraph 36).

Two points should, I think, be addressed here so that they may be, as I think they should be, put on one side. The use of the word "its" in Clause 31.2.1, which Mr Symons submitted indicated that only Barclays and rights of Barclays were the subject of the Clause, is not in my judgment significant. Granted that the Agreement uses the expression "the Buyer" throughout, albeit defined or described as Barclays acting as agent and security trustee for the Banks, it is grammatically and linguistically natural to use the singular. Mr Symons is of course able to make the point, as he did, that the Clause could have used language making it quite clear that the Banks, collectively or individually, were bound by these restrictions.

The second point is the scope of the words "relate to". Mr Symons submitted that even if Credit Suisse was bound by Clause 31.2.1 the Ampere transaction did not "relate to" any rights of Credit Suisse under the Agreement. I, like Mr Howard, confess to not being able to follow the point. On the hypothesis stated, the Ampere transaction would, as will be seen, require Credit Suisse to exercise its right under the Agreement to require Barclays to exercise the Break Option upon the order of Ampere. On any normal use of language that "relates to" rights of Credit Suisse under the Agreement if such they are.

The Agreement also required notices or other communications under or in connection with it to be delivered to "the Buyer" at an address of Barclays and for service of proceedings at that address. I see nothing of significance in that. The Option Agreements were signed on behalf of Barclays and not by the Banks. The signature of Barclays itself was not stated to be "as agent" or as "security trustee". But, again, I see nothing of real significance in that. Barclays were said in the body of the Agreement to be entering into it "as agent and security trustee" for (in effect) the Banks. Moreover "the Banks" concerned were always likely to change as time passed which no doubt was one of the reasons why the use of an "agent" such as Barclays was sensible.

EVIDENCE

There were the usual debates about the nature and extent of extrinsic evidence admissible in relation to The Party Issue and, to a lesser extent, The Breach Issue, both of which involve the construction of written agreements. The only witness statement relied upon was served by Ampere. It was a statement made by Jason Clarke, one of Ampere's directors. Mr Clarke is also a partner in a firm ("SVP") which is the manager of a collection of hedge funds which have (or had taken) sub-participations in the EPL debt. Paragraphs 20 and 21 of the statement were disallowed as they purported to give expert evidence for which there was no permission and addressed what was said to be "market practice" which had not been alleged. On that basis, whilst submitting that the rest of the statement was substantially irrelevant or also inadmissible, Mr Howard declined to cross-examine Mr Clarke. Mr Clarke said that SVP had started to build sub-participations around November 2004 (and thus after the four Agreements were executed), that there had been a very active market in the debt, and that by about March 2006 virtually all the debt of the Banks had been sub-participated. He said the debt had traded above par (it has a fixed 7% interest rate) because the price incorporated "a component reflecting the value of the Option Agreements". He also said that he understood British Energy accepted that it was aware of the sub-participation of the debt "in general terms" and had not at any time objected to it.

Mr Clarke, in paragraph 34 of the statement, said that:

"In broad terms, the Ampere Transaction involves the aggregation by the existing sub-participants in the Eggborough Debt of their sub-participation interests in Ampere in return for cash and the issue of shares in Ampere. The cash component is to be funded by Ampere entering into credit facilities arranged by Credit Suisse. The present intention is that Ampere will then exercise the option in respect of the Eggborough power station in 2009."

Mr Howard remarked with some pleasure on the last sentence of this paragraph.

Mr Howard, for his part, referred to a number of documents which he submitted were relevant "context" documents. His purpose was to show that it was the Banks which were described as the holders of the Options or having rights under the Option Agreements and not Barclays. There are a number of such documents in the context of the negotiation of the restructuring which "cross the line" in the sense that they record or reflect statements made at meetings at which the Banks and British Energy were present. Credit Suisse and Ampere say there is nothing surprising or significant about that as there is no dispute that the Options were granted for the benefit of the Banks and references such as those on which Mr Howard sought to rely were no more than shorthand for that reality.

Mr Howard also referred to the Prospectus published by British Energy in November 2004 in connection with the issue of certain warrants and bonds. The "Key information" included statements that the Options would be granted to the Banks and that the Banks would be entitled to assign all (but not part) of their rights under the Option Agreements subject to certain restrictions. The Prospectus was, of course, an important public document, subject to sanction if it was inaccurate.

To the (to my mind, very limited) extent that any of this evidence is admissible and material to the construction of the Agreements it is, I think, consistent with the conclusions I have reached.

THE AMPERE TRANSACTION

The precise details of the Ampere Transaction do not matter, but its effect does. It is designed to consolidate existing sub-participations with Credit Suisse by transferring them to Ampere in exchange for entry into a single sub-participation agreement between Credit Suisse as "Grantor" and Ampere 1 as "Participant". Ampere 1 does not receive any beneficial or proprietary interest in the rights of Credit Suisse (whatever they may be) under any of the four Agreements. Credit Suisse must pay Ampere 1 amounts it receives under those Agreements. There is also a mechanism by which the existing sub-participants can realise (by redemption of Loan Notes) part of their interests.

Mr Symons, and Ms Tolaney, for Credit Suisse, helpfully prepared a summary of other provisions of the Ampere Transaction, part of which I should quote. References to "the EPL Finance Documents" include references to each of the four Agreements and so include the Option Agreements; references to the "Participant" are references to Ampere 1; references to "the Buyer" are references to Barclays Bank as that Bank is described in the Agreements:

"4.3. Credit Suisse is not permitted to exercise or refrain from exercising any right under the EPL Finance Documents, or agree to a variation or waiver of the EPL Finance Documents or perform any other acts under the EPL Finance Documents without the consent of the Participant, subject in each case to an override as described in paragraphs 4.4 and 4.5 below (clause 8.2.1).

4.4. Credit Suisse has at all times the right to disapply its obligations described in 4.3 above if:

(a) In its absolute discretion it feels constrained from acting in accordance with such obligation by virtue of any request or code of practice emanating from any regulatory authority; or

(b) It forms the opinion that acting in accordance with such obligation would damage its relationship with any regulatory authority or otherwise damage its reputation; or

(c) If Ampere 1 has failed to comply with any requirement to provide security in respect of certain of the indemnity obligations it owes to Credit Suisse.

4.5 The matters in 4.4 above shall not apply to override an instruction from the Participant to:

(a) Credit Suisse to exercise Credit Suisse's right to instruct the Buyer to deliver a Share Option Notice, an Asset Option Notice or an Enforcement Option Notice; or

(b) to agree to any amendment or waiver of any provision of an Option Agreement, in each case, without the Participant's prior written consent (clause 8.2.1).

5. The contractual relationship between the Participant and Credit Suisse is also in part governed by the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, Ampere 1 and Ampere Holdings will provide an indemnity against all costs and liabilities incurred by Credit Suisse in connection with instructing Barclays (in its capacity as "Buyer" under the Option Agreements) to exercise an option under the Option Agreements (Clause 31.2).

6. As set out in paragraph 2 above, the Investors are to become shareholders in Ampere Holdings, which owns Ampere 1. The articles of association of Ampere Holdings include the following:

6.1. a requirement that the directors of Ampere Holdings undertake a capital raising process, likely by way of a compulsory rights issue to Ampere Holdings' shareholders, prior to the expiry of the Break Option in 31 August 2009 (Article 26); and

6.2. a requirement that Ampere Holdings instruct Credit Suisse to instruct the Agent to deliver notice to exercise the Break Option no later than 31 August 2009 (article 28), subject evidently to a later special resolution of its members to the contrary at any time before 31 August 2009."

What that comes to in commercial terms is that Credit Suisse must do what they are told to do by Ampere (in effect the existing sub-participants) as regards the Option Agreements and any rights to instruct Barclays to exercise an Option. Further Barclays must be instructed by Credit Suisse to exercise the Share Option ("the Break Option") by no later than 31 August 2009 (if there is no prior special resolution to the contrary) and any risks there may be arising as a result (the Option has to be exercised by 31 August 2009 but only takes effect 7 months later) will be upon Ampere. As Mr Howard submitted, the Ampere transaction is "geared to ensuring the exercise of an option and makes no economic sense unless an option is exercised."

THE SUB-PARTICIPATIONS

The number and nature of sub-participations entered into is not known but the documentation for 18 of them is available and has been helpfully summarised in a Schedule prepared on behalf of Ampere. There is no claim (or at least evidence) that the 18 are or were a representative sample.

A sub-participation is a funding arrangement agreed between a lender and the sub-participant but one which gives the sub-participant no beneficial interest in the underlying loan. Lord Grabiner submitted, and I do not doubt, that the commercial reasons underlying such transactions are to enable the sub-participant to participate indirectly in loans which they could not do directly because of the (not uncommon) restrictions in many facilities to the lenders being "banks" and to enable the sub-participant to invest anonymously.

The 18 transactions for which the documents are before the court demonstrate that there is no consistency, let alone market practice, in the commercial terms of the sub-participations. Some (the majority) provide that Credit Suisse or the relevant Bank agrees to exercise its voting rights under the four Agreements in accordance with the instructions of the sub-participant. Some do not. Others do, but only if and to the extent that such a term is permitted by the Agreements. Some also create or purport to create a trust over any assets which may be received by Credit Suisse or the relevant Bank in favour of the sub-participant. The market forms to which I was referred also expressly acknowledge that the parties may adopt any of these or indeed other approaches to their agreement.

The Ampere transaction is one under which it is proposed to transfer voting rights from Credit Suisse to Ampere. At the conclusion of the hearing there were exchanges in which both Mr Symons and Lord Grabiner were concerned that the Court should address only such transactions and not others. Mr Howard was content with that, whilst making it clear that British Energy would contend that the other transactions would also infringe clause 31 of the Share Option Agreement. But it is agreed that such a contention is, if it has to be, for another day, possibly with the issues enlightened by the judgment.

THE PROCEEDINGS

The documents demonstrate that British Energy were aware, certainly in 2006 and probably in 2005, that there was a market in Eggborough debt and that the price reflected market assumptions regarding the value of the Options and therefore of the power station. There had been a marked turn round in the price of electricity and so in the valuation of the power station and so also in the value of the Options.

Greenhills were not the first on the scene. In April 2006 a proposal was put to British Energy that it should "buy the option" for £300 million. An internal note records that "the option is trading in the market at around £260 million" and that British Energy expected "this to make its way around the market in due course." It did. British Energy met Greenhills in May and were told that Greenhills believed they had "a structure to sell the option". It was in May that Greenhills obtained interest from holders of two-thirds of the loan debt which was the trigger level for the Banks to be able to instruct Barclays to exercise the share Option.

A "Summary of Transaction Structure" prepared by Cadwaladers dated 24 May 2006, as the structure was then envisaged, noted that "as a result … the Purchaser will have effective control over the exercise of the Options" and that (in that context as this) "the key issue … is whether any of the Participating Lenders themselves are bound by the obligations imposed on Barclays" in relation to the Options.

This document was supplied to British Energy. On 1 June 2006 British Energy wrote to Greenhills stating that the company would take "whatever action we consider appropriate" to defend its rights. Letters dated 23 June 2006 were also sent to the Banks, asserting that the proposals would be in breach of the contractual arrangements "prohibiting disposal of the Options".

There was then something of a lull in developments although Greenhills were seeking to persuade British Energy that it was in its interests to "participate in the process."

Matters came to a head at the beginning of February 2007. Greenhills sent British Energy a summary of the proposed Ampere transaction, which had been announced publicly. The summary asserted that the rights of British Energy had been respected and preserved and that "it is written into Ampere's Articles that the Option will be exercised…"

British Energy immediately responded that proceedings would be taken. After further exchanges between solicitors, on 28 February, Linklaters, on behalf of Credit Suisse, gave Barlow Lyde & Gilbert, on behalf of British Energy, 48 hours notice that Credit Suisse intended to enter into the Ampere transaction.

A letter before action was sent on 2 March 2007. The Claim Form was issued and Particulars of Claim served on 7 March naming only Credit Suisse as Defendant. On 19 March a Directions hearing was held before Field J.

The Pleadings

Field J ordered, on their application, that Ampere Limited and Ampere 1 be added as Defendants to the proceedings. Directions were given on a tight timescale for service of pleadings, disclosure and witness statements. It was also ordered that the trial be expedited. By 3 April the trial had been fixed to begin on 21 May.

The Amended Particulars of Claim, dated 23 March 2007, claim that Barclays entered into the Option Agreement "for and on behalf of all the Banks, including (Credit Suisse) with their express authority. The Banks … were therefore party to and bound by the terms of the Option Agreements, including clause 39 of the Asset Option Agreement and clause 31 of the Share Option Agreement." It is alleged that the Ampere transaction (described as "the Greenhill Scheme") is or would be a breach of those clauses.

The relief claimed is:

"(1) A declaration that the First Defendant entered into the Option Agreements through Barclays, which contracted as its agent.

(2) A declaration that the First Defendant is bound by the terms and conditions of the Option Agreements, including Clauses 39 of the Asset Option Agreement and 31 of the Share Option Agreement.

(3) A declaration that entry into the Greenhill Scheme has been or would be in breach of the First Defendant's obligations under the Option Agreements.

(4) A declaration that instructions pursuant to the Greenhill Scheme (or pursuant to any other agreement or arrangements falling within clause 39.2 of the Asset Option Agreement or 31.2 of the Share Option Agreement) from the First Defendant to Barclays to exercise the options or either of them, and/or that any purported exercise of the options or either of them pursuant to such instructions, would be invalid.

(5) An injunction preventing the First Defendant from taking any, or any further, steps in pursuance of the arrangements proposed by the Greenhill Scheme."

In the course of the hearing, it was agreed that if British Energy was to be entitled to some relief the terms of that relief should be addressed after and not as part of this judgment.

The defence of Credit Suisse, dated 4 April 2007, asserts that:

"Barclays is the entity entitled to exercise and enforce either of the Options, and is the entity bound by the restrictions imposed on the Buyer by clauses 39 and 31 of the Asset and Share Option Agreements respectively (paragraph 29.4);" and that

"…if, which is denied, Credit Suisse is a party to the Option Agreements and is bound by the terms thereof clauses 39 and 31 (of the Asset and Share Option Agreements respectively) are not to be construed as prohibiting each Bank from assigning or transferring its Commitment (which would naturally carry with it that Bank's right to join with other Banks to instruct Barclays to exercise either of the Options) and/or as prohibiting the Banks from sub-participating their Commitment. Such a construction would be contrary to and inconsistent with, the provisions of the Restated Credit Agreement…" (paragraph 48.2); and that

"Further and in any event (whether or not Credit Suisse is a party to the Option Agreements) it is denied that the Ampere Transaction is in breach, or threatened breach, of clause 39 of the Asset Option Agreement and/or clause 31 of the Share Option Agreement…" (paragraph 48.3).