UK: Recent Developments In Finance Litigation: Restriction On Sub-Participation

Last Updated: 18 September 2008
Article by Edward Davis and Sue Millar

The Court of Appeal has held in (1) British Energy Power & Trading Ltd (2) Eggborough Power (Holdings) Ltd (3) Eggborough Power Ltd v (1) Credit Suisse (2) Ampere Ltd (3) Ampere 1 Ltd [2008] EWCA Civ 53 that where a bank entered into option agreements in part as agent for other banks participating in a syndicated refinancing arrangement, it was a question of construction of the provisions of the option agreements whether "the Buyer" was that bank as security trustee, or the other financing banks, or both.

The proceedings concerned the Eggborough coal fired power station in North Yorkshire. The claimants were companies in the British Energy group. The third claimant was the owner of the business and assets of the power station. The power station was acquired by the British Energy group in March 2000 for £646 million. It was re-financed in July 2000 by a £550 million loan advanced to the third claimant by a consortium of banks on the terms of a credit agreement. From 2002 to 2004 the British Energy group encountered financial difficulty, resulting in a general restructuring of its finances. In relation to the power station, in September 2004 four agreements were executed: an amended and restated version of the July 2000 credit agreement, a share option agreement, an asset option agreement and an amended and restated intercreditor deed. 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 the third claimant and agreeing to a new credit facility of £150 million. In return the British Energy group provided 76.6 million of new shares, £20 million of bonds and security of various kinds, and also granted both a share option and asset option. Two option agreements were entered into by Barclays Bank plc ("Barclays") as 'agent and security trustee' for the banks, including the first defendant bank, Credit Suisse, which was the successor of about 90% of the interests of the banks. The two option agreements were virtually identical and were known as the share option agreement (the "SOA") and the asset option agreement (the "AOA").

A dispute arose, which led to the proceedings, out of a proposed sub-participation agreement (the "Ampere Transaction") between Credit Suisse and the second third and third defendant companies. They had been incorporated for the purpose of consolidating various sub-participation rights in relation to the facilities granted under the agreements. The dispute between the parties concerned the extent to which sub-participation was permissible under the terms of the option agreements. The claimants sought a declaration as to the construction of clause 31 which provided, inter alia, as follows:

"31. ASSIGNMENT

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."

Credit Suisse argued that it was not party to the SOA or the AOA since Barclays had signed them as principal and not as agent. The judge at first instance, Langley J, held that Credit Suisse had entered into the option agreements through Barclays, that Credit Suisse was a party to the option agreements and was bound by the restrictions in, inter alia, clause 31 and that entry into the Ampere Transaction would be a breach by Credit Suisse of clause 31.2.1. The defendants appealed.

On appeal, the issue arose, inter alia, as to whether on the true construction of clause 31 of the SOA Credit Suisse was bound by the restrictions in clause 31.2 on the exercise of the option rights created by the SOA. The defendants submitted that they were not a party to, or bound by, the obligations in clause 31.2 and that the clause only bound Barclays as security trustee.

The Court of Appeal held that on the true construction of the relevant agreements, Barclays had entered into the SOA as both security trustee and as agent for the finance parties, which included the banks. It was a question of construction of each provision in the agreement as to whether Barclays was doing so in one or other, or both, capacities. In the circumstances of the case, it made no commercial sense for Barclays to have entered into the option agreements as, and only as, principal. The Court of Appeal endorsed the reasoning of Langley J:

"British Energy would have no commercial interest in restricting assignment by Barclays, or transfer of rights held by Barclays, but not, or not also, by the Banks. Clause 31 of the Share Option Agreement is plainly intended to provide protection for British Energy by restricting rights to dispose of the power station and the rights granted by the Options. The limits of the protection are of course to be found in the negotiated and agreed wording. But if the words are to be read as imposing only obligations and restrictions on Barclays leaving the Banks free to do as they please the protections are virtually illusory."

The Court of Appeal went on to state that a provision that entrusted Barclays with the exercise of the options as security trustee could be understood because all the shares were being sold and it was appropriate for Barclays as security trustee to hold the shares as legal owner on trust for the banks. The Court held that the same considerations did not, however, apply to the restrictions on the assignment or transfer of the options in clause 31. The obvious parties to restrain from assigning or transferring the options which the parties, and in particular British Energy, wished to restrain were the banks and not Barclays, or at any rate not Barclays alone. In looking at clause 31.2.2, the Court held that it was much more likely that the parties had intended to bind the banks than that they had not, if only because they were entitled to the benefit of the options, whereas Barclays were not. Accordingly, clause 31.2.1 was intended to bind both Barclays and the banks and, for the purposes of the restriction in the clause, both were the 'Buyer'.

This article was written for Stephenson Harwood's quarterly publication, Finance Litigation Legal Eye. If you would like to receive this publication, please contact Stephenson Harwood.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.