Following their loss at first instance in Titan Europe
2006-1 P.L.C. and others  EWHC 969 (Ch) (the background
to the case and our commentary can be found
here), the Class X Noteholder appealed the decision in respect
of the central issue in the proceedings – 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? A victory for the
Class X Noteholder would likely mean a substantial pay out to them
over the four CMBS transactions. However, once again, the English
Courts have ruled against them on the issue. In a split decision,
the Court of Appeal in Credit Suisse Asset Management LLC v
Titan Europe 2006-1 PLC & Ors  EWCA Civ 1293
dismissed the appeal, stating (per Arden LJ) that:
"In summary, I conclude
that the "per annum interest rate" in the definition in
the Ts & Cs of "Net Mortgage Rate" is the ordinary
rate of interest payable on the underlying loans exclusive of any
element of default interest. So default interest payable on the
underlying loans is not to be taken into account in calculating the
Class X Interest Rate. There was also commercial logic in excluding
That conclusion was supported by
Underhill LJ, who stated "I agree with Arden LJ that the
phrase "per annum interest rate", in the context in which
it appears, most naturally reads as a reference to the ordinary
interest rate applicable to the Loans and specified in the Offering
In contrast, Briggs LJ reached the
opposite conclusion on the construction of the relevant drafting
and stated "I regard the natural meaning, in its context,
of the critical phrase "the related per annum interest rate
due on such Loan" as meaning the per annum rate which includes
all the interest contractually due as at the relevant Payment Date
under the relevant loan agreement, so that it includes what may
loosely be called default interest whenever that is, or is part of,
the interest rate due as at that date. Although that outcome
produces a result in the context of a serious default which bears
harshly on noteholders lower in the waterfall than the Class X
noteholders, that factor is insufficient to require the critical
phrase to be given some restricted meaning contrary to its
Reed Smith represented the
successful Issuers in each transaction. The full judgment can be
It is of course open to the Class X
Noteholder to make an application for permission to appeal to the
Supreme Court. Watch out 2017...
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