Home Information Cases Royal Bank of Scotland Plc v Highland Financial Partners LP (2012)

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Royal Bank of Scotland Plc v Highland Financial Partners LP (2012)

Summary

Where there had been improper conduct by the claimant in the proceedings that was a sufficiently strong reason to refuse to grant an anti-suit injunction to restrain Texan proceedings brought in breach of an exclusive English jurisdiction clause.

Facts

The claimant bank (R) sought an anti-suit injunction to restrain proceedings in Texas and the defendants applied to set aside the court's previous judgment on liability on the ground that it was obtained by fraud.

R had advanced €240 million in respect of a proposed collateralised debt obligation (CDO) transaction, involving the Highland group. The advances were to be used to acquire a portfolio of loans, and the issuer was to issue securities to the market using the loans as collateral. There was to be a closing date, by which the loans would be acquired and the securities issued, and R's advances would thus be repaid. However, the CDO was a casualty of the market collapse: there was no closing date, no securities were issued and R sought repayment. In the circumstances the contractual arrangements required the acquired loans to be sold. R organised an informal auction. However, before the auction it transferred a number of the loans from its trading book to its banking book. The judge held that R was entitled to summary judgment on its repayment claim with quantum to be assessed. There was no dispute about the outstanding balance of the advances. The dispute arose in respect of the sum which R had to credit against it from realisation of the loans. The judge held that the auction process was a sham and that R was in breach of its contractual obligations and equitable obligations as mortgagee. The result of the quantum hearing was that the value of the loans was to be taken as higher than that produced by the auction process so that the amount of the shortfall that R was entitled to recover was €21 million rather than the €35 million it claimed. The defendants then commenced proceedings in Texas alleging fraudulent misrepresentation and concealment by R and two of its employees. R sought an anti-suit injunction on grounds that the Texan proceedings were in breach of exclusive English jurisdiction clauses or were vexatious and oppressive. The defendants contended that the jurisdiction clauses did not prevent the Texan proceedings and/or there were strong reasons not to grant injunctive relief and/or R was not entitled to injunctive relief by virtue of the equitable doctrine of "unclean hands". They also claimed to set aside the liability judgment on the ground that there had been deliberate and dishonest concealment of the fact that R had transferred some loans before the auction ("the suppressed fact").

Held

(1) There had been substantial further disclosure and evidence on the instant applications but they confirmed the conclusions reached on the quantum hearing. The defendants failed to show that, if the suppressed fact had been revealed, it would have had such an impact on quantum that judgment on liability would not have been issued for that reason or because there was some other compelling reason for a trial. After full consideration of all the facts, including the suppressed fact, the court concluded that there was a substantial amount owing to R, namely €21m. Thus, even if there had been dishonest concealment, the outcome would not have changed (Odyssey Re (London) Ltd & anr v OIC Run-Off Ltd (formerly Orion Insurance Co plc) and Kuwait Airways Corp v Iraqi Airways Corp (Perjury II Action) [2005] EWHC 2524 (Comm) applied. Therefore the liability judgment should not be set aside. In any event it had not been shown that at the stage of the summary judgment application there had been dishonest concealment by R (paras 123-129). (2) One of the agreements between the parties, the First Loss Deed, contained a jurisdiction clause which provided for exclusive English jurisdiction so far as the first, second and third defendants were concerned, Bank of New York Mellon v GV Films Ltd [2009] EWHC 2338 (Comm), [2010] 1 Lloyd's Rep. 365 applied (paras 135-138). That jurisdiction clause also bound the assignee of the first and second defendants which was a claimant in the Texan proceedings (paras 139-141). The claims made in the Texan proceedings, which were tort claims relating to the circumstances of the extension and termination of the CDO, were claims "in connection with" the First Loss Deed, which was part of an interlocking package of agreements (paras 142-146). To restrain the Texan proceedings, not only against R, but also against the two employees, would fall within the ambit of the exclusive jurisdiction clause, Donohue v Armco Inc [2001] UKHL 64, [2002] 1 All E.R. 749 considered (paras 147-153). Where there was an exclusive jurisdiction clause of which the defendants were in breach, matters of comity did not arise and strong reasons were required if the English court was not to grant an anti-suit injunction, Donohue v Armco applied. R's "unclean hands" could be and was such a strong reason. There had been sufficiently serious improper conduct by R in the proceedings and that misconduct had an immediate and necessary relation to the equitable relief claimed. There was potential hardship to R in facing the Texan proceedings but the defendants gave an undertaking not to seek multiple or punitive damages in them. The issues of whether the Texan proceedings were precluded by res judicata or issue estoppel or as an abuse would be matters for the Texan court. The court refused to grant an anti-suit injunction (paras 173-195).

Applications refused

Queen's Bench Division
Burton J
Judgment date
25 May 2012
References

​LTL 29/5/2012 : [2012] EWHC 1278 (Comm)