WW Realisation 8 Limited (In Administration) (2009)


In the circumstances contractual provisions in the terms of issue of certain loan notes and in joint venture and licence agreements were not invalidated by the so-called anti-deprivation rule which operated to prevent a person's property being transferred and taken away from his creditors on bankruptcy. Moreover, if the deprivation occurred before winding up or its equivalent, it did not fall within the scope of the rule.


The appellants appealed against decisions concerning the extent of the so-called anti-deprivation rule which invalidated a contract that had the effect of transferring a person's property to another and taking it away from his creditors on bankruptcy. The first appeal arose from the insolvency of the Lehman Brothers group, including the appellant group company (L). Loan notes had been issued to investors, including the respondent (P), by a special purpose vehicle which had entered into a swap agreement with L. On L's insolvency P gave notice of an event of default and required the trustee of the notes to accelerate the notes and enforce its security. The relevant agreements contained provisions which, on an insolvency event, switched the priority over the assets in the special purpose vehicle between L as the credit default swap counterparty and the noteholders, in favour of the noteholders, and changed the allocation of the so-called "unwind costs" in favour of the noteholders. The judge held that the nature of the disadvantage suffered by L did not fall within the anti-deprivation rule and that the relevant provisions were operated by an event before L filed for protection under Chapter 11 of the US Bankruptcy Code. L appealed against that decision. The second appeal concerned a joint venture between a Woolworths subsidiary (M) and a BBC subsidiary (W). When Woolworths went into administration W gave notice in accordance with the terms of the joint venture agreement requiring M to sell its shares in the joint venture company to W and thereby terminating a licensing agreement in accordance with its terms. The judge decided that the relevant parts of the joint venture agreement and licensing agreement which expressly cross-referred to each other infringed the rule but those cross-references could effectively be deleted. M's administrators appealed and W cross-appealed.


(1) The anti-deprivation rule did not prevent P relying on noteholder priority under the relevant provisions of the trust deed and terms and conditions of the bond issue. The effect of the switch from swap counterparty priority, meaning that the claims of L were payable in priority to the claims of the noteholders, to noteholder priority, was not to divest L of property vested in it or even of the benefit of the security rights granted to it. It was merely to change the order of priorities in which the rights were to be exercised in relation to the proceeds of sale of the collateral in the event of a default. The position following an event of default was not that L had agreed, subsequent to the grant of the right, that it would lose the right it had been granted in relation to the proceeds of sale of the collateral as a result of the default. Notwithstanding the default, it retained its right, but, as had always been an agreed feature of that right, as a result of the default, L had to rank behind, rather than ahead of, the noteholders, no doubt because it was those noteholders whose money had been used to purchase the collateral. There was authority for the principle that the rule might not apply to the extent that the person in whose favour the deprivation of the asset took effect could show that the asset, or the insolvent person's interest in the asset, was acquired with his money, Whitmore v Mason 70 ER 1031 KB applied. Also the rule did not apply to invalidate a provision which enabled a person to determine a limited interest, such as a lease or a licence, which he had granted over or in respect of his own property, in the event of the lessee's or licensee's bankruptcy, Whitmore and Walker Ex p Black, Re (1884) LR 26 Ch D 510 CA applied. While not identical to a lease or licence, a charge, or provision for priorities for repayment, had features of similarity to a lease or licence, and differed from ownership. (2) Even if the switch to noteholder priority had constituted a deprivation within the rule, the rule would not have been engaged because the triggering event under the contractual arrangements was the Chapter 11 bankruptcy filing of L's ultimate parent which occurred some 18 days before L filed for Chapter 11 bankruptcy. If the deprivation occurred before winding up or its equivalent, it did not fall within the scope of the rule, British Eagle International Airlines Ltd v Compagnie Nationale Air France (1975) 1 WLR 758 HL and Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd (In Liquidation) (1985) Ch 207 Ch D considered. Therefore L's appeal was dismissed. (3) There was nothing in the terms or the operation of the joint venture agreement and licensing agreement, whether taken separately or together, which engaged the anti-deprivation rule. The provision for determination of the licence agreement was not invalid, Whitmore and Walker Ex p. Black applied. The price payable for the shares under the joint venture agreement was market value which could not be objectionable, Borland's Trustee v Steel Bros & Co Ltd (1901) 1 Ch 279 Ch D applied. The rule would not have been engaged because the notice was triggered by, and given in relation to, the insolvency of M's ultimate parent which pre-dated M's own administration. Therefore the administrators' appeal was dismissed and W's cross-appeal allowed.

Appeals dismissed, cross-appeal allowed