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Following their loss at first instance in Titan Europe 2006-1 P.L.C. and others [2016] 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 [2016] 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 default interest.”

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 Circular”.

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 contextual meaning.”

Reed Smith represented the successful Issuers in each transaction. The full judgment can be found here

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…