British Energy Power & Trading Ltd & Ors v Credit Suisse & Ors

In a syndicated financing, the capacity in which a security trustee enters an option agreement depends on construction of the agreement as a whole and in its factual and commercial context. One entity may act both as security trustee and agent, and the identity of the “Buyer” may vary between provisions. Restrictions on arrangements relating to option rights may bind both the legal holder and banks with beneficial interests, even though only the trustee has the contractual power to exercise the option. A specific restriction in an option agreement may limit general assignment and novation powers in a credit agreement. “Rights under” the agreement may include beneficial rights in option proceeds. Arrangements to pre-sell or otherwise deal with those rights may therefore breach the restriction.

This was an appeal by Credit Suisse and the Ampere companies against declarations made by Langley J in the Commercial Court in 2007 EWHC 1428 (Comm). The declarations concerned two 2004 option agreements forming part of a syndicated refinancing of Eggborough power station.

The judge held that Credit Suisse had entered the agreements through Barclays, was a party to them, and was bound by restrictions on dealings with the options. The appellants challenged that conclusion on the Party Issue. They initially abandoned the Breach Issue, accepting that the proposed Ampere Transaction would breach the agreements if Credit Suisse was bound by them. Following the circulation of the draft judgment, the court heard further submissions on that issue. The central questions were whether the banks were parties to the option agreements and whether the restrictions applied to the proposed transaction.

The appeal was dismissed. The court upheld the declarations concerning clauses 31 of the Share Option Agreement and 39 of the Asset Option Agreement.

1. The credit agreement showed that the options were granted to Barclays as Security Trustee and were exercisable by it on the instructions of the Majority Banks. The option agreements, however, described Barclays as acting both as agent and security trustee for the Finance Parties. The capacity in which Barclays made a particular promise therefore depended on construction of the relevant provision. The description of the parties, signature page and individual clauses were all relevant, but no part of the document had automatic priority.
2. The court concluded that Barclays entered the option agreements in two capacities. It acted as Security Trustee for the legal rights concerning exercise of the options and as agent for the Finance Parties, including the banks, for other purposes. The banks could accordingly be parties to, and bound by, particular provisions even though Barclays alone held the contractual right to exercise the options.
3. The general assignment, transfer and novation powers in clause 25 of the credit agreement had to be read with clause 31 of the Share Option Agreement and clause 39 of the Asset Option Agreement. Those provisions were intended to protect British Energy’s continuing ownership of the power station. The restrictions therefore bound the banks as well as Barclays, because the banks held the beneficial interests in the options. The options and the debt were not to be treated as commercially separable for these purposes. A novation of the credit agreement itself did not, however, infringe the option agreements.
4. Although only Barclays had the contractual right to exercise the options, “rights under” the option agreements included the banks’ beneficial rights to the option proceeds. The Ampere Transaction related to the exercise of those rights and therefore breached the restrictions. The court declined to reopen its conclusion that Barclays exercised the options as Security Trustee and confirmed that the form of the declarations was unobjectionable.

1. Court of Appeal (Civil Division) — The appeal was dismissed. Following further submissions, the court also considered and rejected the appellants’ argument on the Breach Issue.
2. Commercial Court — Langley J made declarations on 28 June 2007 concerning the parties to the option agreements, the restrictions in clauses 31 and 39, and the proposed Ampere Transaction. Permission to appeal was subsequently granted by Rix LJ.