Royal Bank of Scotland Plc v Highland Financial Partners LP & Ors

Interlocking commercial agreements must be construed as a whole, with their language read in the context of the transaction’s overall scheme and commercial purpose. An obvious typographical error may be corrected where the correction is clear. The court must not insert substantive words which change the bargain merely to produce a preferred commercial result. An inconsistency clause operates only where provisions genuinely conflict. Additional collateral, an extended long-stop date and revised default provisions do not necessarily surrender an existing termination right.

RBS financed the acquisition of loans for a proposed collateralised debt obligation. The securities issue did not close after financial markets deteriorated. RBS terminated the Mandate Letter and claimed that this triggered a Termination Date under the Interim Servicing Deed, entitling it to realise the loans and recover any shortfall.

Burton J granted RBS summary judgment under Part 24 on five points in [2010] EWHC 194 (Comm). On appeal, Highland pursued one of those points and raised a further construction argument. The central issues were whether RBS’s termination of the Mandate Letter could trigger a Termination Date, and whether the Second Amendment Deed removed or limited that right.

Lord Justice Thomas delivered the judgment, with Lord Justices Richards and Ward agreeing. Permission was granted on both points argued, but the appeal was dismissed.

1. Construction of the agreements. The three agreements formed part of one transaction and had to be construed together. The court applied the principles discussed in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 [2009] 1 AC 1101 and Re Sigma Finance Corporation [2009] UKSC 2, considering the wording in the context of the overall scheme.
2. Termination Date. The definition contained a typographical error. Substituting notice for which corrected the error and made the clause clear. On that construction, RBS’s termination of the Mandate Letter, followed by written notice, constituted a Termination Date. Highland’s proposed insertion of additional words would have materially changed the meaning of the agreement by restricting the right to termination by Highland.
3. Commercial purpose. RBS’s role as adviser and placement agent was central to the transaction and carried significant commercial benefits. If there was no prospect of RBS placing the securities, it was commercially coherent for RBS to terminate the related arrangements. The financing provisions did not make the facility repayable at will, but they did not prevent the express termination mechanism from operating.
4. Second Amendment Deed. The inconsistency clause was not engaged because the amended provisions could operate consistently with the corrected Termination Date definition. The additional collateral and extended long-stop date gave Highland more time to complete the issue, but did not surrender RBS’s existing termination right. Burton J was therefore right to grant summary judgment.

1. Court of Appeal (Civil Division): Permission granted on both argued points. The appeal was dismissed and the summary judgment upheld.
2. High Court of Justice, Queen’s Bench Division, Commercial Court: Burton J granted RBS summary judgment on five points in [2010] EWHC 194 (Comm). Permission to appeal was refused.