McKillen v Misland (Cyprus) Investments Ltd & Ors

The court decided a preliminary contractual construction issue arising from a Facilities Agreement amended to reflect the involvement of the National Asset Management Agency (NAMA). The key question was whether clause 40.3 disapplied the transfer restrictions in clauses 24.2 and 24.3 so as to permit NAMA or a NAMA-directed party to transfer the borrower’s loan facilities to Maybourne Finance Limited (MFL) free of those restrictions. The judge held that clause 40.3 is concerned primarily with NAMA’s position as beneficial acquirer and with NAMA exercising rights "in place of" lenders prior to any legal transfer, and does not authorise a free-standing power for NAMA to dispose of the Knightsbridge or other facilities free of the clause 24 restrictions. In short, clause 40.3 did not apply to the transfer to MFL and the restrictions in clauses 24.2 and 24.3 did apply to that transfer. The court relied on the wording of clause 40.3, the definitions in the agreement, the role of clause 40.3(a) and (b), and the NAMA Act provisions (notably sections 90, 99 and 139) as context for construction.

This is a first instance hearing of a preliminary issue in two related Company Act 2006 section 994 and associated conspiracy proceedings brought by Patrick McKillen, a minority investor in Coroin Limited, owner of three central London hotels. The preliminary issue concerned construction of clause 40.3 of an April 2011 Facilities Agreement which acknowledged NAMA’s beneficial acquisition of bank loan facilities and sought to regulate transfers and the exercise of lender powers thereafter.

Nature of the application: A trial of a preliminary issue was directed to determine (1) whether clause 40.3 of the Facilities Agreement applied to the transfer of the company’s loan facility to Maybourne Finance Limited (MFL); and (2) whether the transfer restrictions in clauses 24.2 and 24.3 applied to that transfer. The outcome would determine whether factual inquiry into compliance with clause 24 was necessary.

Background and parties: The loans originated with Bank of Ireland and Anglo Irish Bank and were beneficially acquired by NAMA in June 2010 under the National Asset Management Agency Act 2009. The Facilities Agreement amended the existing facilities and included specific provisions recognising NAMA. NAMA agreed to submit to the jurisdiction of the English court for the preliminary issue and appeared limited to the transfer validity point. MFL purchased the facilities by a loan sale agreement dated 27 September 2011.

Issues framed by the court:

• Whether clause 40.3 applied to the transfer to MFL;
• Whether the transfer restrictions and consultation requirements in clauses 24.2 and 24.3 applied to the transfer.

Reasoning and decision: The court analysed the Facilities Agreement, in particular clause 40.3(a) (acknowledging NAMA’s beneficial holding and Anglo Irish’s agency role) and clause 40.3(b) (purporting to disapply parts of clause 24, clause 26.10 and clause 27.17 in defined circumstances). The judge observed that clause 40.3 must be read in context, including the NAMA Act. He rejected submissions that section 139 of the NAMA Act alone gave NAMA an unrestricted power to transfer to any person irrespective of contractual restrictions. The judge concluded that clause 40.3(b) is principally directed to the position while NAMA holds the beneficial interest (and to transfers to NAMA), and to NAMA exercising lenders’ rights "in place of" lenders prior to any legal transfer. The phrase "in place of" was important and best read as confined to NAMA acting in the lenders' stead rather than describing a freestanding contractual power to transfer by NAMA free of clause 24. The judge further found it unlikely the parties would have intended to exclude the Knightsbridge Acquisition Facility from any transfer regime, and that clause 24’s limited class of permitted transferees and the definition of "Lender" pointed against an unrestricted NAMA disposal right. Applying these textual, contextual and purposive considerations, the judge answered the preliminary issues: clause 40.3 did not apply to the transfer to MFL, and the restrictions in clauses 24.2 and 24.3 did apply to that transfer.

Wider context: The judge treated the NAMA Act as admissible background for contractual construction, and considered sections 90, 99 and 139 relevant to understanding NAMA’s statutory powers, but held that those statutory powers did not obviate the need for clear contractual language to disapply borrower protections such as the class of permitted transferees and consultation requirements.

The court determined the preliminary issues in favour of the claimant’s construction of clause 40.3. The judge held that clause 40.3 did not apply to the transfer of the company’s loan facility to Maybourne Finance Limited and that the restrictions and consultation requirements in clauses 24.2 and 24.3 did apply to that transfer. The reasoning was that clause 40.3 is principally concerned with NAMA’s beneficial acquisition and with NAMA exercising rights "in place of" lenders prior to any legal transfer; it does not authorise an unfettered contractual right for NAMA to transfer the facilities free of the clause 24 constraints, and the agreement’s definitions and structure (including the definition of "Lender" and the treatment of the Knightsbridge facility) support that construction.