Tael One Partners Ltd v Morgan Stanley & Co International Plc

Under standard loan-market transfer terms, a payment calculated by reference to the lender’s overall return may accrue in respect of the period before settlement even though the right to payment, and its precise amount, are determined only later. Where the contractual wording distinguishes fees accrued up to settlement from fees accruing in respect of a pre-settlement period, the latter may create an independent post-settlement payment obligation. Accrual concerns the vesting of rights, and a right may accrue by reference to the lapse of time without vesting day by day. A payment premium forming part of the lender’s remuneration for making an advance may constitute a fee. The original lender is therefore entitled to the portion attributable to its pre-transfer lending period, but not to a further return accruing after settlement.

Tael and Morgan Stanley were lenders under a syndicated loan facility. Tael transferred part of its participation to Morgan Stanley under the Loan Market Association’s standard terms. The transfer occurred on 14 January 2010. The borrower later repaid the loan and paid the contractual Payment Premium to the lenders of record.

Tael sought the proportion of the Payment Premium attributable to its participation before the transfer. It applied for summary judgment, while Morgan Stanley sought summary judgment dismissing the claim. The central issues were whether the LMA Terms created a separate right to payment after settlement, whether the Payment Premium accrued by reference to the lapse of time, and whether it was a fee within the relevant provisions.

1. Summary judgment. Tael succeeded on liability and Morgan Stanley’s cross-application failed. Morgan Stanley was obliged to pay Tael the Payment Premium to the extent that it accrued in respect of the period before 14 January 2010.
2. Separate payment obligation. Condition 11.3(a) concerned fees accrued up to the Settlement Date and required payment on that date. Condition 11.9(a) used different wording. It allocated to the Seller interest and fees which accrued in respect of the pre-settlement period, including amounts which might accrue or become payable only after settlement. Construing Condition 11.9(a) as merely defining Condition 11.3(a) would leave it substantially redundant.
3. Accrual. Accrual ordinarily concerns the vesting of a right to an ascertained or ascertainable sum. A right does not accrue where its existence depends on an uncertain future event. Here, however, the Payment Premium was earned by reference to the period for which the borrower used the funds. The fact that the applicable rate and amount depended on the later circumstances of repayment did not prevent the right from accruing in respect of the earlier period.
4. Characterisation. The Payment Premium was properly characterised as a fee. It was remuneration for the service of making the advance, analogous to a commitment fee, and was not an increase in principal. It therefore fell within Conditions 11.3(a) and 11.9(a).
5. Quantum. Tael was entitled to US$615,597, representing the Payment Premium attributable to the period up to settlement. It was not entitled to claim a further 20 per cent return on that sum between settlement and repayment, because that later period was not a period before settlement within Condition 11.9(a).