US Bank Trustees Ltd v Titan Europe 2007-1 (NHP) Ltd & Ors

Commercial contracts are construed objectively, by considering the ordinary meaning of the language in the context of the agreement and its commercial purpose. Clear language must be applied even if the result is commercially unattractive. Where language is ambiguous, business common sense may assist; the court may correct an obvious drafting mistake only where both the mistake and the intended meaning are clear.

Under a servicing agreement, the Issuer was the Controlling Party after the specified valuation events. Rating confirmations were required from each relevant agency, subject to the contractual treatment of an agency that refused confirmations as a matter of policy. Approval of a replacement Special Servicer involved a general, but reasonable, discretion. Replacement of the Advance Provider was a condition of effective termination.

The Note Trustee brought an expedited Part 8 claim seeking directions on the interpretation and effect of financing documents governing commercial mortgage-backed securities. The immediate dispute concerned Anchorage’s purported instruction to terminate Capita Asset Services as Special Servicer after a substantial decline in the value of the secured property portfolio.

The court had to determine the identity of the Controlling Party and the meaning of the preconditions to termination under clauses 22.2 and 22.5 of the Servicing Agreement. Further questions concerned rating-agency confirmations, approval of a successor Special Servicer, replacement of the Advance Provider, and the mechanics of conditional termination.

1. Identity of the Controlling Party. The Servicing Agreement, rather than the Offering Circular or another transaction document, was the starting point. Its ordinary language distinguished the Controlling Party, Controlling Class Representative and Loan Representative. In the relevant circumstances, “the Representative for the A Loan” meant the Issuer, which was the only Lender in respect of the Libra Loan. The Offering Circular was not a contractual appointment of a Loan Representative and could not alter that construction. The result was not commercially absurd and did not justify correction of the agreement.
2. Rating confirmations. Clause 22.5(b) required confirmation from each relevant Rating Agency that the replacement would not cause an Adverse Rating Event. A Rating Agency that declined to issue confirmations as a matter of policy was treated differently under the contractual scheme. However, Moody’s confirmation remained required even though it might be given verbally, because the clause did not exclude Moody’s.
3. Successor Special Servicer. Clause 22.5(c) imposed two separate requirements: relevant experience and approval by the Issuer and Note Trustee. Approval involved a general discretion, subject to the qualification that it must not be unreasonably withheld. It was not confined to experience. Suitability, including competence, solvency and serious financial or regulatory difficulties, could be relevant. The court declined to prescribe hypothetical further factors.
4. Advance Provider. Clause 22.5(e) made replacement of the Advance Provider with a suitable replacement a condition of effective termination of the Special Servicer. The court expressed no firm conclusion on whether that condition could be waived by the Advance Provider without the Backup Advance Provider’s consent.
5. Termination mechanics. On receiving a notice under clause 22.2, the Note Trustee was required to take the steps necessary to attempt to satisfy the clause 22.5 preconditions. It was not immediately required to serve a conditional termination notice. If satisfaction became impossible, no termination notice was required; if the preconditions were satisfied, an unconditional termination notice had to be served.

Anchorage was therefore not entitled to require termination under clause 22.2. The parties were directed to agree a draft order, with unresolved consequential matters and costs reserved.