Deutsche Trustee Company Ltd v Cheyne Capital (Management) UK (LLP) & Anor

Contractual interpretation requires an iterative assessment of the language, the contractual scheme and the commercial consequences. Where a clause expressly requires confirmation from all relevant rating agencies, the court should not ordinarily replace that requirement with a test based on which agencies are willing to respond. A separate contractual override may provide an alternative route where confirmation is unavailable. The court must interpret the contract rather than rewrite it, even where the agreed wording produces an inconvenient result. A similar decision on materially different contractual provisions should be distinguished rather than applied.

The claimant trustee sought declarations concerning the interpretation of clause 26.4(b) of an issuer servicing agreement forming part of a commercial mortgage-backed securitisation. The clause made replacement of the issuer special servicer conditional on confirmation from the rating agencies that the replacement would not cause an adverse rating event, unless the successor had been approved by extraordinary resolution.

One rating agency had adopted a policy of refusing to provide such confirmations. Cheyne contended that confirmation was required only from agencies willing in principle to provide it. The trustee contended that confirmation was required from all the rating agencies, subject to the contractual extraordinary-resolution override. The issue was whether the clause permitted replacement when a rating agency declined to respond.

1. Declaration. Clause 26.4(b) was interpreted in accordance with the trustee’s construction. Its first limb required confirmation from each relevant rating agency that appointment of the successor issuer special servicer would not result in an adverse rating event.
2. The court applied the established objective and iterative approach to contractual interpretation. The natural meaning of the words, read with the other transaction documents and their commercial consequences, was the starting point. The court could not rewrite the agreement merely because the result was inconvenient or appeared commercially imperfect.
3. Although it was not sensible to require a confirmation from an agency operating a policy of refusing such confirmations, the second limb of clause 26.4(b) provided at least a partial answer. Approval by extraordinary resolution could override the failure to obtain one or more confirmations. The transaction documents did not require every class of noteholders to approve in every circumstance, because the provisions governing extraordinary resolutions could permit one class to bind others, subject to their terms.
4. Clause 29.10, requiring notification of replacement, did not alter the construction. Clause 29.13 dealt specifically with Moody’s failure to respond and did not extend expressly to any rating agency. Extending it to Fitch or S&P would amount to rewriting the agreement. The proviso to clause 26.3 was also neutral: it did not remove the separate requirement for advance confirmation.
5. The decision in US Bank Trustees Ltd v Titan Europe 2007-1 (NHP) Ltd [2014] EWHC 1189 (Ch) was distinguished because the corresponding provisions lacked the extraordinary-resolution override, treated rating-agency non-response differently, and contained other material differences. The claim was therefore determined in favour of the trustee’s interpretation.