Analysis
The appellants were the trustees of the Maylands Unit Trust (the trustees), a Jersey-based unit trust formed as a vehicle for the acquisition of warehouse premises in Hemel Hampstead (the property) by Cantabria Investments Ltd (Cantabria). The purchase price of the property was £28.1m, funded by £7.1m of Cantabria’s own resources and a £21m loan from Capmark Bank Europe (the bank) and secured on the property. The security was created by a deed of guarantee and debenture (the debenture) between the trustees and the bank. At the time of the purchase of the property it was subject to a lease, the rent from which was sufficient to meet the outgoings on the property and the administration of the trust.
The lease ended in April 2008 and the property was thereafter unoccupied. Due to a change in rating laws the trustees, as those entitled to possession became liable for rates in excess of £1.3m. The trustees had a right of indemnity in respect of these sums. When Cantabria failed to repay the bank’s loan the bank appointed receivers who sold the property for only £14.63m in February 2010. This sum was not sufficient to discharge the sums owing on the bank’s loan, even without taking account of the trustees’ right to an indemnity.
The trustees accepted that there was no general principle that their right to an indemnity took preference over the bank’s rights as charge of the property and that whether their right did take priority over the bank’s charge in the instant case was a matter of construction of the debenture. David Richards J at first instance found that the trustees’ right of indemnity did not take priority over the bank’s charge under the indemnity. On appeal, the trustees argued that the effect of the express provisions of clause 17.6 of the debenture gave their rights of indemnity priority over the bank’s charge, alternatively that if it did not such a term was to be implied on the basis that it was intended that clause 17.6 should do so.
Held (dismissing the appeal)
1. Clause 17.6 did not have the effect of giving the trustees’ rights of indemnity priority over the bank’s charge. The clause was concerned with the trustees’ liability to the bank under the debenture. It was not concerned with protecting the trustees in relation to their liability to a third party. In the absence of a provision to the contrary where a trustee enters into a contractual obligation to another party that party can enforce the obligation against the trustee and his assets in the same way as if the trustee had entered into the obligation on his own account. The purpose of clause 17.6 was to make it clear that the bank could not pursue the trustees beyond the trust assets. The definition of ‘trust assets’ in clause 17.6 did not, as the trustees contended, refer to the net assets of the trust but rather the gross assets. To hold otherwise would be giving the clause an unnatural meaning. The argument that the trustees’ right of lien was one held in their capacity as anything but trustees of the trust, and so for the bank to exercise their charge would deprive the trustees of their lien and a personal asset was not supported by the terms of the debenture.
2. No term could be implied into the debenture that gave the trustees’ right to an indemnity priority over the bank’s charge. Such was not necessary for business efficacy, was not obvious and appeared to conflict with the express term of clause 11 of the debenture. The terms of clause 17.6 were clear on the clause’s face and it was a hopeless argument to suggest that a term needed to be implied.
JUDGMENT THE MASTER OF THE ROLLS: [1] This is an appeal from a decision of David Richards J, brought with the judge’s permission. It raises a point on the interpretation of a debenture granted to a bank over property held by trustees: the point is whether the judge was correct to reject the trustees’ contention …Continue reading "Trustees & anr v Capmark Bank [2011] EWCA Civ 380"