CHARMWAY HONG KONG INVESTMENT LTD AND OTHERS v. FORTUNESEA (CAYMAN) LTD AND OTHERS

HCMP 3234/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3234 of 2013

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J U D G M E N T

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Introduction

1.  Rightway China Real Estate Limited (“Rightway”) was incorporated in the Cayman Islands in 2009.  It is the holding company for a group of companies carrying on business primarily in development and construction in Mainland China. 

2.  On 3 December 2007 Rightway signed a comprehensive agreement for the provision of a credit facility, arranged by Goldman Sachs Credit Partners L.P., with 16 lenders (“Original Lenders”) listed in its 1^st schedule (“Facility Agreement”). 

3.  Clause 2.1 of the Facility Agreement provided that the Lenders (which is defined to include the Original Lenders and any person who becomes a party in accordance with clause 26.2, which provides for assignment by Lenders of their rights under the Facility Agreement) will make available a term loan facility in the aggregate amount equal to the total of the individual commitments made by each of the Original Lenders listed against their names in schedule 1.  The facility totalled US$547,812,590.60[1].

4.  Clause 3 deals with the purpose of the facility.  Clause 3.1 provides that it may only be used for specified purposes, which broadly included the repayment of existing debt, identified in schedule 7, and the costs of acquisition and development of 3 projects in Mainland China.

5.  The original syndicated loan was restructured in 2011 (“Loan”).  On 31 March 2011 a number of agreements were signed to give effect to the restructuring (“Finance Documents”):

(a) An amended and restated Facility Agreement (which in its amended form I shall also refer to as the “Facility Agreement”) that sets out the terms of the facility including its provision, utilisation, repayment and prepayment, the warranties, representations and covenants given by Rightway as borrower, and the role of the Administrative Agent (Deutsche Bank A.G., which is the 7^th Defendant);

(b) An “Intercreditor Agreement” that sets out the ranking and priorities of different types of creditors of Rightway, and also provides for the terms of enforcement of the Transaction Security (as defined in the Intercreditor Agreement);

(c) “Four Confirmatory Share Mortgages” in favour of DB Trustees (Hong Kong) Limited (“DBT”) (the 9^th Defendant) as the Security Agent over shares in Rightway and three other companies, Allied Treasure Limited (“ATL”), Dash Limited (“Dash”) and Million Horses Holdings Limited (“MHH”); and

(d) “Four Confirmatory Security Agreements” in favour of the Security Agent over the assets of Rightway, ATL, Dash and MHH.

6.  On 30 June 2011, 31 December 2011 and 30 June 2012 Rightway defaulted on its payment obligations under the Facility Agreement.  As at 15 October 2013 the total indebtedness under the facility was US$612,373,000.26.  This is not in dispute.  It is also not in dispute that demands for repayment have been made, default notices served and that significant sums are due to each Lender under the Facility Agreement.  What is in dispute are the steps available to the individual Lenders under the Finance Documents that they have signed to enforce repayment of the debts due to them.

The Genesis of the Dispute

7.  The dispute has arisen as a result of developments in 2013.  As a result of the defaults the then majority of Lenders gave an instruction to DBT to take various forms of enforcement proceedings on behalf of the Lenders as a whole, and to appoint receivers over the assets and shares of Rightway and over the assets of Dash, ATL and MHH.  A demand was also issued to Dash, ATL and MHH as guarantors of the syndicated loan. 

8.  In mid-2013, the composition of the Lenders changed.  The majority lenders issued instructions on 21 June 2013 to DBT to terminate the enforcement actions that had been commenced.  The  minority Lenders disputed the validity of those instructions.  The  difference between the Lenders has resulted in 2 sets of proceedings in Hong Kong:  HCCL 27 of 2013 and HCMP 2724 of 2013.  In October 2013 the 1^st to 3^rd Defendants sought to enforce their rights under the Finance Documents arising from Rightway’s default under them by bringing proceedings to wind up Rightway and Dash in the Grand Court of the Cayman Islands and proceedings to wind up ATL and MHH in the British Virgin Islands (“BVI”).  The 4^th Defendant subsequently entered an appearance supporting the 4 winding-up petitions.

9.  The Plaintiffs have filed notices of appearance opposing each of the four sets of winding-up proceedings.  They have contended in those proceedings that, on the true construction of the Finance Documents (a) no individual lender (as defined in the Facility Agreement) is entitled independently to seek to enforce repayment of its proportionate share of the syndicated loan, and (b) that individual Lender, in any event, has no right to seek a winding‑up of Rightway or any of the guarantors.  The  Plaintiffs dispute the locus standi of the 1^st to 4^th Defendants to commence and support the winding-up proceedings.  This construction of the Finance Documents is disputed by the 1^st to 4^th Defendants.  The current status of the winding-up proceedings is as follows.

Rightway & Dash – Cayman Islands Petitions

10.  A case management conference (“CMC”) was held on 15 November 2013, at which the Plaintiffs submitted that in light of the jurisdiction clauses in the Finance Documents the dispute as to the locus of the dissenting minority Lenders to seek a winding up of Rightway and Dash (the “Cayman Locus Issue”) should be determined by the Hong Kong rather than the Cayman Courts.

11.  This application was heard by Mr. Justice Henderson who was not initially prepared to grant a general stay of the Cayman Petitions for an indefinite period.  By a judgment dated 3 February 2014, Henderson J ordered that the winding-up petitions in respect of Rightway and Dash should be adjourned generally until after the Hong Kong Court had determined the right of individual creditors to pursue a winding up.

ATL and MHH – The BVI Winding-Up Applications

12.  The first return date of the applications in the BVI was fixed for 18 November 2013.  At the hearing the Plaintiffs submitted that in light of the jurisdiction clauses in the Finance Documents, the dispute as to the locus of the dissenting minority Lenders to seek a winding up of ATL and MHH (“BVI Locus Issue”) should be determined by the Hong Kong rather than the BVI Courts, and that the BVI Court should follow the lead set by the Cayman Court 3 days previously.

13.  However, that argument was rejected by Mr. Justice Bannister, who held that the BVI Court could not abdicate to another court its responsibility to decide whether there was a real dispute as to the locus of the 1^st to 3^rd Defendants to seek a winding up of ATL and MHH.  He then adjourned substantive argument on the BVI locus Issue to 20 November 2013.

14.  On 20 November 2013, Mr. Justice Bannister dismissed the BVI winding-up proceedings because he thought that there was sufficient doubt regarding the standing of the 1^st, 2^nd and 3^rd Defendants to bring independently winding-up proceedings against ATL and MHH.

The Present Application

15.  As a consequence of the dispute between the Lenders, the Majority Lenders (which is a defined term in clause 1.1 of the Facility Agreement meaning “Lenders whose share in the outstanding Loans aggregates 66 ⅔ %, or more of the aggregate of all outstanding Loans of all Lenders”) have issued the present application to have the following issues determined:

1. A Declaration that, on the true and proper construction of the Facility Agreement dated 3 December 2007 and amended and restated on 31 March 2011 for Rightway and/or of the Intercreditor Agreement dated 31 March 2011 :-

(1) No individual Lender (as defined in Clause 1.1 of the Facility Agreement), is entitled to independently enforce repayment of his proportionate share of the syndicated term loan facility made available to Rightway (within the meaning of clause 2.1 of the Facility Agreement) under the Finance Document (as defined in Clause 1.1 of the Facility Agreement).

(2) If contrary to 1(1), he is entitled to independently enforce his proportionate share of the syndicated term loan facility, he is nevertheless not entitled to seek the winding up of Rightway or any Guarantor (as defined in Clause 1.1 of the Facility Agreement and set out in Schedule 1 of the Facility Agreement)^[2].

2. A Declaration that, on the true and proper construction of Clause 35.1 of the Facility Agreement and/or Clause 25.1 of the Intercreditor Agreement, where a dispute arises between two or more Lenders as to the true construction of the Finance Documents (as defined in Clause 1.1 of the Facility Agreement), the courts of Hong Kong have exclusive jurisdiction to resolve any such dispute.

3. An Injunction restraining any Lender (as defined in Clause 1.1 of the Facility Agreement), from commencing or continuing or supporting proceedings (including winding-up proceedings) in any jurisdiction or forum outside of Hong Kong, including the Cayman Islands and/or the British Virgin Islands, in which a dispute of the nature referred to in paragraph 2 above arises or falls for consideration. 

16.  It is apparent from what transpired in the Cayman Islands and the BVI, and the framing of the issues in paragraphs (2) and (3) of the orders that the Majority Lenders seek, that the proceedings have been issued in Hong Kong because the Finance Documents contain Hong Kong governing law clauses and provide, on terms I will consider in more detail later, for the Hong Kong courts to have jurisdiction to determine differences in connection with the Finance Documents.  The applications are contested by the 1^st to 4^th Defendants.  The 5^th to 8^th Defendants do not oppose the application.  The 9^th Defendant, the Security Agent DBT, takes a neutral stance in respect of it.

Principles on construction of the agreement

17.  Determining the issues raised by the originating summons primarily involves construing the terms of the Facility Agreement and the Intercreditor Agreement.  As Lord Hoffman explains in Jumbo King Ltd v Faithful Properties Ltd [3]construction is not a game of words, but an attempt to discover what a reasonable person would have understood the parties to mean and this involves having regard to not merely the individual words used in the agreement, but the agreement as a whole considered against the factual and legal background in which it came to be concluded and the objects which it was intended to achieve.  Consistent with this approach the words and expressions used in an agreement are to be interpreted as an ordinary commercial person is likely to have understood them in the context in which they have come to be used rather than a technical meaning commonly given to them by lawyers[4].  In the present case these principles are of limited significance because the Finance Documents were produced for sophisticated parties by specialist solicitors.  There is little ambiguity in the meaning of individual clauses in the Finance Documents.  The difficulty is that neither the Facility Agreement nor the Intercreditor Agreement deals directly with the right of an individual Lender to obtain repayment of his portion of the syndicated loan in the event of default.  The task for the court is to consider the various clauses which touch on this issue and determine what, when they are read together, they establish the intention of the parties was.  In  undertaking this task the Facility Agreement and Intercreditor Agreement are properly to be construed together.  They refer to each other and it is permissible to consider the provisions of each in considering the effect of the relevant provisions[5].  This is accepted by all Parties.

The Finance Documents

18.  The principal obligation of the Lenders is to be found in clause 2.1 of the Credit Facility Agreement.  It is to make available to Rightway “a term loan facility in aggregate amount equal to the Total Commitments”.  Total Commitments means “the aggregate of the Commitments of all the Lenders”.  Commitments are defined in clause 1.1 and in the case of an Original Lender is “the amount set opposite its name in Schedule 1 (Original Parties) under the heading Commitments and the amount of any other Commitment it acquires”.  As one would expect Schedule 1 is simply a list of Original Lenders against whom appears in each case figures.  The first is for Cash Loan Commitments.  The second is for PIK Loan Commitments.  The distinction is not relevant for present purposes.

19.  The principal obligation of Rightway is to repay the Cash Loan[6] in the instalments and on the dates specified in clause 6.1.  Clause 13.1 provides that unless a Finance Document specifies that payments under it are to be made in another manner, all payments by Rightway must be made to the Administrative Agent.  Necessarily it follows that the Credit Facility Agreement does not give a Lender an express right to be paid a tranche of the Cash Loan that has become due from Rightway.

20.  The Facility Agreement does not contain an express term that requires the Administrative Agent to distribute such moneys as he receives to the Lenders (although this may be the intended effect of the obscurely worded clause 3.3), but clearly it is intended that he does so. In other words the Facility Agreement does not contain a clause that in clear terms gives a Lender an express right to a distribution of repayments made by Rightway to the Administrative Agent.

21.  The 1^st to 4^th Defendants’ argument, as I understand it, is that although the Facility Agreement does not contain amongst the payment provisions a term that expressly gives a Lender a right to repayment, it is clear from Clause 2.2 that each Lender has a right to repayment of his portion of the Cash Loan by Rightway and that when a tranche of the Cash Loan becomes payable under clause 6.1, unless the Administrative Agent is paid, each Lender is owed a debt by Rightway.

22.  Clause 2.2 deals with the nature of a “Finance Party’s rights and obligations”.  “Finance Party” is defined to include a Lender, Arranger, Administrative Agent or the Security Agent.  Clause 2.2 provides:

“2.2 Nature of a Finance Party’s rights and obligations

Unless all the Finance Parties agree otherwise:

(a) the obligations of a Finance Party under the Finance Documents are several;

(b) failure by a Finance Party to perform its obligations does not affect the obligations of any other person under the Finance Documents;

(c) no Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents;

(d) the rights of a Finance Party under the Finance Documents are separate and independent rights;

(e) a Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights; and

(f) a debt arising under the Finance Documents to a Finance Party is a separate and independent debt.”

23.  It is clear from sub-clause (d) that rights given to a Lender under the Facility Agreement are independent and sub-clause (e) provides that such rights can be enforced separately.  Sub-clauses (d) and (e) are of general affect and the language of sub-clause (e) emphasises this by the inclusion of the words “except as otherwise stated in the Finance Documents”. Sub-clause (f) provides that a debt arising under the Facility Agreement (which is a Finance Document) is a separate and independent debt, and, although the clause does not say so, the implication is, say the 1^st to 4^th Defendants, that this means an independent debt owed to a particular Lender.  A Lender’s right to repayment under the Facility Agreement is separate and independent and it follows, so the argument develops, that in the absence of provision to the contrary it can be enforced by a Lender as it considers appropriate.  However, it will be noted that these provisions do not say when, if at all, a debt to an individual Lender arises.  The fact that, what is probably a standard clause, suggests that such a debt may arise does not mean that it does.  It does not seem to me that clause 2.2 creates, assuming Rightway does not pay in accordance clause 6.1, a debt owed to each Lender.  The Credit Facility Agreement does not state that each advance by a Lender constitutes a separate and aliquot loan.  Clause 2.1 provides that the Lenders are to make available to Rightway “a term loan facility in aggregate amount equal to the Total Commitments”.  Total Commitments is defined to mean “the aggregate of the Commitments of all the Lenders”.  The language used in these clauses and also clause 5.3, which deals with Advance of Cash Loan and provides “The Administrative Agent must promptly notify each Lender under the Facility of the details of each requested Cash Loan and the amounts of its shares in that Cash Loan”, is not language consistent with each Lender making separate and aliquot loans.  Rather the clauses talk of aggregating each Lender’s Cash Loan and this suggests the creation of one unitary loan.  This is inconsistent with a debt to an individual Lender arising in the event of default.  The language of clause 2.2 is general and, in my opinion, not of itself sufficient to compel the alternative conclusion.

24.  None of the clauses that I have considered are entirely clear and in order to determine whether or not individual Lenders are owed debts which they can enforce individually if they wish, it is necessary to consider the relevant Finance Documents to see what other terms inform a determination of the Parties intentions.  I address the Credit Facility Agreement first and then the Intercreditor Agreement.

Facility Agreement

25.  There are clauses in the Facility Agreement dealing with particular circumstances in which an individual Lender is given a specific and clearly independent right to recover his portion of the Loan

26.  Clause 7.1 allows a Lender who has become aware that it is unlawful for it to perform any part of its obligations under a Finance Document to give notice to the Administrative Agent.  The Administrative Agent must then notify the Company [Rightway] that it must repay the Lender’s share of the loan on a date determined in accordance with clause 7.1(c).  Clause 7.1 does not state if, in the absence of repayment, the Lender can take steps to recover it, but clause 2.2(e) entitles it to do so.

27.  Clause 7.3 deals with change of control of the Company and sub‑clause (c) gives each Lender a right to elect to cancel its undrawn Commitments and require repayment of its share of the outstanding Loans.  If notice of such an election is served sub-clause (d) provides that “the Company must repay or prepay the Lender’s share in the Loans …..”.  Like clause 7.1, clause 7.3 does not state if, in the absence of repayment, the Lender can take steps to recover it. It is clause 2.2(e) that creates the right to do so.

28.  Clause 7.9 allows the Company in specified circumstances to give to the Administrative Agent a notice requesting prepayment and cancellation in respect of that portion of the Loan made by a particular Lender.  After notification the Company must repay that Lender’s share of the Loan on a date determined in accordance with the clause.  As in the case of the previous clauses I have considered, clause 7.9 does not address the Lender’s right to recover payment in the event of default.  Again it is clause 2.2(e) that entitles the Lender to take its own enforcement proceedings to do so.

29.  These 3 clauses would appear to demonstrate how clause 2.2 operates.  Circumstances arise which engage a particular clause of the Facility Agreement and under that clause a debt arises, which is owed to a particular Lender.  The right to payment of the debt is the Lender’s independent right, which he can separately enforce.

30.  Clause 35.1 deals with jurisdiction and provides that Hong Kong courts have exclusive jurisdiction to settle any dispute in connection with any Finance Document.  Sub-clause (c) of clause 35.1 provides:

“35.1(c) This Clause is for the benefit of the Finance Parties only. To the extent allowed by law, a Finance Party may take:

(i) proceedings in any other court; and

(ii) concurrent proceedings in any number of jurisdictions.”

31.  The 1^st to 4^th Defendants argue that for this sub-clause to be meaningful an individual Lender must be able to instigate proceedings independently otherwise a Lender would never be faced with the decision as to which jurisdiction in which to commence proceedings, which are most likely to be for recovery from Rightway or the Guarantor.  This is correct as far as it goes, but it does not seem to me that it advances materially the determination of the principal issue I am concerned with.  If the clauses I have just considered give a Lender an independent right to payment it follows that there are circumstances in which a Lender is entitled to rely on clause 35.1(c), which do not involve a general right to enforce a right to repayment of the Cash Loan.

32.  The Facility Agreement contains various provisions, which either give the Administrative Agent a role in recovering payment from Rightway or specify cooperative measures to be taken by Lenders.  For example, clause 8.3 provides that the Administrative Agent shall deal with the levying of interest on overdue amounts and, in particular, the determination of the duration of the terms up to six months by reference to which interest in calculated. Clause 13.1 provides that payments to be made under the Finance Documents must be made to the Administrative Agent and clause 13.3 deals with distribution by the Administrative Agent of such payments to Lenders.  Clause 13.7 deals with how the Administrative Agent is to make distributions in the event a payment received by Rightway is insufficient to discharge all amounts then due under the Finance Documents.

33.  Clause 19.18 provides that in the event of default the Administrative Agent may, and must if so instructed by the Majority Lenders, cancel all or any part of the Cash Loan or declare all or any part of it immediately due and payable.  It follows that no individual Lender can do this.  Clause 19.18 does not state if the Cash Loan is called due a debt arises owed to each Lender. Neither does clause 19.18 address enforcement of the rights to recover the Cash Loan in the event that the mechanism provided by clause 19.18 is engaged.  It is, however, the Majority Lenders who are given the power to decide to call for immediate repayment of the Cash Loan by instructing the Administrative Agent to make an immediate demand. Clause 13.1 requires that Rightway make payment to the Administrative Agent. Although clause 19.18 does not address the action to be taken if the demand is not satisfied, it would be consistent with clause 19.18 and clause 20.6 for enforcement proceedings to be taken by the Administrative Agent on behalf of the Lenders.  Clause 20.6 deals with Majority Lenders’ instructions.  The first 3 sub-clauses (a) to (c) are directed to providing protection for the Administrative Agent if it acts on the instructions of the Majority Lenders.  It does not refer to what the instructions may be.  Sub‑clause (d) is different and I shall quote it in full:

“20.6(d) The Administrative Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings in connection with any Finance Document, unless the legal or arbitration proceedings relate to:

(i) the perfection, preservation or protection of rights under the Security Documents; or

(ii) the enforcement of any Security Document.”

34.  The Administrative Agent is not given a discretion or enabled by a decision by the Majority of Lenders to commence recovery action on behalf of all the Lenders.  It is necessary for it to obtain the consent of each Lender before doing so.  However, it does not follow that if a Lender declines to give consent he is impliedly entitled to commence his own proceedings.  It would be rather surprising if it was intended that if most of the Lenders authorised the Administrative Agent to commence proceedings for recovery of the Cash Loan an individual Lender could decide to take his own independent enforcement proceedings to recover his portion of it.  It seems particularly unlikely that the Lenders would have anticipated when agreeing the Facility Agreement that it allowed one Lender to try and obtain an advantage over the others by taking independent enforcement proceedings; it being the 1^st to 4^th Defendants’ case, with which I agree[7], that they would not be required to share any recoveries they make with the other Lenders as clause 29.1 would have no application.  It seems to me rather more likely that the drafter included sub‑clause (d) to allow a Lender to opt out of proceedings rather than create an implied right to proceed independently; a possible consequence of the drafting that the drafter would not have anticipated.

35.  Consistent with the right given to the Administrative Agent by clause 19.18, clause 20.1 to 20.3 provide that each Finance Party irrevocably appoints the Administrative Agent to act as its agent under and in connection with the Finance Documents and authorises the Administrative Agent to perform the duties and exercise the rights and powers given to it under the Finance Documents together with any incidental rights.  Clause 20.1(c) records that “Those duties are solely of a mechanical and administrative nature”.  This does not detract from the fact that, as is clear from clauses 13.1 and 20.6, the Administrative Agent is the legal person whom the Facility Agreement establishes as the collector of monies due to the Lenders.

36.  There is a miscellany of provisions, which the 1^st to 4^th Defendants argue in some way recognise the several nature of a Lender’s rights under the Finance Documents.  Clause 14.1 provides that each Guarantor guarantees to each Finance Party punctual performance by the Company of all its obligations under the Finance Documents.  Clause 14.3(b) provides “Each Finance Party may concede or compromise any claim that any payment, security or other dispositions is liable to avoidance or restoration.”  Clause 14.6 provides that until all amounts payable by the Obligors (which is defined in clause 1.1 to include both Rightway or a Guarantor) have been paid in full each Finance Party may, without affecting the liability of any Guarantor under the clause, refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party or apply them in such manner as they see fit.  So far as appropriation of moneys received from either Rightway or a Guarantor is concerned once clause 14 is engaged clause 14.6(a)(ii) gives each Lender the right to apply them as it sees fit.  This would appear to be consistent with an independent right of enforcement.  However, I find the intended purpose of clause 14.6 obscure.  Read literally it allows “each Finance Party” to apply any monies received by it from Rightway as it sees fit pending payment in full of all amounts due from the Obligors (Rightway and Guarantors) have been paid.  It seems to me that the most likely intention of this clause is that the Finance Parties can, in the event of default, choose how to allocate receipts as between the various liabilities that may have arisen under the Finance Documents.  It does not suggest that a right has arisen entitling each Lender to enforce repayment of its contribution to the Cash Loan.

37.  Clause 18.22 requires each Obligor to take such acts as are required of it to, amongst other things, perfect “the exercise of any rights, powers and remedies of the Security Agent or the Finance Parties provided by or pursuant to the Finance Documents …”.  This clause could relate to the rights under clauses 7.1 to 7.3, but it is not expressly limited in anyway.

38.  Clause 23.1 provides that the Company must indemnify “each Finance Party” against any loss or liability which the Finance Party incurs for any of the reasons specified in the clause.  Clause 23.3 provides that the Company must pay each Lender its “Breaks Costs”, which is the amount necessary to indemnify a Lender against loss incurred in relation to Cash Margin or Capitalised Margin as a consequence of any part of a Loan or overdue amount being repaid otherwise than on the last date of the relevant Term.

39.  Clause 24.3 provides that the Company must pay each Finance Party the amount of all costs and expenses incurred in connection with the enforcement of any rights under the Finance Documents or any proceedings instituted by or against the Finance Party.  The clause does not state who would commence the enforcement proceedings.

40.  Clause 25.5 provides that the rights of each Finance Party are cumulative and not exclusive of its rights under the general law.

41.  I accept that the various clauses that I have referred to in paragraphs 36 to 40 use language that is consistent with a Lender having several and independent rights under the Facility Agreement and the other Finance Documents.  But none create an express right to repayment of a Lender’s contribution to the Cash Loan or use language which acknowledges that such a right exists under another clause of the Facility Agreement.  The Majority Lenders emphasise this and point to other clauses which they argue suggest that no such right exists.

42.  Clause 29.1 deals with redistribution of any amounts received by a Lender other than in accordance with the Facility Agreement:

“29.1 Redistribution

If a Finance Party (the recovering Finance Party) receives or recovers any amount from an Obligor other than in accordance with this Agreement (a recovery) and applies that amount to a payment due under a Finance Document, then:

(a) the recovering Finance Party must, within three Business Days, supply details of the recovery to the Administrative Agent;

(b) the Administrative Agent must calculate whether the recovery is in excess of the amount which the recovering Finance Party would have received if the recovery had been received and distributed by the Administrative Agent in accordance with this Agreement without taking account of any Tax which would be imposed on the Administrative Agent in relation to a recovery or distribution; and

(c) the recovering Finance Party must pay to the Administrative Agent an amount equal to the excess (the redistribution).”

43.  The Majority Lenders suggest that this clause is consistent with their position.  It would make no sense they argue if the consequence of a Lender taking independent enforcement proceedings would be that he had to share the proceeds of any recovery with the other Lenders, which is, they submit, the affect of this clause.  Whether or not that is correct turns, in my view, on whether or not the Facility Agreement gives each Lender a right to take enforcement proceedings to recover his part of the Cash Loan.  If it does in my opinion it follows that recovery would be in accordance with “this Agreement” and clause 29.1 would be of no affect.  Clause 29.1 does not, therefore, assist in determining whether or not a Lender can take enforcement proceedings in his own name if he so wishes once Rightway is in default.  Clause 29.1 is directed to redistribution in the event that for some reason a Lender receives moneys that should have been paid to the Administrative Agent. 

44.  It does not seem to me that there are clauses within the Facility Agreement which give individual Lenders a right to take independent enforcement proceedings.  Considered as whole they seem to envisage collective action taken to recover the Cash Loan in the event of default.

Intercreditor Agreement

45.  The Intercreditor Agreement deals in a number of clauses with enforcement by the various classes of potential creditors: Lenders, Bondholders, Subordinated Creditors and Intra Group Creditors.  “Enforcement Action” is defined in clause 1.1 in relation to “Liabilities”, which is defined to include all present and future liabilities of any member of Rightway to any Lender, to include “the suing for, commencing or joining of any legal or arbitration proceedings against any member of the Group [which includes Rightway] to recover any Liabilities”: clause 1.1(a)(vii). Sub-clause (d) extends the definition to petitioning for a winding up.

46.  “Lender Liabilities” means Liabilities owed by, amongst others, Rightway to “the Lenders”.  Clause 2.1 provides that Liabilities owed in respect of Lender Liabilities ranks in priority to Bond Liabilities. Consistent with this clause 4.10 provides that Bondholders cannot take any Enforcement Action prior to Lenders being paid, but thereafter clause 4.11(a) provides that each Bondholder may take Enforcement Action, which suggests that the drafter had given some thought to the right of creditors with similar interests to take independent as opposed to collective action if Rightway were in default.  Similarly, clause 5.6 provides that Subordinated Creditors are not entitled to take Enforcement Action until creditors with superior rights are paid, and the language is consistent with thereafter a Subordinated Creditors being able to commence independent Enforcement Action; again suggesting that the drafter was aware of the distinction between a right to take independent action and a limitation on Enforcement Action being taken by anybody other than the Administrative Agent or the Security Agent.

47.  Clause 8.1 provides that after the occurrence of an Insolvency Event a Lender who receives a distribution out of the assets of any member of the Group, which includes Rightway, shall so far as it is possible direct the person responsible for the distribution of such sums to pay it to the Security Agent.  The Majority Lenders suggest that this is inconsistent with individual Lenders having a right to take their own Enforcement Action, because it would be pointless to do so if the proceeds had to be paid over to the Security Agent to be shared amongst all Lenders.  Clause 8.4 provides that after the occurrence of an Insolvency Event in relation to any member of the Group[8] each Lender irrevocably authorises the Security Agent on its behalf to take Enforcement Action pursuant to the Finance Documents.  The Majority Lenders argue that this is inconsistent with a right to take separate proceedings as necessarily it means that if one of Rightways’s subsidiaries has a receiver or a liquidator appointed over it individual Lenders have no right of independent action and it is unlikely that, this being the case, it was intended that prior to such an event they could do so.

48.  Clause 11 deals with Transaction Security.  It provides that enforcement of Transaction Security is to be done by the Security Agent.  Clause 11.4 contains a waiver by Lenders of any rights they may have to have the security enforced in any particular manner or at any particular time thus relinquishing, the Majority Lenders emphasise, any independent right of action in respect of the Transaction Security. It does not seem to me that this is of particular significance so far as other Enforcement Action is concerned as it is unsurprising that enforcement of Transaction Security was thought to be best enforced by one representative of the Lenders as a whole.  Indeed this is made clear later in the Intercreditor Agreement in clause 14.1(c), which provides that unless provided to the contrary the Security Agent holds the Security Property on trust for the Secured Parties, which includes the Lenders, and in clause 14.2 which expressly states that the Lenders do not have any independent power to enforce, or have recourse to any of the Transaction Security.

49.  It does not seem to me that the Intercreditor Agreement adds clarity to the intention of the Parties when it comes to enforcement by the Lenders.  Clauses 4.11(a) and 5.6 suggest the drafter was alive to the distinction between collective and individual enforcement action, but that of itself sheds little light on what was intended in the case of individual Lenders.

Finance Documents - Conclusion

50.  It seems to me that the Facility Agreement created an aggregated loan rather than aliquot shares and that, this being so, in the absence of an express provision giving individual Lenders a right to take independent enforcement proceedings it is for the Majority Lenders, acting in good faith, to decide what enforcement proceedings to take.

Other Arguments

51.  I was referred by the Majority Lenders to a number of American authorities which reached similar conclusions[9].  I consider that these are of little assistance in construing the Finance Documents, because they contain materially different clauses.  For example, they do not contain an equivalent to clause 2.2 which is the foundation of the 1^st to 4^th Defendants’ submissions.  Where, however, they are of some assistance is in illustrating that it is understood, at least by informed participants in the market, that syndicated loans may only be enforceable in accordance with the wishes of a majority or super-majority of lenders unless the opposite is specifically agreed and it is against that background that the Finance Documents came to be signed.

52.  During argument I was taken by Mr Manzoni, who appeared for the 1^st to 4^th Defendants, to the dissenting judgment of Smith J in Beal Savings Bank v Sommer ibid in which the Judge suggests that that the initial assumption must be that a bank lending money, whether as part of a syndicated loan or otherwise, must be taken to assume that he can sue to get his money back and that, if it is intended that he cannot do so unless a majority of lenders agree, it would be easy to add a clause that expressly states this.  It seems to me that this argument works both ways.  One would have expected sophisticated parties with experienced solicitors to have dealt expressly with the right to repayment and enforcement, whether by agreeing either that each Lender could act independently or alternatively only in accordance with the Majority Lenders’ wishes.  It may be that the failure of the Facility Agreement to deal with this important issue is explained by an inability of the Lenders to agree this point during negotiations and as a result the Facility Agreement was left vague.  It may be, and this seems more likely, that Linklaters used as the basis for the agreement the standard form Multicurrency Term and Revolving Facilities Agreement of the London Loan Market Association, which does not address adequately the individual rights of lenders to recover in the event of default.  Be that as it may, it seems to me that the Court would be wrong to read anything into the absence of wording stating clearly either that each Lender could enforce independently or alternatively that enforcement was to be collective or at least decided by a decision of the majority of Lenders.  The Parties’ rights fall to be determined by their intentions as revealed by what they did agree and record in writing rather than by speculating about the reasons why the Financial Documents were not drafted more clearly.

Order

53.  I will, therefore, make a declaration in the form of paragraph 1(1) of the Originating Summons and an injunction in the terms of paragraph 3 if the matter cannot be resolved by undertakings.  Paragraph 1(2) falls away. However, if I had reached a different conclusion I would have found that the 1^st Defendants could commence winding‑up proceedings.  If I had found that there was a debt due to the 1^st to 4^th Defendants that they were entitled to enforce immediately and without the agreement of the Majority Lenders it would follow that they were creditors of Rightway and other debtors pursuant to the Finance Documents.  I can see nothing in the terms of either the Facility Agreement or the Intercreditor Agreement which in those circumstances would restrain them from taking action to wind up Rightway and its subsidiaries, which would also be debtors.  The Parties accepted that paragraph 2 was otiose in the light of the substantive issues that I have been required to determine and that paragraph also falls away.

54.  I shall make a costs order nisi that the 1^st to 4^th Defendants pay the Plaintiffs’ costs and also those of the 9^th Defendant.

[1] The cover sheet seems to contain a typographical error.

[2] This issue was slightly reformulated during the hearing from the wording as it appeared in the originating summons

[3] (1999) 2 HKCFAR 279 at 296D-E, per Lord Hoffmann NPJ

[4] New World Harbourview Hotel Co Ltd v ACE Insurance Ltd (2012) 15 HKCFAR 120, per Sir Anthony Mason NPY at §34

[5] Chitty on Contracts, 31^st ed., Vol 1, §12-067

[6] Cash Loan is defined in clause 1.1 of the Facility Agreement as “the principal amount of a borrowing under the Facility or the principal amount outstanding of that borrowing.”

[7] see paragraphs 42 and 43

[8] Which is defined by reference to the definition in the Credit Facility Agreement as “the Company and its Subsidiaries (including, without limitation, the Guarantors, the PRC Holdco and the Project Companies)”

[9] Beal Savings Bank v Sommer 865 N.E. 2d 1210 (NY 2007); Credit Francais Int’l S.A. v Sociedad Financiera de Comercio, C.A. 128 Misc 2d 564 (NY Co 1985); In re Chrysler LLC 405 BR 84 (Bankr SDNY 2009), affirmed on appeal: 576 F 3d 108 (2d Cir 2009); In re GWLS Holdings Inc 2009 WL 453110 (Bankr D Del Feb 23 2009); First Bank of Louisville v Continental Illinois National Bank and Trust Co of Chicago 933 F 2d 466 (7th Cir 1991).