The court was asked whether Issuers were entitled to redeem, pursuant to their terms, certain contingent convertible securities.
Held:
The reference to ‘the Consolidated Core Tier 1’ in para (2) of the Definition should, in the events which have happened, be treated as a reference to ‘its then regulatory equivalent’ – ie the Common Equity Tier 1 Capital. This conclusion involved a departure from the strictly literal meaning of the definition of ‘Core Tier 1 Capital’ in clause 19, but the departure was justified because it was ‘clear that something has gone wrong with the language and [it was] clear what a reasonable person would have understood the parties to have meant’
Gloster LJ departed from the literal meaning of the closing words of para (2) of the Definition because:
(i) it was notorious at the time of the issue of the ECNs that the regulatory requirements as to financial institutions’ capital would be ‘strengthened and changed’,
(ii) it was envisaged in the TandCs, in particular in clause 19, that expressions such as ‘Regulatory Capital Requirements’ and ‘Core Tier 1 Capital’ could change their meaning;
(iii) indeed, it was inherent in the terms of the Definition that this was so;
(iv) it was obvious that changes of substance might lead to changes of nomenclature; and
(v) one of the essential features of the ECNs was that, if necessary, they could be converted into LBG core capital, whatever expression was used to define it. She concluded that, given these points, coupled with the existence of the ECN maturity dates, it made no commercial sense to limit the reference to ‘Core Tier 1 Capital’ in para (2) of the Definition to CT1 Capital, as opposed to holding that it could, in the events which had happened apply to CET1 Capital. The error would ‘have been obvious to a reasonable addressee of the Exchange Offer Memorandum’.
Briggs LJ said: ‘In order to resist early redemption of the ECNs is it sufficient that they continue to be taken into account for some purpose or purposes in the stress-test now applied by the [PRA], which in my view they do, or must they play a part in enabling LBG to pass that test, which they clearly no longer do, because of the change in the Regulatory Capital Requirements which had the effect of elevating the pass ratio to a level above the Conversion Trigger.’
Gloster, Briggs, Sales LJJ
[2015] EWCA Civ 1257
Bailii
England and Wales
Citing:
At ChD – BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc and Another ChD 3-Jun-2015
The court was asked whether the defendants, wholly-owned subsidiaries of Lloyds Banking Group plc, are now entitled to redeem certain enhanced capital notes in advance of their respective maturity dates. That turns on whether or not a Capital . .
Cited – Sigma Finance Corporation, Re; (in administrative receivership) SC 29-Oct-2009
The court considered how the losses of the insolvent company were to be distributed as between secured creditors and preferential creditors, given the terms of the applicable trust deed.
Held: The court considered the interpretations of the . .
Cited by:
At CA – BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc and Another SC 16-Jun-2016
The Court was asked whether Lloyds Banking Group was entitled to redeem 3.3 billion pounds of loan notes which would otherwise carry a relatively high rate of interest, namely over 10% per annum. The loan notes are contingent convertible securities . .
Lists of cited by and citing cases may be incomplete.
Financial Services, Banking
Updated: 08 January 2022; Ref: scu.556789