Trust deed — Construction — Lease of hotel as security for issue of debenture stock — Whether claimants entitled to withdraw lease from charge — Claim allowed
The claimants entered into a trust deed to secure the issue of debenture stock maturing in October 2020. The trust deed provided for a security cover for stockholders at a value of between 150% and 175% of the nominal stock outstanding and for the topping up of the cover if its value were to fall below the minimum 150% level. It also provided for the withdrawal of the security if its value were to exceed the 175% level, and clause 11A and 11B allowed for the substitution of an alternative security, approved by the trustees, of equal value for property charged. Under clause 1 of the trust deed, no value was to be attributed to any leasehold property provided as security if the terms of the lease expired within 45 years following the final maturity in 2020 (a short leasehold).
The claimants applied to the court for a declaration that, upon the true construction of the trust deed, they were entitled to withdraw as security, from the charge created by the trust deed, the lease of a London hotel (the Sloane property) that was vested in the second claimant. The Sloane property was leased on a 65-year short leasehold expiring in June 2042.
The defendant opposed the application, contending, inter alia, that, if the proviso applied, the legal charge could have effect only as a floating charge. Unless the proviso were disapplied, there could be no point in including short leaseholds as part of the specifically mortgaged property under the trust deed. Furthermore, the Sloane property could be released from charge only if the claimants paid the full open market value.
Held: The claim was allowed.
The claimants were entitled, upon payment of the expenses of the transaction, to require the withdrawal of the Sloane property from the charge to the trustees. The definition of the term “value” in clause 1 and the proviso were clearly and unambiguously applicable on a notice of withdrawal of property from the security under clause 11. The defendant had failed to establish that the claimants were not entitled to the relief sought.
The existence of a right unilaterally to require a chargee to release property from a charge did not render what was otherwise a fixed charge a floating charge. But there was no inconsistency between the existence of a fixed charge and a contractual right on the part of the chargor to require the chargee to release property from the charge.
Whatever the commercial limitations on the security provided, which was a matter for the parties, the language of the trust deed did not permit the construction contended for by the defendants. The proviso made it clear that the security afforded by a short leasehold was defeasible notwithstanding the inevitable diminution in value of the specifically mortgaged property.
Finally, there was no need, in the interests of business efficacy, to read into the proviso the words “except for the context of clause 11”.
Ewan McQuater QC (instructed by Freshfields Bruckhaus Deringer) appeared for the claimants; Gabriel Moss QC and Felicity Toube (instructed by Slaughter & May) appeared for the defendant.
Eileen O’Grady, barrister
