Tael One Partners Ltd v Morgan Stanley & Co International Plc

The Claimant (“Tael”) seeks summary judgment on its claim. By cross application the Defendant (“Morgan Stanley”) seeks summary judgment against Tael. The claim is for a proportion of a “payment premium” payable by a borrower under a loan facility at the same time as repayment of principal. Tael was one of a number of lenders under the loan facility who during the currency of the loan transferred part of its participation to Morgan Stanley subject to standard terms promulgated by the Loan Market Association (“LMA”). The outcome of these applications depends upon the construction and application of those terms.

By a facility agreement originally dated 16 April 2009 but subsequently novated, amended and restated as of 26 November 2009 (“the Facility Agreement”) Tael agreed to participate, together with a number of other lenders, in the advance of a US$ 100 million syndicated loan to Finspace SA (“The Borrower”). Tael’s participation in the Facility Agreement varied over time, but from 30 November 2009 it was in an amount of US$ 32 million. The loan facility was for 24 months and provided for payment of interest at a rate of 11.25% per annum, accruing daily but payable 3 months in arrears. It also provided for a “Payment Premium” to be paid by the Borrower at the same time as repayment of the capital of the loan, which enhanced the rate of return to the lenders to a total of 20% p.a. (or in some circumstances 17%).

The Facility Agreement, by clause 24, permitted a lender to transfer part or all of its participation. Tael transferred US$ 11 million, out of its total US$ 32 million participation, to Morgan Stanley. The transfer was documented in a transfer certificate dated 14 January 2010. The transfer was subject to the terms of an LMA Trade Confirmation dated 14 January 2010 which incorporated the Standard Terms and Conditions for Par Trade Transactions of the LMA (“the LMA Terms”). The confirmation defined the trade date and the settlement date as 14 January 2010, and confirmed that payment was to be made on the settlement date. A purchase price letter was also executed on 14 January 2010 by both parties. It provided that in accordance with the LMA Terms the amount payable by Morgan Stanley was agreed to be that set out in the Schedule. The schedule to the purchase price letter provided that the total purchase price due to Tael from Morgan Stanley was US$ 11 million plus accrued interest for the period between 16 October 2009 and 14 January 2010 in an amount of US$ 309,375.00. It did not provide for any further payment; in particular it did not provide for any payment in respect of Payment Premium.

In March 2010 Morgan Stanley sold its participation in the Facility Agreement to Spinnaker Global Strategic Fund Limited.

On 16 December 2010 the US$ 100 million loan was repaid, being refinanced in full. Under the terms of the Facility Agreement, upon that event the Borrower was required to pay the Payment Premium to the relevant lenders. The Payment Premium was paid in full by the Borrower to all lenders on record as at 16 December 2010.

Tael claims that in accordance with the LMA Terms, Morgan Stanley is required to pay to it that proportion of the Payment Premium in respect of Tael’s US$ 11 million participation which had accrued as at the Settlement Date of 14 January 2010. Tael calculates this sum as being US$ 729,791.

By clauses 10 and 11 interest was payable on the outstanding principal at a rate of 11.25% per annum three monthly in arrears. Clause 11.1(a) provided that interest accrued from the date of advance of funds.

By clause 34.3:

In addition the Payment Premium was to be paid together with repayment of the capital. Payment Premium was defined in the agreement as follows:

The definition of Loan IRR was as follows:

in respect of a Lender that has not exercised the Lender Prepayment Option, 20% per annum;

in respect of a Lender who has exercised Lender Prepayment Option, 17% per annum,

The reference to Lender Prepayment Option is to clause 8.2, which in effect permitted a lender to call upon the Borrower to prepay that lender’s share on 90 days notice.

It was common ground between the parties that the Facility Agreement provided for a Payment Premium to be paid at the same time as, and together with, repayment of the principal of the loan in all circumstances in which the loan might come to be repaid or prepaid, including where there was acceleration by virtue of default. This was the effect of clauses 6.1, 7.3(a), 8.1(b), 9.2(c) and 23.2(b). The different circumstances in which a Payment Premium would become payable with repayment or prepayment were set out in these separate clauses. Importantly for the present dispute, the amount of Payment Premium might vary, depending upon which clause was operative and when the repayment or prepayment of capital fell to be made.

Clause 6.1 provided:

Clause 7.3(a) provided:

Clause 8.1 provided that upon the occurrence of a Change of Control the Borrower would be obliged to prepay the loans in full, including the Payment Premium.

Clause 8.2 contained the Lender Prepayment Option referred to above. Such prepayment would require payment of the Payment Premium by virtue of clause 9.2, but in this case it would be calculated so as to give an internal rate of return of 17% per annum, rather than the 20% which the lender would receive in all the other circumstances in which repayment of principal fell to be made.

Clause 9.2 provided:

Any prepayment (including principal and Payment Premium) under this agreement shall be made together with accrued interest on the amount prepaid, Break Costs and all other amount accrued under the Finance Documents…

In the case of any repayment or prepayment…of any Loan prior to the date falling 9 months after the Initial Utilisation Date, the Payment Premium payable shall be calculated as if such repayment or prepayment had been made on the date falling 9 months after the Initial Utilisation Date. ”

For the avoidance of doubt the Payment Premium shall be paid by the Borrower to each relevant Lender:

in the case of any repayment or prepayment of the Loans in full at the time of and together with such repayment or prepayment; and

in the case of any repayment or prepayment of any Lender’s participation in any Loan in full (including any prepayments pursuant to clause 7 (illegality and voluntary prepayment) and Clause 8 (Mandatory prepayment)), at the time of and together with any such repayment or prepayment.”

Clause 23.2 dealt with acceleration of the loan upon the occurrence of events of default. Clause 23.2(b) provided that upon such events the lenders should be entitled to the Payment Premium, in addition to principal and accrued and unpaid interest, Break Costs (if any) and any other amounts due under the Finance Documents.

Break Costs were defined to comprise the difference between (i) interest at 11.25% for the remainder of any three month period since the last interest payment and (ii) the amount the Lender would earn on deposit in the relevant interbank market for the remainder of that interest period.

It will be apparent from above that the Payment Premium is similar to interest and performs an analogous function. The cost of borrowing to the Borrower is more than 11.25%. However only 11.25% is to be paid out of cash flow three monthly in arrears. The remainder is deferred and is repayable whenever the loan falls to be repaid to a particular lender or all the lenders. This is the structure of the total return to the lenders in return for making the advance. The payment premium is therefore part of the consideration charged by each lender in return for making its portion of the loan available. It is calculated by reference to the period for which the Borrower has the use of the money in just the same way as is the entitlement to “interest” described as such. The difference in commercial terms from the Borrower’s point of view is that the deferred payment obligation in relation to the Payment Premium assists with the Borrower’s cash flow in not having to meet interest payments in full during the currency of the loan, but only having to pay the full cost of borrowing upon the repayment of the loan in full to each lender.

However the total cost of borrowing, and the return to a lender, may vary in amount depending on the circumstances in which repayment or prepayment falls to be made. There are three variables in particular. One is that if clause 8.2, the Lender Prepayment Option, is exercised the applicable total rate of return will be 17% per annum rather than 20% per annum in other circumstances. The second is that if the prepayment/repayment occurs in the first nine months the rate of return is calculated over a nine month period (clause 9.2(b)). Thirdly, some of the circumstances giving rise to repayment or prepayment involve the payment of Break Costs. The calculation of Payment Premium falls to be undertaken after such Break Costs have been taken into account. The calculation of the Payment Premium will therefore only be capable of being performed by applying the internal rate of return of 17% or 20% respectively to figures which are ascertainable by reference to events giving rise to the repayment or prepayment.

Condition 7.1 provides:

Condition 7.3 provides:

Condition 11 deals with interest payments and fees. Condition 11.2 covers circumstances in which the parties have agreed that the transfer is to be settled without accrued interest. That does not apply in this case. Condition 11.3 provides for the situation in which, as in this case, the parties have specified “Paid on Settlement Date” in their agreed terms. In those circumstances Condition 11.3 provides:

Condition 11.9 provides:

On behalf of Tael, Ms Oppenheimer submitted that the Premium Payment fell within Condition 11.9(a) as “fees…which are expressed to accrue by reference to the lapse of time” and therefore were payable to Tael as the Seller “to the extent they accrue in respect of the period before…the Settlement Date”, i.e. in respect of the period before 14 January 2010. In her written skeleton argument she treated the fees as also falling within Condition 11.3(a) as being “fees accrued up to….. the Settlement Date” and drew no distinction between the language used in the two Conditions. In oral argument, however, her primary submission was that Condition 11.9(a) was distinct from Condition 11.3(a), and that whilst the latter was concerned with interest and fees which were required to be paid on the Settlement Date itself, Condition 11.9(a) allowed for payments which fell to be made after the Settlement Date, which were payable thereafter to the Seller because they were “for the account of the Seller”.

Mr Smith on behalf of Morgan Stanley submitted:

Conditions 11.3(a) and 11.9(a) fell to be read together. Condition 11.9(a) was merely defining that which was capable of falling within Condition 11.3(a), so as to identify what was to be paid on the Settlement Date.

Payment Premium had not “accrued” either up to the Settlement Date (Condition 11.3(a)) or in respect of the period before the Settlement Date (Condition 11.9(a)).

The Payment Premium did not accrue, and was not expressed to accrue, by reference to the lapse of time (Condition 11.9(a)).

Payment Premium did not constitute “fees” within Condition 11.3(a) or 11.9(a).

This seems to me to be the first central question, to which the answer must be in the affirmative in order for Tael’s claim to succeed. It was common ground that at the Settlement Date, the amount of any Payment Premium which would ultimately be referable to the period prior to the Settlement Date was not capable of calculation. Its amount was dependent upon the particular events which in the future would give rise to the Borrower’s repayment obligation. That might involve a 17% or a 20% rate of return. It might involve a pro rating of the benefit of the minimum nine month calculation applicable to an earlier repayment. It might or might not be net of Break Costs. If, as Morgan Stanley contends, the only right to payment arises under Condition 11.3(a), which requires payment on the Settlement Date, it is difficult to see how there can have been something which can be described as having “accrued” at that date when it was then incapable of quantification.

The natural meaning of a fee which has accrued by a certain date is that it comprises a vested right to a sum which is ascertained, or ascertainable by reference to past events. It includes a right to an ascertained, or ascertainable, sum where the payment obligation itself is deferred to a particular date in the future (as was the case with the interest provision in the Facility Agreement). It also extends, in my view, to a sum which will undoubtedly be payable at a future date, but the time for payment of which is uncertain. For example, two weeks into a three month interest period, two weeks’ interest would still have accrued for the purposes of the Condition if the particular loan facility in question provided for interest to be paid either three monthly in arrears, or one monthly in arrears at the option of either party. It may perhaps extend to a sum which is to be ascertained in the future by reference to past events (e.g. a reasonable sum for work done, the amount to be determined by an expert). But a fee cannot be said to have accrued if the existence of the right to payment is contingent upon the occurrence of an uncertain future event, as distinct from the time at which it may be enforced. This is just as much so if the uncertain future event affects the amount of any payment obligation as it is if the uncertainty affects the existence of any obligation at all. Accrual is concerned with the vesting of rights, albeit that it can include those which are not immediately enforceable. Rights cannot be said to vest in the abstract, divorced from definition of the content of the right. One can not properly speak of a right to Payment Premium vesting at the Settlement Date merely on the basis that there will be an entitlement to some uncertain sum at an uncertain future date, which will properly be described as a Payment Premium.

It is therefore critical to Tael’s case, in my view, that Condition 11.9(a) should be construed as conferring an independent right to payment additional to that conferred by Condition 11.3(a).

Mr Smith submitted that the commercial architecture of Condition 7 is that the transfer transaction is to be concluded by payment on the Settlement Date by the transferee to transferor of all sums which can fall due for payment. For this submission he relied upon Conditions 7.1 and 7.3, and suggested that this accorded with the commercial logic of a clean break for both the old and new lender. In the secondary loan market, where loan participations might be traded on between numerous participants prior to repayment by the borrower, a final accounting between final intermediate and original lenders which had to await the repayment would, he submitted, be uncommercial and impractical.

Attractively though these arguments were presented, I am not persuaded by them. In my judgment, the following considerations point to Condition 11.9(a) allowing for a payment obligation falling on the Buyer after the Settlement Date, in respect of qualifying “interest and fees”.

There is an important difference in wording between Conditions 11.3(a) and 11.9(a). Condition 11.3(a) is concerned with “fees accrued up to …the Settlement Date”; whereas the words used in Condition 11.9(a) are “fees… to the extent that they accrue in respect of the period before the Settlement Date”. The former is concerned with something which has accrued at an identified point of time, the Settlement Date. The latter is concerned with something which accrues by reference to a period of time, not at or by a particular time. The natural inference from this distinction is that Condition 11.9(a) addresses interest and fees which may only accrue at a later date but which accrue in respect of an earlier period. Indeed Condition 11.9 would be essentially redundant if it were merely to be defining the allocation of fees and interest which fell to be paid for under Condition 11.3(a). Condition 11.3(a) already does that for itself. The use of different phraseology in Condition 11.9 points towards it having some separate scope of application, which must be for rights which accrue later but in respect of the period prior to the Settlement Date.

This does not cut across the commercial architecture of the LMA Terms as a whole. It is true that Condition 7.1 envisages settlement on the Settlement Date, and that Condition 7.3 requires that the settlement is to include what is paid for the Purchased Assets. But Condition 11 contains its own code for what is to happen to interest and fees. Condition 11.3(b) envisages payments between the parties after the Settlement Date in certain circumstances. Condition 11 therefore carries no presumption that fees and interest are to be finally settled on the Settlement Date. I am not persuaded that there are any commercial impracticalities in there having to be an accounting between lenders of record and original lenders and intermediate lenders at the conclusion of the loan.

Morgan Stanley’s interpretation produces anomalous results. If a loan facility provided for a payment premium to reflect an IRR which applied in all circumstances of repayment, then the amount referable to the period prior to any transfer would be calculable at the date of settlement. It is only impossible in the case of the Facility Agreement because the amount is variable, dependent on future contingencies. If the IRR were at a fixed rate, the part of the Payment Premium to which the Seller would be entitled would be capable of calculation at the settlement date. That part of it would have accrued, in my view, prior to the settlement date, the only contingency attaching to the right being when (not whether) it would fall due to be paid. Subject to the question whether such a payment premium was “interest or fees” (which I address below) it would be a sum to which the Seller would be entitled under Condition 11.3(a). But if the amount of payment premium were variable by as little as 0.001% dependent on the circumstances of the event giving rise to repayment, the Seller lender would, on Morgan Stanley’s argument, have no right to any part of it. This would be so if the loan were repaid the day after transfer. It would be so if the three monthly interest were set at a low level, the essential consideration for the period of lending being rolled into the payment premium. This would be anomalous. In an extreme case it would give the Buyer a windfall of an effective rate of return of many hundred per cent for a brief period of lending at the expense of the Seller who would receive inadequate consideration for its period of lending.

The consequence of Morgan Stanley’s interpretation of Conditions 11.3(a) and 11.9(a) is that the lender of origin loses part of his real rate of return for the time that he remains a lender. Mr Smith said that this was not a surprising result: the lender of origin earns 11.25% for the time value of the money lent; and the enhanced element reflected in the Payment Premium is for the risk of default, which is a risk of which the original lender divests itself by the transfer transaction. There are two answers to this point. The first is that it draws a flawed distinction between the lender’s recompense for the time value of money and the recompense for the risk of default. The bargain the original lender makes with the Borrower reflects both; and the rate of return which the Borrower is to bear and the lender to receive is a reflection of both. The IRR calculated by reference to the length of borrowing is a reflection of the risk of default which the original lender takes at the moment the advance is made to the Borrower, as well as of the time value of money. Secondly, such superficial attraction as the argument may have derives from the particular rates in the Facility Agreement in this case. But the LMA Terms must be construed against the possibility of a range of possible lending terms, including an interest rate set below the lender’s cost of borrowing, compensated for by a substantial overall IRR in a payment premium. If the relevant figures were three monthly interest at 0.5%, with the Payment Premium still calculated to reflect an IRR of 20% per annum (or 17%), the argument would lose any appeal.

The PIK Interest provisions in the LMA Terms give a guide as to what is intended to be the balance struck between Seller and Buyer where there is deferred or capitalised interest. Neither side referred me to these provisions, or relied upon them, but they cannot be ignored. PIK Interest is defined as

automatically deferred or capitalised; or

deferred or capitalised at the option of any Obligor.”

Condition 11.11 governs the allocation of entitlement to PIK Interest between Buyer and Seller. If it is deferred or capitalised before the Trade Date, it is a benefit for the account of the Seller and the Buyer must pay for it. If on the other hand it is deferred or capitalised after the Trade Date, even if it has accrued before then, it is for the Buyers account and he retains the benefit without having to pay for it. So if, for example, a credit agreement provided for interest to be paid three monthly in arrears at 20%, with an option given to the Borrower to defer that part in excess of 11.25% to be paid with repayment of the loan, the allocation of the benefit would depend upon whether the option was exercised before or after the Trade Date. If before, the Seller is still to get the equivalent of time on risk at 20% for the period prior to transfer.

These provisions might be thought to raise questions whether the Payment Premium in this case falls within the definition of PIK Interest. If the deferment is not optional but expressed by the terms of the credit agreement to apply automatically throughout the period of the loan, it might be thought to operate as an automatic deferment or capitalisation so as to come within the definition; and if so Condition 11.11 would operate so as to make it for the account of the Seller. Ms Oppenheimer did not, however, contend that the Payment Premium was PIK Interest, and indeed did not argue that the Payment Premium was “interest”, for reasons which will appear. Nor did Mr Smith contend that it constituted PIK Interest.

Nevertheless, what is in my view significant is that so far as PIK Interest is concerned, the allocation of benefit between Buyer and Seller reflected in Condition 11.11 is that the Seller is to be compensated for the full rate of return reflecting its period of lending, notwithstanding that payment of the interest reflecting that period of lending is postponed in part or in full.

Before leaving this point, I should record that in support of her argument Ms Oppenheimer also relied on the proviso in the final part of the definition of Payment Premium in the Loan Facility (“For the avoidance of doubt ................(ii) in relation to any assignment or transfer of the Lenders rights pursuant to clause 24 (Changes to the Lenders) the Applicable Payment Premium for each Transferee Lender shall be equal to the proportion of the Payment Premium otherwise due to the Existing Lender which had assigned or transferred its rights to the Transferee Lender to the extent such Payment Premium is attributable to such assigned or transferred rights.”). There is a limit to which this can assist in construing the effect of the LMA Terms. If this provision in the Facility Agreement is to be construed as evidencing an intention on the part of the Borrower and Tael that after transfer Tael, rather than the transferee, would be entitled to a proportionate part of the Payment Premium, it does not follow that Morgan Stanley, by agreeing to the transfer on the LMA Terms, adopted such intention and agreed to it. In fact I regard the provision as neutral even between Tael and the Borrower. It is a clause “for the avoidance of doubt” and the proportion being referred to in the final phrase more naturally means the proportion of the Payment Premium referable to the lender’s share of lending, not the proportion referable to its time as a lender. This is so despite the fact that, as Ms Oppenheimer pointed out, Payment Premium is defined and used elsewhere as a concept particular to each lender, rather than as a single undivided entitlement of the lenders as a body. Sub paragraph (i) of this part of the definition suggests that it is being used in the latter sense in this part of the definition.

I have already indicated that Tael’s claim does not require the Payment Premium to have accrued prior to the Settlement date so as to come within Condition 11.3(a) because it is sufficient if Tael’s claim can be brought within Condition 11.9(a); and that interest or fees can accrue “in respect of” the period prior to the Settlement Date even if the right to payment arises after the Settlement Date.

I return to the interpretation of “accrue” where first used in used in Condition 11.9(a) which only applies to “any interest or fees…..which are expressed to accrue by reference to the lapse of time.”

Ms Oppenheimer’s submission was that “accrue” in Condition 11.9(a) did not refer to vesting of rights, but merely to the accumulation of periods of time. But this does not seem to me to be a necessary corollary of the analysis. If Condition 11.9(a) were directed to interest or fees which can fall for payment by the Buyer after the Settlement Date, there seems no difficulty in it applying when, but not until, such rights vested. It would be possible to give the word “accrue” the same meaning as in Condition 11.3(a), namely the vesting of rights.

Mr Smith’s objection to this approach was that the Payment Premium itself would not accrue “by reference to the lapse of time”, because the rights would vest and become payable at a fixed point of time. He argued that the fact that the amount of the payment was calculated by reference to an elapsed period of time did not mean that the right to payment of the Payment Premium accrued by reference to the passage of time.

To my mind this is to ignore the breadth of the words “by reference to” in Condition 11.9(a). The vesting of the right, i.e. the accrual, does not have to be day by day by reason of the lapse of time. The vesting of the right must merely be by reference to the lapse of time. That is apposite to describe a right to payment of a sum which is earned to some extent from day to day but at a rate which cannot be calculated until a future event which then vests the right to payment of a sum calculated by reference to that period of time.

Moreover, if Condition 11.9(a) is to add anything of substance to Condition 11.3(a), it must cover a wider category of fees and interest than that already covered by Condition 11.3(a). It must therefore envisage that something may accrue by reference to the lapse of time and accrue in respect of the period prior to the Settlement Date, but not have accrued up to the Settlement Date. The two Conditions must be construed as using the word accrue in the same sense and giving the word its natural meaning of the vesting of rights. It follows that Condition 11.9(a) must treat accrual by reference to the lapse of time as addressing the nature of the right which accrues, rather than its time of vesting.

This construction is further supported by the anomalous results, to which I have already referred, which would follow from Morgan Stanley’s interpretation.

I therefore reject Mr Smith’s argument that the Payment Premium did not accrue by reference to the lapse of time. He also argued, albeit somewhat faintly, that even if the Payment Premium fell within Condition 11.9(a) as a fee which accrued by reference to the lapse of time, it was not expressed to accrue by reference to the lapse of time. If, however, the true construction of the terms of the Facility Agreement governing Payment Premium are such as to bring it within the requirements of Condition 11.9(a), that is sufficient for it to be expressed to fulfil those requirements.

I must confess that my initial reaction was that the Payment Premium was properly described as interest. It is part of the essential remuneration charged by the lender in return for making the advance, calculated by reference to the period of the loan. It performs the same function as interest payable periodically over the time the loan is outstanding. If, as a matter of drafting, the expressions Postponed Interest or Capitalised Interest had been used, rather than the term Payment Premium, it would not have involved misuse of language. If deferred and capitalised interest are defined and categorised as PIK Interest, one would have thought that a Payment Premium calculated by reference to an overall rate of return could also properly be called interest.

In the Particulars of Claim and in Ms Oppenheimer’s skeleton argument, Tael’s case was advanced on the basis that the Payment Premium was a fee, not interest. In the course of argument Ms Oppenheimer initially sought in the alternative to rely on it as being interest (to be fair to her, at my prompting and somewhat hesitantly); but later in the argument she abandoned the alternative and returned to Tael’s former position. The reason was that the purchase price letter signed by Tael and Morgan Stanley in this case stated in effect that the amount payable for interest was agreed to be that set out in the Schedule, which was the amount calculated at the rate of 11.25%; accordingly it was recognised that if the Payment Premium were properly categorised as interest, it was not open to Tael on the facts of this case to pursue the argument. Nor did Ms Oppenheimer argue that the Payment Premium was PIK Interest and recoverable under Condition 11.11, perhaps for the same reason.

It is against this background that Tael’s case rests upon the Payment Premium being properly categorised as a “fee”. An arrangement fee, an agency fee and a security agent fee are identified in Clause 13 of the Facility Agreement as fees payable by the Borrower. Another type of fee, commonly charged by lenders, although not provided for in the Facility Agreement, is a commitment fee, which is a fee charged on the unutilised portion of a facility for so long as it remains unused by the borrower. It compensates the lender for the commitment to making the funds available, although not yet advanced, thereby restricting its ability to earn income by deploying the funds elsewhere. A commitment fee is commonly calculated by reference to the period for which the unused portion of the facility remains unused. Mr Smith contended, correctly in my view, that a commitment fee of this type would be a fee falling within Conditions 11.3(a) and 11.9(a).

Mr Smith submitted that the Payment Premium was not a fee because it was not something which was paid in return for the performance of a service or a function. A fee, he contended, must be something paid in return for the performance of a particular service. He characterised the Payment Premium, by contrast, as an additional payment of principal due, or an uplift to the amount of principal which would otherwise be due.

I do not think this characterisation is right on either score. The Payment Premium is a fee for a service, namely the making of the advance. That is not a service which is materially different from that for which a commitment fee is paid, namely making the advance available. Nor is the Payment Premium “principal” in any accepted sense of the word. It is not a part of the principal sum which has been advanced. It is a lump sum payment to reflect the agreed time value of the principal which is advanced. It is in that sense also analogous to a commitment fee, which is a lump sum payable to reflect the agreed time value of the lender holding available funds to be advanced. Both are for the performance of a service in relation to the advance. Payment Premium can properly be characterised as a fee so as to come within Conditions 11.9(a) and 11.3(a).

For the above reasons I hold that Morgan Stanley is obliged to pay to Tael the Payment Premium to the extent that it accrued in respect of the period prior to 14 January 2010.

In her witness statement, Tael’s solicitor, Ms Tonkin, explained that the Payment Premium calculated for the period up to 14 January 2010, to reflect the IRR of 20% on sums outstanding from time to time up to 14 January 2010, was US$ 615,597. However what was claimed was US$ 729,791. The difference reflects a claim, in substance, for interest to run at 20% on the Payment Premium itself from 14 January 2010 to the date of repayment by the Borrower on 16 December 2010. The justification was said to be that the IRR of 20% would continue to accrue on any amount lent, including the Payment Premium, for so long as it was borrowed.

This begs the question as to whether a 20% per annum rate of return in respect of the period 14 January 2010 to 16 December 2010 comes within Condition 11.9(a) as something which has accrued “in respect of the period before……the Settlement Date”. Plainly it does not. No basis was explained in argument for Condition 11.9(a) (or indeed any other Condition) entitling Tael to payment of this additional sum. The proper measure of the payment to which Tael is entitled is US$ 615,597.