LSREF III Wight Ltd v Millvalley Ltd

LSREF III Wight Ltd (Wight) seeks a declaration as to the construction of an interest rate swap confirmation dated 19th December 2012, alternatively rectification of it. The point at issue is whether the confirmation (referred to as the “Restructured Swap Confirmation”) incorporated the terms of an ISDA Master Agreement in the 1992 form or an ISDA Master Agreement in the 2002 form with a Schedule. A subsidiary point arises in relation to an amendment to the Particulars of Claim seeking rectification, so far as necessary, of a 2002 form of ISDA Master Agreement and Schedule dated 13th December 2011 (“the Millvalley 2002 ISDA Master Agreement” and “the Schedule”). There was also an alternative assertion that the defendant (Millvalley) is estopped by convention from relying on the express words of the relevant instruments and cross-claims relating to estoppels to the contrary effect.

The critical point at issue in relation to the Restructured Swap Confirmation arises because of the difference between the 1992 form of ISDA Master Agreement and the 2002 form with the relevant Schedule since the latter included Additional Termination Events which gave rise to an entitlement on the part to Irish Bank Resolution Corporation Ltd (“IBRC”) terminate in the event of repayment of a loan. Wight is the successor in title to a claim for an Early Termination Amount which only exists if the restructured swap is governed by the Millvalley 2002 Master Agreement and Schedule which included the early termination provisions which did not apply under the 1992 Master Agreement.

I draw on Wight’s skeleton argument for a recitation of the basic facts.

Millvalley is part of a group of private Isle of Man property development companies beneficially owned by a successful property developer and businessman, William McCabe (“WM”). Other members of the group include Glen Properties Limited (“Glen”) and LNC Developments Limited (“LNC”).

Millvalley and Glen are SPVs initially incorporated to acquire interests in department stores in, respectively, Glasgow (the “Frasers Building”) and Edinburgh (the “Jenners Building”).

At all material times, Millvalley and Glen acted by professional directors provided by an established corporate services company, relied upon property management and financing advice provided by experienced chartered accountants, and had the benefit of professional legal advice provided by established law firms. They were also assisted by professional interest rate hedging advisors.

On 10th November 2006, Millvalley entered into an interest rate swap with Anglo Irish Bank Corporation plc (“AIB”) (the “Original Swap”). The Original Swap was an interest hedging arrangement required by AIB in connection with a £33.7 million facility provided by AIB to Millvalley under the terms of an agreement dated 10th November 2006 (the “Millvalley Facility”). The Termination Date of the Original Swap was 10th November 2016 (coinciding with the repayment date of the Millvalley Facility) and the Notional Amount of the Original Swap was £33.7 million (equivalent to the Millvalley Facility). Millvalley was the Fixed Rate Payer, and AIB was the Floating Rate Payer.

At around the same time, AIB also provided a £29.5 million facility to Glen (the “Glen Facility”) and AIB’s associate company, Anglo Irish Asset Finance Plc (“AIAF”), lent substantial funds to LNC and associated companies (the “LNC Facility”).

The Original Swap was subsequently confirmed in a long-form swap confirmation dated 2nd January 2007 (the “Original Swap Confirmation”). The Original Swap Confirmation stated (so far as relevant):

“This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the “ISDA Form”), with such modifications as you and we shall in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form part of, and be subject to, that agreement. All such provisions contained or incorporated by reference in that agreement will upon its execution govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation … shall supplement, form part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form (but without any Schedule except for the election of English law as the governing law) on the Trade Date of the first Transaction between us. In the event of any inconsistency between the provision of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.”

It is common ground that the ISDA Form referred to in the Original Swap Confirmation was a 1992 ISDA Master Agreement. No Master Agreement was, however, executed at this time, and therefore no Schedule.

In July 2010, each of the Glen, Millvalley and LNC Facilities were restructured (the “2010 Facilities” and “the 2010 Glen Facility, “the 2010 Millvalley Facility” and “the 2010 LNC Facility” respectively). The 2010 Facilities were, originally, to be repayable on 30th November 2011: this repayment date was later extended in the case of Glen and LNC as set out below. It is common ground that, as part of the restructuring, the Original Swap was identified as a “Hedging Arrangement” and “Finance Document” for the purposes of the 2010 Glen Facility. Again, however, no Master Agreement and Schedule were entered into at this stage.

In mid-2011, the borrower companies asked AIBfor a further extension of the 2010 Glen and LNC Facilities until the end of 2012 and on the basis of a reduction in the overall indebtedness of the Borrower Companies. The extension was agreed on the basis that Millvalley would sell the Frasers Building and use the proceeds to repay the 2010 Millvalley Facility entirely and also reduce the amounts owed under the 2010 Glen Facility. Millvalley did not want to incur the costs of breaking the Original Swap (estimated in October 2011 to be about £5.796 million). Millvalley accordingly proposed that the Original Swap should remain in place after the 2010 Millvalley Facility had been repaid in July 2011, and be utilised as a hedge for the purposes of the 2010 Glen and LNC Facilities.

AIB imposed a number of conditions on the extension of the 2010 Glen and LNC Facilities. These included a requirement that Millvalley enter into an ISDA Master Agreement in order to document Millvalley’s “existing hedging arrangements”, i.e., the Original Swap which (as is common ground) was the only existing hedging arrangement between Millvalley and AIB at this time. Millvalley expressly confirmed to AIB, in an email dated 4th August 2011, that it was “happy… to proceed” on that basis, and on the basis of the other conditions required by AIB.

On 20 October 2011, AIB’s lawyers, DLA Piper LLP (“DLA”) sent a draft ISDA 2002 Schedule to Millvalley’s lawyers, McGrigors LLP (“McGrigors”). On 24th October 2011, McGrigors confirmed to DLA that, subject to a correction to the Party B notice details, they were “happy with the draft”.

On 18th November Glen and LNC signed Facility Amendment Letters which recorded the terms on which IBRC extended their respective facilities until 31st December 2012. There included provisions relating to the execution by Millvalley of an ISDA 2002 Master Agreement and Schedule.

Millvalley and AIB’s successor corporation, IBRC executed the finalised ISDA 2002 Master Agreement and Schedule dated as of 13 December 2011 (the “Millvalley 2002 ISDA Master Agreement”). The Millvalley 2002 ISDA Master Agreement was in the 2002 rather than the 1992 form. It contained, in its Schedule, the following material provisions:

(1)

Part 5(a):

“Scope of this Agreement. As from the date of this Agreement, any transaction that has been or is now or in the future entered into between [IBRC and Millvalley] which would constitute a “Specified Transaction” as defined in this Agreement … and which fails by its terms expressly to apply the terms and conditions of another form of agreement or alternatively to exclude application of this Agreement, whether or not specific reference to this Agreement is made in any communication confirming the same, shall supplement, form a part of and be subject to this Agreement and shall be a Transaction under this Agreement. Accordingly, the terms and conditions of each such transaction are hereby varied to incorporate the terms of this Agreement and any agreement or confirmation in respect of the same shall henceforth be read and construed as forming part of this Agreement”

(2)

Part 1(g)(i):

“Each of the following events shall constitute Additional Termination Events pursuant to Section 5(b)(vi):

(A)

Repayment, Prepayment, Cancellation. The repayment, prepayment or cancellation in full of all commitments and amounts outstanding under the Facility Agreements

(B)

Repayment, Prepayment, Cancellation in part. The repayment, prepayment or cancellation in part of any commitments and/or amounts outstanding under any Facility Agreement

(C)

Overhedging. At any time the notional amount of any of the Transactions under this Agreement exceeds the aggregate principal amount outstanding under the Facility Agreements to which such Transaction or Transactions relate”

(3)

Part 5(n): “… ‘Facility Agreements’ means (i) [the 2010 LNC Facility] and (ii) [the 2010 Glen Facility]”.

(4)

Part 1(g)(ii)(D)

For the purposes of Part 1(g)(i)(A) above: … (D) notwithstanding Section 6(a) or (b) of this Agreement, an Early Termination Date shall be the date on which Party A [IBRC] receives notice of the relevant repayment, prepayment or cancellation under the relevant Facility Agreement(s).”

Almost a year later, in September 2012, IBRC, Glen, Millvalley and LNC embarked on a further restructuring of the Glen and LNC Facilities. As part of the restructuring, the Glen and LNC Facilities were extended again at a higher interest rate. The Glen Facility was extended until 30th June 2014 and the LNC Facility until 31st December 2013. In connection with obtaining these extensions, Millvalley agreed to use deferred consideration received from the sale of the Frasers Building to reduce the outstanding amount of borrowing with a corresponding reduction in the notional amount of the Original Swap (which involved a payment by Millvalley for the cancelled amount because the Swap was out of the money). The purpose of this reduction in the notional amount of the Original Swap was to bring it in line with the reduced amount of the Facilities then being made available.

On 14th December 2012, IBRC and Millvalley agreed to enter into a restructured swap on the same commercial terms (as to duration and interest rate) as the Original Swap, but for a reduced notional amount of £27.7 million (the “Restructured Swap”). This was referred to by IBRC in correspondence with Millvalley as a “partial tear up” of the Original Swap.

The “partial tear up” was documented as follows:

It is common ground that there was no discussion between the parties about what ISDA terms applied to the Restructured Swap.

It is Wight’s case that the Original Swap was governed by the Millvalley 2002 ISDA Master Agreement and that the Restructured Swap was also. It is said that the reference to the generic 1992 ISDA form of agreement in the Restructured Swap Confirmation was a mistake caused by an administrative oversight at IBRC and should have, and but for the mistake, would have, referred to the Millvalley 2002 ISDA Master Agreement (with its Schedule) which the parties intended to govern it.

On 27th June 2014 Glen repaid the 2010 Glen Facility early, triggering an Additional Termination Event under Part 1(g)(i) of the Schedule to the Millvalley 2002 ISDA Master Agreement and on the same day, IBRC sent a Notice of Early Termination to Millvalley. On 2nd July 2014, IBRC sent Millvalley a statement of the sum due on early termination, namely, £4,282,518.90 plus contractual interest (the “Early Termination Amount”).

In response, in letters sent on 4th and 16th July 2014, Millvalley took the point that because IBRC was in the process of liquidation proceedings, no sums were due by virtue of the provisions of section 2(a)(iii) of the 2002 Millvalley ISDA Master Agreement. At this stage, Millvalley and its solicitors (by then, Pinsent Masons LLP (“Pinsents”))did not dispute that the governing document was the Millvalley 2002 ISDA Master Agreement: on the contrary, they relied on its terms.

It was on 17th July 2014 that the point was taken that the long-form Restructured Swap Confirmation referred to a 1992 ISDA Master Agreement and so the Millvalley 2002 ISDA Master Agreement had no application to the Restructured Swap.

IBRC subsequently served notice on 12th August 2014 declaring an event of default. By deed dated 1st September 2014, IBRC assigned to Wight its right, title and interest in the Early Termination Amount. On 29th September 2014, Wight sent notices to Millvalley notifying it of the transfer and demanding payment of the Early Termination Amount and further interest.

Millvalley has refused to pay the sums due, on the basis that the 2002 Millvalley ISDA Master Agreement and its Schedule have no application to the Restructured Swap and that there is therefore no entitlement to any Early Termination Amount.

Wight brings this claim for payment of the Early Termination Amount due from Millvalley in the sum of £4,282,518.90, plus interest. In order to deal with the point now taken by Millvalley, Wight also seeks declarations or (if necessary) rectification so that the Original Swap and, after the partial tear up, the Restructured Swap, are governed by the Millvalley 2002 ISDA Master Agreement.

The parties agreed that there were eight principal issues in dispute, namely:

1.

As a matter of construction of its terms in their commercial context, is the Restructured Swap governed by the Millvalley ISDA Master Agreement (i.e. the 2002 ISDA Form) and Schedule or the 1992 ISDA Master Agreement?

2.

If as a matter of construction, the Restructured Swap is governed by the 1992 standard form ISDA Master Agreement, should it be rectified so that it is subject to the Millvalley ISDA Master Agreement?

3.

Further or alternatively, is Millvalley estopped by convention from denying as against the Claimant that the Restructured Swap is governed by the Millvalley ISDA Master Agreement?

4.

Was the Restructured Swap validly terminated by IBRC on 27 June 2014?

5.

Is the Early Termination Amount under the Restructured Swap now due and payable to the Claimant by the Defendant, together with costs and interest?

6.

Is it necessary to rectify the Millvalley ISDA Master Agreement so that it governs the Original Swap, and if so, should it be rectified?

7.

Further or alternatively, is Millvalley estopped by convention from denying as against the Claimant that the Millvalley ISDA Master Agreement governed the Original Swap?

8.

Is the Claimant estopped and/or precluded from claiming rectification and/or relying on an estoppel by convention in respect of the application of the Millvalley ISDA Agreement to the Original Swap and/or Restructured Swap?

The Claimant’s only witness was Jean McKeating who, between June 2004 and March 2014 worked in the Treasury Operations Department at AIB and its successor entity, IBRC. She explained the operating procedures at AIB/IBRC around the time of the issuance of the Restructured Swap Confirmation and how that confirmation would have been generated and signed on behalf of AIB/IBRC. Although she was not involved in sending, receiving or creating any of the relevant documents prior to 2012 to which reference is made earlier in this judgment, she was the electronic signatory to the Tear-up Confirmation and the Restructured Swap Confirmation. She had been involved in the Derivative Operations Department of the Treasury and was appointed a manager in May 2008 before taking maternity leave between November 2010 and August 2011. On her return she assumed a different role within Treasury Operations which incorporated an advisory role to the Interest Rate Derivative Team. She had no actual recollection of signing the Restructured Swap Confirmation on 19th December 2012 but explained the way in which the procedure ought to have worked where an ISDA Master Agreement existed between AIB/IBRC and a customer.

“18.

Based on AIB/IBRC’s usual operating procedures, the AIB/IBRC employee or team responsible for the bank entering into any particular ISDA Master Agreement with a customer (normally, but not in all instances, Corporate Sales) should have notified Derivative Operations of the existence of any ISDA Master Agreement either contemporaneously with or shortly after its execution.

19.

Once notified of the existence of an executed ISDA Master Agreement, Derivative Operations should then have inputted certain key “static information” about the ISDA Master Agreement (e.g., customer counterparty, date, 1992 or 2002 form) into a computer system known as Opics, which was AIB/IBRC’s transactional processing system for all treasury-related activities.

20.

However, if Derivatives Operations were not notified about the existence of an executed ISDA Master Agreement, it would have had no knowledge of the existence of such an agreement between the bank and the customer counterparty, nor would the static information about the ISDA Master Agreement have been entered into Opics.

…

23.

One purpose of the Opics system was to keep a record of the existence of the ISDA Master Agreements between the bank and its customers for Derivative Operations. Accordingly, if subsequent trades were entered into between the banks and a particular customer, the relevant ISDA Master Agreement with that customer would be referenced in the swap trade confirmation. Opics acted in conjunction with a separate system called Scrittura, which was a derivative confirmation generation system that would automatically generate swap trade confirmations by incorporating the applicable static data recorded in Opics, if any. Specifically, if information stating and confirming the existence of an ISDA Master Agreement were recorded in Opics, then a short form swap trade confirmation, referencing the negotiated, customer counterparty-specific ISDA Master Agreement signed between the bank and the customer, would have been generated by Scrittura. Where there were no details entered into Opics of any previous ISDA Master Agreement between the bank and a particular customer counterparty, a long form swap trade confirmation, incorporating a generic form of an ISDA Master Agreement by reference, would have been generated by Scrittura.

24.

Once a trade confirmation was automatically generated by Scrittura, Derivative Operations was required only to cross-check the information contained in the confirmation against the information provided to Derivative Operations (e.g. the trade details in the email from Corporate Sales and any static information entered into Opics). Derivative Operations was not required to undertake any independent investigation as to the completeness of the information that had been provided to it, including the fact of the pre-existence of a negotiated customer counterparty-specific ISDA Master Agreement between the bank and the particular customer. In particular, based on the operating procedures discussed above, Derivative Operations relied upon an assumption that the information recorded in Opics was accurate in all respects. As a result, if Derivative Operations were not notified of the existence of a signed ISDA Master Agreement between the bank and the customer, and no information about any ISDA Master Agreement was recorded in Opics, then no ISDA Master Agreement would be referenced in the subsequent swap trade confirmation.”

In consequence, her evidence was that the production of the correct form of swap trade confirmation (whether short form or long form) was dependent upon the correct input into Opics of the existence of an ISDA Master Agreement. (Those forms are standard forms exhibited to the 2000 and 2006 ISDA Definitions). She said that she would have signed the Restructured Swap Confirmation only after both she and another Derivative Operations Employee had cross-checked the trade’s economic and counterparty details specified in the Confirmation against the details contained in the transaction emails. That however would have been the extent of the check carried out because the assumption was that the form of confirmation generated (whether short form or long form) by Opics and Scrittura correctly reflected the existence or non-existence of an ISDA Master Agreement. If the static information about the existence of the Millvalley 2002 ISDA Master Agreement had been received by Derivative operations and entered into Opics, it would have resulted in a short form confirmation being generated by Scrittura, making reference to it.

Had she been aware of the existence of the Millvalley 2002 ISDA Master Agreement prior to signing the Restructured Swap Confirmation, she would have rejected the long form confirmation that failed to refer to it and would have required a new short form Swap Confirmation which referenced and incorporated it, before signing it. She had never, in her experience, come across a situation where an ISDA Master Agreement had been negotiated and executed between the bank and a customer but was thereafter intentionally not used to govern subsequent trades with that particular customer counterparty or intentionally not referred to in a subsequent trade confirmation. She concluded that the static information regarding the Millvalley 2002 ISDA Master Agreement had not been entered into Opics, presumably because it had never been provided to Derivative Operations by the AIB/IBRC employees or team responsible for obtaining its signature. Although the Millvalley 2002 ISDA Master Agreement had been executed by Millvalley on about 7th November 2011 and sent to AIB/IBRC and executed by AIB/IBRC on 13th December 2011, the only copy containing signatures for both Millvalley and IBRC was disclosed by Millvalley. It seems that IBRC had mislaid that document.

Wight did not produce evidence from any other employee of AIB/IBRC, whether from Mr Naylor who was responsible for the original Glen, Millvalley and LNC Facilities and the Original Swap Confirmation, nor from Mr Berry who was responsible for restructuring the facilities to constitute the 2010 Facilities, nor from Mr Frost, the bank’s relationship manager at the time of the 2011 restructuring and the execution of the Millvalley 2002 ISDA Master Agreement nor from anyone at the bank responsible for the Partial Termination and restructuring of the Millvalley Swap in 2012, whether June Bridie, Malcolm Carrighy or Clair Howell who had dealings with Millvalley in relation to the Tear-up Confirmation and the Restructured Swap Confirmation.

There is therefore an absence of any direct evidence from the persons responsible for negotiating any of the arrangements in question and no evidence of any agreement, understanding or subjective intention that was not recorded in the documents with which the court is concerned, or is to be inferred from them. It is said by Millvalley that, although Wight has obtained documents from IBRC, the court cannot be confident that full disclosure of all relevant documentation has been given. There is however no reason to believe that anything “crossing the line” between the parties is missing and as bank internal documents have been produced, no reason to think that proper disclosure has not been made.

By contrast, Millvalley adduced evidence from Mr Kenneth McCullagh, a director of LNC Property Managers Ltd which provided management services to the LNC property group, including Millvalley, from Mary McCoy, the chief financial officer of LNC property group who performed financial and accounting services for Millvalley, from Mr John Maciver of McGrigors and later of Pinsents, the solicitors acting for the LNC group of companies after 2008 and from Mr Gethin Taylor, a director of Millvalley and the signatory to the Original Swap Confirmation, the Millvalley 2002 ISDA Master Agreement and Schedule and the Restructured Swap Confirmation. The latter was a director of Chancery Trust Company Ltd, the Isle of Man corporate services provider which managed Millvalley on the advice of Mr McCullagh and ultimately Mr McCabe. The actual recollection of these witnesses, as appeared from their witness statements, was limited but the essence of what they had to say in their witness statements in relation to the various ISDA documents was that, apart from negotiating the fundamental financial terms, they agreed to sign the standard form ISDA documents that the bank provided. I shall return to their evidence in the context of the issues to which I now turn.

Wight contends that, on its proper construction, the Restructured Swap Confirmation is governed by the Millvalley 2002 ISDA Master Agreement and Schedule by virtue of the principles of construction set out in various cases where it is clear that something has gone wrong with the language used by the parties in circumstances where it is also clear what a reasonable person would have understood the parties to have meant. Reliance was placed upon the dicta of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 at paragraphs 14-15 by reference to the earlier decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp. 912-913. The question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them, using the language in the contract, to mean. Whilst it is not readily to be accepted that people make linguistic mistakes in formal documents, in some cases the context and background can drive a court to the conclusion that “something must have gone wrong with the language”. In such cases the law does not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. It requires a strong case however to persuade the court that something must have gone wrong with the language.

Reliance was also placed upon the decision of the Court of Appeal in Aberdeen City Council v Stewart Milne Group Ltd 2012 SC (UKSC) 240. At paragraph 28 in the judgment of Lord Clarke he referred to the application of commercial good sense in the construction of a term of a contract which was open to alternative interpretations, it being the ultimate aim in construing a contract to determine what the parties meant by the language used, which in itself involved ascertaining what a reasonable person who had all the background knowledge which was reasonably available to the parties at the time of the contract, would have understood the parties to have meant.

In the particular context of a mistake, Lord Hodge JSC in Arnold v Britton [2015] AC 1619 referred at paragraphs 68-71 to several cases concerning the remediation of such mistakes by construction or implication of terms. He referred to such authorities as cases where either the mistake was clear and it was apparent what correction was called for, or there was grammatical ambiguity and no commercial sense if interpreted in accordance with the ordinary rules of syntax, or where the internal context of the contract pointed inescapably to the commercially sensible interpretation as opposed to other possibilities which were commercial nonsense.

In Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, Lord Neuberger at paragraphs 16-22 set out the approach to be adopted by reference to the run of usual authorities that are cited in the context of construction:

“18.

… while one may proceed on the prima facie assumption that the words at issue mean what they naturally say, they cannot be interpreted in a vacuum. The words must be interpreted by reference to what a reasonable person (who is informed with business common sense, the knowledge of the parties, including of course of the other provisions of the contract, and the experience and expertise enjoyed by the parties, at the time of the contract) would have understood by the provision. So construed, the words of a provision may have a meaning which is not that which they may appear to have if read out of context, or the meaning which they may appear to have had at first sight. Indeed, it is clear that there will be circumstances where the words in question are attributed a meaning which they simply cannot have as a matter of ordinary linguistic analysis, because the notional reasonable person would be satisfied that something had gone wrong in the drafting.

…

20.

Further, as Lord Hoffmann also made clear in Investors Compensation [1998] 1 WLR 896, there is a difference between cases of ambiguity, which may result in giving the words a meaning they can naturally bear, even if it is not their prima facie most natural meaning, and cases of mistake, which may result from concluding that the parties made a mistake and used the wrong words or syntax. However, he emphasised the court does "not readily accept that people have made mistakes in formal documents" - Chartbrook [2009] 1 AC 1101, para 23. He also pointed out in paragraph 20, that, as the court, and therefore the notional reasonable person, cannot take into account the antecedent negotiations, the fact that the natural meaning of the words appears to produce "a bad bargain" for one of the parties or an "unduly favourable" result for another, is not enough to justify the conclusion that something has gone wrong. One is normally looking for an outcome which is "arbitrary" or "irrational", before a mistake argument will run.

21.

Accordingly, before the court can be satisfied that something has gone wrong, the court has to be satisfied both that there has been "a clear mistake" and that it is clear "what correction ought to be made"...”

It is right to say that, there is, according to Lord Hoffmann in Chartbrook (ibid.) no limit on the amount of red ink or verbal rearrangement or correction which the court is allowed to make in order to give effect to the parties’ intended meaning. “All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.”

Nonetheless, in order to construe a contract in a manner which is contrary to the language used, where there is no ambiguity in that language, the authorities make it plain that the court must be satisfied that something has gone wrong in the drafting, that there is a clear mistake and what correction ought to be made in the light of it to give effect to the parties’ intention. The question is whether these principles can avail Wight in the present case.

Millvalley relied on other authorities which emphasised the high threshold required before a mistake could be corrected as a matter of construction. Millvalley referred to the need for “commercial nonsense” or “absurd interpretations” arising from construction of the language used which showed that something had gone clearly wrong.

It was contended, in reliance on Cherry Tree Investments v Landmain Ltd [2013] Ch 205 (CA), that the accidental omission of a clause from a contract could not be corrected by the process of construction but only by the remedy of rectification – see paragraphs 132-133. Furthermore, it was rightly submitted that a contract can only have one meaning, namely that which is determined by the court to be its proper construction and that must be good for all time. In the context of standard form contracts, consistency, predictability and certainty are essential and so they are much less susceptible to interpretation by reference to background circumstances or matrix. An ISDA standard form cannot therefore be subjected to any “manipulation” of the language used, because of the potential impact on other transactions governed by it.

The Restructured Swap Confirmation contains no ambiguity on its face. It reads, so far as relevant, as follows:

“Our ref: 1013126 (Restructure of Swap 1006185)

Dear Sirs,

The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the “Transaction”).

The definitions and provisions contained in the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc (the “Definitions) if and as applicable, are incorporated into this Confirmation. In the event of any inconsistency between those Definitions, and provisions and this Confirmation, this Confirmation will govern.

This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the “ISDA Form”), with such modifications as you and we shall in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form part of, and be subject to, that agreement. All such provisions contained or incorporated by reference in that agreement will upon its execution govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation, together with all other documents referring to the ISDA Form (each a “Confirmation”) confirming transactions (each a “Transaction”) entered into between us (not withstanding anything to the contrary in a Confirmation), shall supplement, form part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form (but without any Schedule except for the election of English law as the governing law) on the Trade Date of the first such Transaction between us. In the event of any inconsistency between the provision of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.

The terms of the particular Swap Transaction to which this Confirmation relates are as follows:

Restructure Date: 14 December 2012

Effective Date: 10 December 2012

Termination Date: 10 November 2016

…

Operational Matters

This Confirmation is the final form and supersedes all previous Confirmations and communications in respect of this Transaction.”

As with the Original Swap Confirmation, the document recorded a complete binding agreement as to the terms of the transaction to which it related and anticipated the execution of an ISDA Master Agreement in the 1992 form in the future “with such modifications as you and we shall in good faith agree”. Once executed, that envisaged ISDA Master Agreement would govern the transaction, but until executed, the standard form of the 1992 ISDA Master Agreement would apply, without any Schedule, except for the election of English law.

In reality the parties had already executed an ISDA Master Agreement in the 2002 form with a Schedule containing other terms, including the Additional Termination Event provisions. The issue therefore is whether the historical and commercial context and the suite of documents forming part of the 2012 restructuring show that the Restructured Swap Confirmation contains such an obvious mistake that the court must conclude that something has gone wrong in the drafting and that it is clear that reference should have been made to the Millvalley 2002 ISDA Master Agreement. It is necessary therefore to look at that context but without reference to the negotiations of the parties which, on the authorities, could only be taken into account in the context of rectification, as opposed to construction.

The relevant background to the 2012 restructuring starts with the 2010 restructuring of the original Millvalley, Glen and LNC Facilities. The result of this restructuring was the conclusion of the 2010 Facilities on 20th July 2010 which had the effect of extending the term of the Glen Facility and the LNC Facility to 30th November 2011 but reducing the term of the Millvalley facility to the same date. Furthermore, the margin percentage was increased and, more importantly perhaps, cross-security was given in the form of a Composite Guarantee and Debenture, whereby Millvalley, Glen and LNC became jointly and severally liable for each others’ indebtedness to AIB and AIAF. Glen also granted AIB a security interest over its property assets in Edinburgh in respect of that liability. The result was that Glen and LNC’s property, in addition to that of Millvalley, became security for Millvalley’s liability under the Original Swap Confirmation which was, by this time, significantly out of the money.

The terms of the 2010 Facilities each required Millvalley to maintain hedging arrangements satisfactory to AIB as a condition precedent to the restructured facilities, under clause 8.4 of the 2010 Millvalley Facility, Schedule 1 paragraph 7(a) of the 2010 Glen Facility and Schedule 1 paragraph 8(a) of the 2010 LNC Facility. The one and only hedging arrangement was Millvalley’s Original Swap which was to run until November 2016 and therefore no longer matched the term of any of the 2010 Facilities. The properties of Millvalley, Glen and LNC stood as security for Millvalley’s liability on this swap as well as for the various companies’ liability under loans.

Well before the expiry of the 2010 Facilities, Mr McCullagh asked AIB to consider and approve renewing the Millvalley, Glen and LNC Facilities until the end of 2012 on the basis that the Millvalley property in Glasgow be sold and the proceeds used to repay the entire Millvalley debt, with the surplus used to reduce the Glen Facility, whilst the Original Swap on the Millvalley Facility be utilised against the Glen and LNC Facilities. AIB expressed its approval to the extension of the Glen and LNC Facilities until 31st December 2012 subject to various terms and conditions, including “documenting an ISDA Master Agreement to be entered into by Millvalley Ltd” which “relates to the existing hedging arrangements currently in place”.

The Frasers building in Glasgow was sold by Millvalley in July 2011 and the security released over it also in July 2011 on repayment of the Millvalley Facility, whilst Millvalley remained liable on the Original Swap Confirmation, cross-secured by reason of the Composite Guarantee and Debenture on Glen and LNC’s properties.

The parties’ objective intentions, contained in the suite of documents containing the restructuring in November/December 2011 are, in my judgment, clear. The Amendment Letters of 18th November 2011 relating to the Glen Facility and the LNC Facility (executed by Glen, LNC and Millvalley) set out the requirement for an ISDA 2002 Master Agreement and Schedule to be concluded between IBRC and Millvalley as a condition precedent to the extension to 31st December 2012 of the Glen and LNC Facilities. In Schedule 1 to each of the Amendments Letters, paragraphs 1(c) and 2(c) respectively reference this requirement for an ISDA agreement which, by paragraph 2.1 of the definitions in each letter meant an ISDA 2002 Master Agreement and Schedule (and, in the case of LNC, “in such form as IBRC shall require”). These Amendment Letters were, by clause 8.3 of each, constituted a “Finance Document” for the purposes of the original Facility Agreements dated 20th July 2010 and each provided that “the Facility Agreement and all other Finance Documents shall remain in full force and effect” subject to the provisions of the Amendment Letter itself.

The Millvalley 2002 ISDA Master Agreement dated as of 13th December 2011, by its express terms, governed past and future derivative transactions and provided that “all transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties and that the parties would otherwise not enter into any Transactions”. It also provided that “in the event of any inconsistency between the provisions of any Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction.”

The Millvalley 2002 ISDA Master Agreement incorporated a Schedule also dated 13th December 2011. Under Part 1(g), the repayment, prepayment or cancellation in whole or in part of commitments and amounts outstanding under any Facility Agreement and any Overhedging were to constitute Additional Termination Events. Under the same sub-paragraph, it was provided that an Early Termination Date should be the date upon which IBRC received notice of the relevant repayment, prepayment or cancellation under the relevant Facility Agreement. In Part 5 the Facility Agreements were defined as the Glen and LNC Facility Agreements.

When the Amendment Letters of 18th November 2011 are read together with the Millvalley 2002 ISDA Master Agreement, the Original Swap Confirmation and the Composite Guarantee and Debenture, the following is clear:

Part 5(a) of the Schedule read as follows:

“Scope of this Agreement. As from the date of this Agreement, any transaction that has been or is now or in the future entered into between Party A and Party B which would constitute a “Specified Transaction” as defined in this Agreement (but excluding repurchase transactions, reverse purchase transactions, buy/sell-back transactions and securities lending transactions) and which fails by its terms expressly to apply the terms and conditions of another form of agreement or alternatively to exclude application of this Agreement, whether or not specific reference to this Agreement is made in any communication confirming the same, shall supplement, form a part of and be subject to this Agreement and shall be a Transaction under this Agreement. Accordingly, the terms and conditions of each such transaction are hereby varied to incorporate the terms of this Agreement and any agreement or confirmation in respect of the same shall henceforth be read and construed as forming part of this Agreement.”

This did not prevent the application of the Millvalley 2002 ISDA Master Agreement to the Original Swap Confirmation because the Millvalley 2002 ISDA Master Agreement represented the ISDA Master Agreement envisaged by that confirmation. In the latter (the terms of which appear at paragraph 9 of this judgment) appeared the agreement of the parties to use all reasonable efforts to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multi-currency Cross Border) “with such modifications as you and we shall in good faith agree”. The fact that this referred to the 1992 form is neither here nor there since the parties had agreed the Millvalley 2002 ISDA Master Agreement and Schedule as the modified version.

As a matter of construction of the contractual documents, it is in my judgment clear that from 13th December 2011 onwards the Original Swap Confirmation was governed by the Millvalley 2002 ISDA Master Agreement.

The 2012 restructuring consisted of two further Facility Amendment Letters executed by Glen, LNC and Millvalley dated 19th December 2012 and the Tear-up Confirmation and the Restructured Swap Confirmation. Under the terms of the Facility Amendment Letters, the Facility Agreements and the 18th November 2011 Amendment Letters continued in full force and effect subject only to the provisions of the 2012 Amendment Letters themselves. So too, expressly, did the Original Swap Confirmation which was a Finance Document for the purposes of these Agreements.

The Amendment Letters of 19th December 2012 made no express reference to the Original Swap or to the ISDA documentation as such, save for stating that the Finance Documents (which included the Original Swap Confirmation) remained effective and that there was no amendment or waiver of any provision of them.

By clause 2.2.3 and clause 3 of each of these Amendment Letters, the only changes to the earlier agreements were those set out in Schedule 2 which altered the repayment date of each and increased the margin to 4%.

The documents relating to the swap itself consisted of the Tear-up Confirmation and the Restructured Swap Confirmation. The former, using the reference number of the Original Swap Confirmation, referred to partial termination of the transaction, stating that “this Confirmation supplements and forms part of and is subject to, the ISDA Master Agreement between you and us referred to in the Transaction Confirmation” and stated that the Tear-up confirmation constituted a “Confirmation” to which all provisions contained in the agreement would apply. As a matter of construction therefore, that confirmation was governed by the Millvalley 2002 ISDA Master Agreement which governed the Original Swap Confirmation.

By contrast, the Restructured Swap Confirmation, in the terms set out in paragraph 43 above, was in the long form, as if there was no existing ISDA Master Agreement between the parties and contemplated that one might yet be negotiated and executed, pending which the 1992 ISDA form should apply, without any schedule save for the application of English law. The express terms of this Restructured Swap Confirmation with a separate reference number therefore, on its face, constituted a “specified transaction” but one which expressly applied the terms and conditions of another form of agreement, rather than the Millvalley 2002 ISDA Master Agreement. If there had been no reference to the 1992 form, it would have been a “Specified Transaction” subject to the Millvalley 2002 ISDA Master Agreement, as provided in Part 5(a) of the Schedule.

Whilst it is clear, to my mind, that the use of the long form confirmation, with its cross-reference to the 1992 ISDA form, was a mistake on the part of IBRC, since there could be no possible reason for changing the terms and conditions which had been agreed in respect of the 2011 restructuring (with the agreed Additional Termination Events) the fact remains that the Restructured Swap Confirmation, when read in the light of Part 5 of the Millvalley 2002 ISDA Master Agreement does not, as a matter of construction, allow for the conclusion that the parties’ objectively expressed intention was for the Restructured Swap Confirmation to be governed by the Millvalley 2002 ISDA Master Agreement. It cannot be said that something has gone so wrong with the language used in the Restructured Swap Confirmation that there is a clear mistake that requires correction within the meaning of the authorities cited earlier in this judgment. Whilst it is intrinsically unlikely that the Tear-up Confirmation should be governed by the Millavalley 2002 ISDA Master Agreement whilst the Restructured Swap Confirmation should not or that there should be any departure from the provision which previously obtained, whereby the Original Swap Confirmation was governed by the Millvalley 2002 ISDA Master Agreement, the Amendment Letters of 19th December 2012 themselves, unlike those of 18th November 2011, do not drive the court to the position where it is clear that there is a mistake which requires correction. On the face of the documents themselves, there is no ambiguity, no syntactical difficulty in construing the language used and the reference to the 1992 form of ISDA Agreement cannot be said to be such a commercial nonsense as to make it absurd for the parties to refer to it.

If the court were to construe the Restructured Swap Confirmation in such a way as to incorporate the Millvalley 2002 ISDA Master Agreement and Schedule, it would involve replacement of the long form by the short form confirmation, equivalent to re-writing the terms of the confirmation in a manner akin to inserting a new clause in an agreement. It is not so obvious, on the face of the language used, that something has gone so badly wrong and that such a correction is required which would be directly to the contrary effect to the terms which appear in the Restructured Swap Confirmation.

In Daventry District Council v Daventry & District Housing [2012] 1 WLR 1333, the Court of Appeal, by reference to earlier authority including Chartbrook (ibid.) at paragraphs 60-65 set out the requirements which a party seeking rectification must show, namely that:

In Daventry [ibid.] each member of the Court of Appeal proceeded on the basis that Lord Hoffmann, with whom all the other members of the House of Lords agreed, was correct in setting out the law in the manner that he did at paragraphs 60-65 on what was necessary for and relevant to the establishment of a common continuing intention and an outward expression of accord. Lord Neuberger and both Toulson and Etherton LJJ considered it right to proceed on the basis of Lord Hoffmann’s analysis in reaching their decision, although it was obiter, was not without its difficulties and had not met with universal approval in learned articles. It was accepted that there might be room for reconsideration or refinement.

It is established that rectification is available where there is no binding antecedent agreement to the instrument in question but where the parties have a common continuing intention in respect of a particular matter in the instrument to be rectified. Lord Hoffmann at paragraph 60 in Chartbrook stated that the question is what an objective observer would have thought the intentions of the parties were and cited Denning LJ in Frederick E. Rose Ltd v William H. Pim & Co Ltd [1953] 2 QB 450 at 461:

“Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard in order to ascertain terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at their outward acts, that is at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.”

He made reference to the Court of Appeal decision in Britoil Plc v Hunt Overseas Oil Inc [1994] CLC 561, on which Millvalley relied because of the stress on the need for a claimant to prove a common mistake, with clear evidence of it. Hobhouse LJ, with whom Glidewell LJ agreed, stated that there was a necessity for a claimant for rectification to show something with the objective status of a prior agreement. There had to be some “outward expression of accord” or evidence of a continuing common intention “objectively manifested”. Lord Hoffmann said that the decision lent no support to the view that a party must be mistaken as to whether the document reflects what he subjectively believes the agreement to have been.

Lord Hoffmann in Chartbrook recognised that the subjective state of mind of one party could be some evidence intending to show such objective accord, particularly in cases in which the prior consensus was based wholly or in part on oral exchanges or conduct. Equally, evidence of subsequent conduct could also have some evidential value.

Despite debate amongst academics and lawyers as to the need for some subjective element of mistake, there can be no doubt that the stress is on the parties’ common intention, ascertained objectively, by reference to what an hypothetical reasonable objective observer, aware of all the relevant facts known to both parties, would conclude the intentions of the parties to be. See Lord Neuberger in Daventry (ibid.) at paragraph 197. At paragraph 198 however he said:

“… some subjective evidence of intention or understanding is not merely admissible, but is normally required in a rectification claim: the party seeking rectification must show that he indeed made the relevant mistake when he entered into the contract.”

I share the misgivings expressed by others about the prospect of rectification being ordered to reflect a view of what had been agreed that a party seeking rectification did not actually have, just because a reasonable observer would have taken this to be his view. The point is, to my mind, well expressed by Leggatt J in Mihail Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at paragraphs 89-99:

“It is one thing to say that a contract should not be rectified just because both parties privately intend it to bear a meaning different from its meaning objectively ascertained. It is quite another thing, however, to say that a contract should be rectified to conform to what a reasonable observer would have understood the parties previously to have agreed, irrespective of the parties' own understanding.”

As in Tartsinis, in the present case I find however that there is no disjunct between the parties’ actual intentions and those which were exhibited by the outward expression of accord, which is mistakenly not reflected in the instrument which falls for rectification.

Hamblen J (as he then was) in DS Rendite Fonds v Titan Maritime SA [2013] EWCA 3492 (Comm) at paragraph 47 has expressed the view that the need for “an outward expression of accord” is more an evidential factor than a strict legal requirement and may include understandings that the parties thought so obvious as to go without saying or that were reached without being spelled out in so many words. Because there is no need to look for an antecedent binding agreement the search is merely for common continuing intention as objectively observed which can be taken to be an expression of that accord.

The major difference between construction on the one hand and rectification on the other is that the former is concerned with the meaning of the instrument or instruments which the parties had executed whilst in the case of rectification, the question is whether, objectively, there was a common continuing intention to which the instrument failed to give effect. Thus negotiations are inadmissible for the purposes of construction but are highly relevant for the purposes of rectification.

In the present case I am entirely satisfied that there was such a continuing common intention at the time of execution of the Restructured Swap Confirmation that it should be governed by the Millvalley 2002 ISDA Master Agreement and that, not only was there clear outward expression of that accord, but it was also the subjective intention of Millvalley that this should be so. Whilst there is a dearth of evidence from individual witnesses as to the subjective intention of decision-making individuals at IBRC, the inference of that subjective intention is also obvious and the nature of the mistake whereby the instrument did not reflect that common intention is clear from the evidence of Miss McKeating. The submission made by Millvalley that there was no objective or subjective mistake cannot succeed in the light of both the oral evidence and the documents exchanged between the parties.

In paragraphs 1 to 27 of this judgment I have set out the essential history of dealings between the parties and have referred specifically to the concluded agreements reached by the parties when discussing the construction of the Restructured Swap Confirmation. When rectification is in view, however, it becomes necessary to examine in more detail the exchanges between the parties during the course of negotiations in order to ascertain the existence of any continuing common intention, any outward expression of accord and any mistake in the instrument which does not reflect that common intention.

Wight invited me to make the following findings of fact which are, to my mind incontrovertible:

For these purposes, the relevant history begins with the 2010 restructuring, to which I have already referred in this judgment and in particular to the Composite Guarantee and Debenture by which Glen, LNC and Millvalley cross-guaranteed the liabilities of each other to AIB and AIAF. Included amongst the liabilities guaranteed was Millvalley’s liability under the Original Swap Confirmation.

On 16th June 2011 Mr McCullagh wrote to Mr Frost of AIB/IBRC about the 2010 Facilities which were due to expire on 30th November 2011. He asked the bank to consider and approve renewing the facilities until the end of 2012 on the basis of the repayment of approximately half of the debt by the end of 2011 by the sale of Millvalley’s property in Glasgow. The proceeds were to be used to repay the entire Millvalley debt and the surplus was to be used to reduce the Glen Facility. He proposed that the current hedging in place on the Millvalley Facility (the Original Swap) be utilised against the Glen and LNC Facilities once the Millvalley Facility had been repaid. “This would allow the current hedging liability to burn off for a further period and not have to take the immediate hit at the current long term rates.” As submitted by Wight, it is plain from this that Millvalley understood that, absent any agreement with the bank, the sale of the Millvalley property with repayment of the Millvalley facility would require closing out the swap with a substantial payment due on it to the bank. In order to realise Millvalley’s property, all liabilities secured on it had to be discharged. It was in that context that Millvalley made the suggestion that the Original Swap remain in place as a hedge in respect of the Glen and LNC Facilities. Once Millvalley had repaid its loan, its only relationship with the bank would be as counterparty on the original swap. It was an SPV whose sole purpose had been to acquire and own the Glasgow property, for which it needed the Millvalley Facility and the Original Swap.

An internal memorandum of 5th July 2011 between Ms McCoy and Mr McCullagh referred to a telephone call from Mr Frost of AIB/IBRC asking whether the borrowers wanted the swap left in Millvalley or moved to one of the other property companies. There was to be discussion with the bank’s lawyers about the possible transfer. On 7th July 2011 the bank’s credit committee met and considered an application by the McCabe connected borrowers to approve the sale of the Millvalley Glasgow property and to extend the Glen and LNC Facilities to 31st December 2012. The net proceeds of sale were to be used to repay all of the Millvalley debt and to partially repay some of the Glen Facility. Reference was made in the application to the existence of the Swap with a £5 million mark to market liability maturing in November 2016, to the release of security over the Millvalley property but the retention of security over Millvalley itself in the form of the Debenture so that any future overage payment in respect of the property sold was captured and used for debt reduction. It was anticipated that the swap liability would be novated to Glen. The recommendation for a 13 month extension on the Glen and LNC facilities was accepted by the credit committee.

There were plainly discussions between the parties in relation to this as referred to in the email of Mr Frost to Mr McCullagh dated 2nd August 2011. By this time the Glasgow property had been sold but Glen and LNC remained liable under the Composite Guarantee and Debenture in respect of Millvalley’s liability on the swap. In the email of 2nd August Mr Frost said that the bank had approved the extension of the Glen and LNC Facilities until 31st December 2012 subject to various terms. There were to be two amendment letters extending the LNC and Glen Facilities, inserting some new covenants and Millvalley would have to be incorporated into those signed letters in order for it to acknowledge that the security granted by it in the Composite Guarantee and Debenture secured the extended facilities. Furthermore, an ISDA Master Agreement had to be entered into by Millvalley relating to the existing hedging arrangements currently in place. That could only refer to the Original Swap.

The ensuing documents referred to Mr McCullagh consulting with McGrigors and then reverting to say that he was happy to proceed on the basis outlined. Mr McCullagh’s evidence was that he must have consulted lawyers as he said, in the exchanges, he would.

On the basis of these exchanges there was clearly a common intention and accord, as between the bank and Millvalley that an ISDA Master Agreement should apply to the Original Swap.

There followed exchanges between DLA, the solicitors acting for the bank and McGrigors, the solicitors acting for LNC, Glen and Millvalley. Drafts of the amendment letters were the subject of negotiation. The draft letters of amendment of the Glen and LNC Facilities at all times contained a condition precedent that there should be an ISDA Agreement signed by Millvalley. The ISDA agreement was defined at all times as an ISDA 2002 Master Agreement and Schedule (albeit initially with “2002” in parenthesis), with the additional wording in the LNC draft that this should be “in such form as Anglo-Irish Bank Corporation Ltd shall require”. A draft containing McGrigor’s comments, dated 14th September 2011, alongside that definition and condition precedent, contains a notation asking as to the current status of the ISDA document at that stage.

An internal review by Mr McCullagh at the end of September referred to the overall debt levels with the bank being reduced by reason of the sale of the Glasgow property and stated that “as a part of the sale process we have agreed with Anglo to extend the balance of the debt on Jenners [the Glen property] and Manchester [the LNC property] to the end of December 2012 on similar terms. The Swap that was in place on [the Millvalley Glasgow property] has been transferred to the balance of the debt rather than being repaid immediately. The net effect will be to reduce our capital repayment capacity over the next number of years as the rent is used to pay interest rather than capital. It did however ensure we did not have to make a repayment to Anglo in the order of £4 million to clear the Swap from our own resources. The extension is being documented at present and our lawyers believe this will be finalised over the next 2-3 weeks.”

In October 2011, there was internal discussion at the bank as to whether, as DLA had assumed, the 2002 form of ISDA Master Agreement should be used rather than the 1992 version. There are also chasers from Mr McCullagh and from McGrigors in relation to the ISDA documentation to be signed. By 14th October 2011 the form of the Facility Amendment Letters had been agreed between the solicitors but the form of the ISDA documentation had not. After various chasers from McGrigors, on 20th October 2011 DLA sent a draft schedule entitled “ISDA Schedule to the 2002 form of the ISDA Master Agreement” to McGrigors. The Schedule defined the “Facility Agreements” as the LNC and Glen Facilities. It defined the Credit Support document as including any document which secured guaranteed or otherwise supported the obligations of a party under the agreement including the Composite Guarantee and Debenture. It made provision for Additional Termination Events.

By 21st October Mr McCullagh was telling Mr Taylor of the Isle of Man corporate services provider that terms had been agreed with the bank for extension of the facilities and that once the ISDA documentation regarding the hedging was available, McGrigors would send the papers to the Isle of Man for execution.

It is plain from the documents, without reference to any oral evidence, that Dawn Bell, an associate with McGrigors applied her mind to the terms of the Schedule because, on 24th October 2011 she reverted to DLA saying that the only comments she had related to the address to which notices to Millvalley should be sent. She said that “other than that, we are happy with the draft” and asked for execution versions of all the documentation to be prepared for signature.

On 26th October DLA attached a revised version of the ISDA Schedule, informing McGrigors that signed versions of the amendment letters and ISDA documentation would be forthcoming shortly. Miss Bell responded to say that the necessary board resolutions and directors’ certificates would be completed and that a further amendment was required to the Schedule in respect of the fax number of Millvalley.

The documentation was duly forwarded to McGrigors and by an email of 11th November the latter told DLA that the ISDA Agreement and Schedule had been signed and that the Amendment Letters were currently awaiting the last signature. It was anticipated that the full suite of documents would be available by the middle of the following week.

It was on 18th November 2011 that the Amendment Letters were signed, as set out earlier in this judgment. It is abundantly clear from the exchanges leading up to these letters and from the letters themselves that there was a common continuing intention and an outward expression of accord that the Original Swap Confirmation should be governed by a form of 2002 ISDA Master Agreement, the form of which had been agreed although it was not executed until 13th December 2011 (the Millvalley 2002 ISDA Master Agreement).

Mr McCullagh’s evidence in cross-examination was as follows:

“Q. So to be absolutely clear, Mr McCullagh, when the 2002 Master Agreement was signed by Millvalley, what you intended to happen was that that swap, that Master Agreement should apply to the original 2006 Millvalley swap?

A. Uh-huh, yes.

Q. And it should be used, that swap, as a hedge for the LNC Properties loan and the Glen Properties loan?

A. Yes.

Q. And that if either of those facilities were closed out, were paid out, the swap would either have to be closed out or you would have to reach a further agreement with the bank?

A. Yes.

Q. All of that was what you understood to be the effect and intent of the transaction when the Millvalley Master Agreement was signed?

A. Yes.

Q. It is right, isn't it, that neither Millvalley, nor LNC, nor Glen Properties are not business of speculating on interest rate movements for profit?

A. Correct.

Q. So this swap was always a pure hedge for the original Millvalley facility and then for the other property facilities?

A. Yes.

Q. In so far as the bank was concerned, to maintain it as a hedge and not a financial speculation, that accorded with what you intended by this swap?

A. Yes.

Q. We have some evidence, or we will be having some evidence from Mr Gethin Taylor, probably tomorrow now, but without in any way being disrespectful to him, is it right to say that the matters which we have been discussing, the question of what is to be achieved by a particular transaction, the commercial intention and the expectation as to how it will operate, those are all matters which fell within your remit rather than within his remit?

A. That would be correct.”

The evidence of Mr Maciver was that the fair inference from the agreement of McGrigors to the form of the Schedule was that McGrigors had received instructions to agree it. He could not however recall if there were any instructions specifically to review the Schedule or not. He said it was not unusual to act as a post box without reviewing documents sent but accepted that it was a fair inference that Dawn Bell had read the Schedule. It was also fair to infer that the client was happy with the terms of the Schedule. In re-examination he said it looked as though McGrigors did not carry out any review in great detail but rather more of a “functional exercise”. In answer to questions from the Court he agreed that he would want to ensure that his client was comfortable with anything unusual in the documents, whether McGrigors had been instructed to review them or not but it was not unusual for a bank’s ISDA Schedule to contain Additional Termination Events. McGrigors had not drawn Millvalley’s attention to the early termination provisions in writing and he had no recollection of doing so orally.

The evidence of Miss McCoy was that she had no involvement in any of the decision making regarding the conclusion of the Master Agreement at all and in truth had no relevant evidence to give. She had in fact no knowledge or understanding of ISDA documentation or of any difference between the 1992 and 2002 versions. Similarly Mr Taylor had no knowledge of the details of differences in the ISDA forms and his evidence was that he followed Mr McCullagh’s instructions as to what to sign as long as it was appropriate for him, as a director of Millvalley and as part of the provision of corporate services, to do so. He was wholly indifferent to the question as to whether it was the 1992 or 2002 form, not being aware of the differences between them.

Millvalley relied on other evidence of Mr McCullagh in his witness statement where he had said that his understanding was that signing an ISDA Master Agreement was a condition that Millvalley had to satisfy in order for IBRC to grant the extension of these facilities to Glen and LNC. “On the basis of what IBRC, probably through John Frost told me, my understanding was that we were signing the ISDA Master Agreement simply to document what had already been agreed in 2006 when we entered the Original Swap.” In cross-examination he said that he assumed that a conversation had taken place sometime between August and October 2011 and thought it was prior to 2nd August because of the email saying that the extension of facilities had been approved subject to certain conditions. He agreed there was no reference in that email to discussion about the ISDA Master Agreement as such. He remembered the conversation only “very vaguely” and believed there was no discussion of any specific ISDA terms. In re-examination he said he was fairly sure of what happened and nothing changed between August and December 2011.

This conversation is of no significance in the context of the exchanges to which I have referred which make it plain that the bank, Millvalley, LNC and Glen, acting through McGrigors, agreed to the application of the form of Millvalley 2002 ISDA Master Agreement and Schedule to the Original Swap Confirmation and to the terms of the Schedule which were specifically tailored to the situation where the Millvalley facility had been repaid but the LNC and Glen Facilities were extended, with the Additional Termination Events set out in it. In the light of Mr McCullagh’s evidence as to his intentions, as set out earlier in this judgment, and his evidence under cross-examination that he had no expectation in 2011 that a 1992 ISDA form would be signed, there is no room for any suggestion that, at the time of executing the Amendment Letters for the Millvalley 2002 ISDA Master Agreement the parties intended that the 1992 form of ISDA Agreement should apply to the Original Swap.

If there had been any mistake in the wording in the Millvalley 2002 ISDA Master Agreement which meant that, on its proper construction, it did not apply to the Original Swap Confirmation, rectification of it would certainly be justified. As I have found, as a matter of construction, that the Original Swap Confirmation was governed by the Millvalley 2002 ISDA Master Agreement, no such rectification is required.

On 1st November 2012 the bank’s credit committee approved the extension of the Glen and LNC Facilities subject to increased margin and fees on the basis of the application of the £8.735 million towards proportional Swap break costs and reduction of debt so that indebtedness and hedge position matched.

The relevant history leading up to the execution of the Restructured Swap Confirmation can be described more shortly. Millvalley’s internal documents show investigation of the up-to-date break costs for the Swap in the spring of 2012 at figures between £5.29 million and £5.79 million. In September 2012 Mr McCullagh emailed Mr Frost of IBRC in relation to proposed debt repayment and renewal of Facilities for Glen and LNC and discussed the utilisation of £8.735 million which represented the balance of proceeds on the Millvalley property sale as a result of “overage”. What was envisaged was the reduction of the overall Glen/LNC indebtedness to the same figure as the Swap (£33.7 million) with the balance of the £8.735 million used to cancel part of the Swap and repay part of the debt to arrive at a position where the two were at the same level. Various reformulations of the figures took place in November and December but on 5th November 2012 Mr Frost sent Mr McCullagh term sheets for the renewal of the Glen and LNC Facilities, extending the Glen Facility to 30th June 2014 and the LNC Facility to 31st December 2013. The existing security was to remain in place, including the Composite Guarantee and Debenture and it was a condition precedent for each loan that the overage payment of £8.735 million approximately be utilised proportionately towards debt repayment and Swap break costs with the aggregate loans not to exceed that 100% hedged position. These term sheets with immaterial amendments were in due course signed for Glen and LNC on 12th November 2012.

On 13th December, Pinsents (with whom McGrigors had now merged) sent board minutes and directors’ certificates to DLA in relation to the Letters of Amendment to be made to the LNC and Glen Facilities. On 14th December an instruction was given by Mr Taylor of Millvalley to IBRC to cancel £6 million of the Millvalley Swap at a cost of £994,000 and transfer the sum of £7.443 million approximately to the Glen loan account in reduction of indebtedness to the bank. The form of the certificates and minutes was approved by DLA. They gave authority to the directors of Glen and LNC to “approve, complete, execute and deliver any other documents as might be necessary pursuant to or in connection with the Amendment Letters and the ISDA Agreement”, quite apart from minuting the resolution to approve the Amendment Letters themselves.

On 19th December, because, it appears, LNC wanted to complete matters as soon as possible, the Restructured Swap Confirmation was sent directly by IBRC to Mr Taylor electronically for signature. He sought confirmation from Mr McCullagh before signing and Miss McCoy gave him authority to do so that day. The Tear-up Confirmation is dated 23rd November 2012 but it is agreed that it should have been dated 19th December, whereas the Restructured Swap Confirmation is dated 19th December. Both were returned by Mr Taylor to IBRC on 20th December.

Also on 19th December, the Glen and LNC Facility Amendment Letters were executed by Glen, LNC and Millvalley in the terms set out earlier in this judgment. It was an express term of those Amendment Letters that the Swap should remain in full force and effect with no variation or waiver of any provision in it, as a Finance Document.

The evidence of Mr Maciver was that, although he became aware of the reduction of the notional amount of the Swap as a result of the 2012 restructuring, he was not aware of the terms of the Restructured Swap Confirmation at that time. His evidence was that he recalled the extension of the Glen and LNC Facilities in 2012 and that the Facility Amendment Letters would have been reviewed by Pinsents at that time. He was not however instructed by Millvalley in relation to any issue relating to swaps or hedging at that time and was not aware that a partial termination and restructure of the Original Swap was planned. His colleague had been involved in most of the correspondence with DLA over the Facility amendments and extension but the correspondence showed that the draft Facility Amendment Letters were sent to him for comment. He could not actually recall reviewing them as such. There was nothing unusual or particularly memorable about the transaction for him to remember. It was and continued to be his understanding that the Millvalley 2002 ISDA Master Agreement applied when he drafted various letters to be sent by Millvalley in relation to the Swap after IBRC had gone into liquidation in the course of 2013 and 2014.

Until July 2013, it appears that the bank was seeking full payment of interest, including swap interest, but there is a note from Mr McCullagh to Miss McCoy on 18th July 2013 where he stated that he had agreed with Mr Frost that swap interest “will not be paid for the moment”.

On 18th November 2013 Glen wrote a letter to the Special Liquidators of IBRC which specifically referred to the ISDA Master Agreement and Schedule between Millvalley Ltd and IBRC. In the letter there was an offer to buy back the loan at par with a nil value for the swap because, in the light of a Court of Appeal decision, it was said that Millvalley was not and would never be under an obligation to make any payment to IBRC because it was in liquidation. This letter was drafted by lawyers and sent by Mr Taylor on the instructions of Mr McCullagh. Various correspondence passed between IBRC, Glen/LNC and Pinsents in relation to this in the period up to June 2014, all on the basis that the Millvalley 2002 ISDA Master Agreement and Schedule applied to the Swap.

It was only following the repayment of the Glen Facility with funds made available by Mr McCabe on 27th June 2014, the notice of early termination sent by IBRC on that date and further exchanges relating to the effect of the Court of Appeal decision that on 17th July 2014 Pinsents first contended that the Restructured Swap Confirmation was governed by a 1992 form of ISDA Master Agreement and not by the Millvalley 2002 ISDA Master Agreement.

It is clear that up to this point, Mr McCullagh, and so far as is relevant, Mr Maciver, had proceeded on the basis that the Millvalley 2002 ISDA Master Agreement did apply to the Swap. Indeed in an email on 1st July 2014 Mr McCullagh emailed Mr McCabe’s financial adviser in relation to the notice of early termination saying “as we mentioned, this was always going to happen sometime and in fact Part 1(g)(i)(C) has been the case for over a year”.

Mr McCullagh’s evidence under cross-examination was that his understanding of the application of the Millvalley 2002 ISDA Master Agreement to the Swap remained the same throughout the period of 2012 and 2013, as it had been when the Millvalley 2002 ISDA Master Agreement had first been signed.

“Q. So your understanding was that that agreement applied to the original swap?

A. Correct.

Q. That remained your understanding during 2012, didn't it?

A. Yes.

Q. Nothing was said to you by the bank during 2012 to suggest that anything had changed in that regard?

A. No.

Q. When you came to the moment when the swap was being restructured, partially torn up in 2012, is it the case that at that stage as well you understood that the original Millvalley swap was governed by the Master Agreement?

A. Yes.

Q. In so far as there was going to be a reduction in the value of the original Millvalley swap, nothing was said to you, was it, to indicate that the Master Agreement would cease to apply to the swap after that pay down?

A. No.

Q. So would it be fair to say that when it was agreed that the notional amount of the swap be reduced in value, your understanding was that, following that procedure, the Millvalley Master Agreement would apply to the reduced value swap?

A. Yes.”

He also accepted that that remained the position at 20th April 2014 but said he had no idea of the early termination provisions and even when he first saw the Schedule he did not understand them. He had received a copy of that from Pinsents some time after 20th March 2014.

At the very end of his cross-examination there was the following exchange with counsel:

“Q. Can we just summarise the position, Mr McCullagh, having gone through those documents at a little length? 2011, you understand that the Master Agreement applies to the original Millvalley swap, correct?

A. Yes.

Q. 2012, when the Millvalley swap is restructured, you still believe that the Master Agreement applies to that swap, correct?

A. Yes.

Q. The period from 2012 into 2013, that remains your view, but you learned during the course of 2013 that there is a legal argument available to Millvalley, which you were told allows them to cease payment?

A. Yes.

Q. You are told also that it suspends the position for so long as IBRC remains in liquidation?

A. Yes.

Q. This gives Millvalley the prospect of being able to escape this liability?

A. Yes.

Q. That remains the position -- your belief that that is the position remains all the way up until about July 2014, when the point about the additional termination provisions is raised and, for the first time, a different argument is run that the Millvalley swap agreement does not apply –

A. Yes.

Q. -- the Millvalley Master Agreement does not apply to the swap?

A. Yes.

Q. So what Millvalley is seeking to do in these proceedings is to take advantage of a mistake in the documentation to avoid a liability which it understands otherwise is due from it?

A.

Yes.”

It is, in my judgment, plain from the exchanges between the parties in relation to the 2012 restructuring and the historical and commercial context that the common intention of IBRC and Millvalley did not change at any time between the execution of the Millvalley 2002 ISDA Master Agreement and the execution of the Restructured Swap Confirmation. There was absolutely no commercial reason for the Millvalley 2002 ISDA Master Agreement not to apply to the Restructured Swap Confirmation after it had been agreed to apply to the Original Swap Confirmation. The Swap was to continue in full force and effect subject only to a reduction in the notional amount. What crossed the line between the parties in the exchanges between them, the Facility Amendment Letters of 19th December 2012 and the approved copy board resolution manifests that common intention as an output expressed of accord.

The nature of the mistake that was made is obvious, as revealed by the evidence of Miss McKeating. There had been a failure on the bank’s part to input into the treasury computer system the existence of the Millvalley 2002 ISDA Master Agreement with the result that a standard long form confirmation was generated for the Restructured Swap Confirmation which contained no reference to the Millvalley 2002 ISDA Master Agreement and the Schedule to it.

Any hypothetical reasonable objective observer, aware of all the relevant facts known to both parties would conclude that the intention of the parties was that the Millvalley 2002 ISDA Master Agreement should apply to the Restructured Swap Confirmation. Moreover, the subjective intention of Mr McCullagh appears from his evidence and the subjective intention of the bank’s personnel is to be inferred from the nature of the mistake and the absence of any possible reason to change the position after putting the Millvalley 2002 ISDA Master Agreement in place.

In this context, Millvalley contended that its only intention was to sign whatever ISDA document the bank requested and that the bank made a deliberate decision to supply a confirmation which did not refer to the Millvalley 2002 ISDA Master Agreement. Whilst it is no doubt true that Millvalley, in order to obtain an extension of the loan facilities, was willing to sign the ISDA documentation that the bank provided, it is clear that, once the Millvalley 2002 ISDA Master Agreement had been identified as the requirement and then executed, the common intention was that it should apply to the Original Swap and the Restructured Swap. Whether or not anyone might think that the bank was “tidying up” the paperwork in December 2011 that “tidying up” involved the specific agreement to the Millvalley 2002 ISDA Master Agreement and the Schedule. There is no basis for the suggestion that there was a deliberate decision on the part of the bank not to rely on the Millvalley 2002 ISDA Master Agreement. Although reliance was placed on four individual documents in May, August, October and November 2012, which made no mention of any Master Agreement, there was no reason why any of these documents should have done so and the commercial and historical context not only militates against any such suggestion but renders it wholly unrealistic.

The fact that there had to be an initial decision to employ a Master Agreement, which on its terms would apply to all past and future transactions does not mean that a decision would fall to be taken as to whether to rely on it, in relation to any individual transaction in the future or any variation of an existing transaction. The whole purpose of a Master Agreement was to apply to all dealings between the parties for the future. The default position is the application of such an agreement and there is no realistic basis for saying that the bank decided that there was no need for the Restructured Swap Confirmation to be governed by the Master Agreement, whether as a matter of policy or because it was not necessary to do so because of the existence of adequate security. If, as was at one time suggested, IBRC required the early termination provisions to be inserted in the Schedule because of fears as to its insolvency in 2011, the position was a fortiori in 2012.

For all these reasons, subject to the dispute about the effect of the “Entire Agreement” clauses, it is clear to me that the Restructured Swap Confirmation should be rectified in the manner that Wight alleges. The third paragraph of the Restructured Swap Confirmation beginning with the words “This confirmation evidences a complete binding agreement” and ending with the words “This confirmation will prevail for the purposes of this transaction” should be replaced with the following wording:

“This Confirmation and the Transaction to which it relates shall be governed by the terms of the 2002 ISDA Master Agreement and Schedule executed by Millvalley on 7 November 2011 pursuant to the conditions precedent contained in the Amendment Letter to the Glen Properties Facility Agreement dated 18 November 2011. This Confirmation shall supplement, form part of and be subject to that agreement.”

No doubt other wording could be formulated to the same effect but the nature of the mistake is clear and this is a clear form of words which puts the position right.

There are two such clauses upon which reliance is placed by Millvalley. The first appears in the Millvalley 2002 ISDA Master Agreement. The second appears in the Restructured Swap Confirmation.

Section 9(a) of the Millvalley 2002 ISDA Master Agreement reads as follows:

“Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement) and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in this Agreement will limit or exclude any liability of a party for fraud.”

In the Restructured Swap Confirmation appear the following paragraphs:

“Relationship of the Parties

Each party represents to the other party on the trade date of this Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for this Transaction):-

9(a) Non-Reliance: It is acting for its own account, and it has made its own independent investment, hedging and other decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgement and upon advice from such advisers as it has deemed necessary. It is not relying, and has not relied, on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction; it being understood that information and explanations related to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction, no communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of this Transaction.

(b)

Assessment and Understanding: It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice) and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the risks of this Transaction.

(c)

Status of Parties: The other party is not acting as a fiduciary for or an advisor to it in respect of this Transaction.

This Transaction has been entered into between yourselves and Irish Bank Resolution Corporation Limited. Irish Bank Resolution Corporation Limited is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request.

Operational Matters

This Confirmation is the final form and supersedes all previous Confirmations and communications in respect of this Transaction.”

It was submitted by Millvalley that the effect of these two clauses was to preclude Wight from claiming rectification of the Millvalley 2002 ISDA Master Agreement and Schedule, and the Restructured Swap Confirmation respectively. It was not contended that the court could never rectify an instrument which contained an entire agreement clause but it was said that these clauses had that effect. The sole issue, it was submitted, was the ambit of the clauses and whether they were wide enough to preclude the remedy sought.

I was referred to a considerable number of authorities of varying degrees of relevance in this context. The effect of JP Morgan v Springwell [2011] 1 Lloyd’s Law Rep 75 is not only that an entire agreement clause must be given effect according to its terms but, where applicable, it can create a contractual estoppel preventing reliance upon actionable representations prior to the contract and points strongly against any such statements being actionable in any event (see paragraph 171).

There are nonetheless problems in logic about the application of entire agreement clauses to preclude rectification as pointed out by HHJ Roger Cooke (sitting as a Deputy Judge of the High Court) in JJ Huber (Investments) Ltd v The Private DIY Co Ltd (1995) 70 P & CR 33. “A clause that says all the terms are in the document ought, in my judgment, not to be read as meaning all the terms are in the document when it is in the wrong form. … When the document in the wrong form and would otherwise be rectified, the all agreement clause is, itself infected by the mistake.” The clause itself would not reflect the true agreement of the parties and would itself be liable to rectification, if it had the effect submitted. This point has been picked up in subsequent cases where both Mr Justice Hildyard in Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA [2012] EWHC 498 (Ch) and Mr Justice Hamblen in DS Rendite Fonds v Titan Maritime (ibid.) have expressed the matter in their own different ways (see paragraphs 104-106 in Procter & Gamble and paragraph 48 in Titan.) The authorities are fairly summarised in Hodge on Rectification at paragraphs 4-137-144. An entire agreement clause may be relevant as a factor in determining issues of rectification but cannot in itself preclude it.

Regardless of the principle as to whether rectification can be excluded by agreement, in my judgment it is clear that the words of the clauses relied on by Millvalley in both the Millvalley 2002 ISDA Master Agreement and the Restructured Swap Confirmation cannot have the effect for which Millvalley contends. Section 9(a) of the Millvalley 2002 ISDA Master Agreement appears under the heading “Miscellaneous”. Paragraph 9(b) which requires any amendment, modification or waiver to be writing if it is to be effective creates only an evidential issue in showing an amendment and paragraph 9(d) expressly provides that, in the context of remedies, those provided by the agreement do not exclude those available in law. The whole purpose of section 9(a) is to prevent reliance on prior representations, warranties or assurances which are not found in the agreement itself, save where fraud is involved. Rectification is however concerned with the correction of an instrument to reflect the prior common intention and outward expression of accord which the parties reached, not with any representation, warranty or assurance outside the four corners of the contract. The agreement which constitutes “the entire agreement and understanding of the parties” is to be found in the rectified contract not in the instrument which, ex hypothesi, does not reflect the true position.

The same point applies to the Non-Reliance clause and the Operational Matters clause in the Restructured Swap Confirmation. Whilst a party would be estopped from relying on any communication of the other party as investment advice or as a recommendation to conclude the transaction, and from contending that the confirmation was not the final form, this does not touch on the issue of rectification which concerns whether the final form of the instrument does accord with the true agreement of the parties. As already indicated, in my judgment the argument is entirely circular where rectification is concerned.

It was Wight’s contention that Millvalley was estopped by convention from contending that the Restructured Swap is not governed by the terms of the Millvalley 2002 ISDA Master Agreement. It was said that the parties unequivocally conducted themselves at all material times on the basis of a mutually manifest common assumption that it would be so governed. That common assumption was manifest not only at the time but also in subsequent correspondence. It would also be unconscionable and inequitable for Millvalley to resile from that assumption in circumstances where the 2012 restructuring involved the partial tear-up of the Original Swap at an agreed price, the continuation of the existing hedging arrangements with a reduced notional amount and the extension of facilities for Glen and LNC, companies under the same ultimate ownership and part of the same global composite deal.

For all the reasons given above, I am entirely satisfied that there was a common assumption as to the application of the Millvalley 2002 ISDA Master Agreement to the Original Swap and the Restructured Swap at all material times from 13th December 2011 onwards. I am also satisfied that it would be unconscionable for Millvalley to resile from any such common assumption.

In the light of my findings on the issues of construction and rectification, it is not however necessary for me to decide this point. Issues arise as to the assignability of the estoppel and whether or not Wight can avail itself of it. Issues also arise in relation to the effect of the entire agreement clauses, it being said that the bank is estopped from relying on the estoppel. The reality of the matter is, as Wight accepted, that if it could not succeed on rectification, it could not succeed on the argument on estoppel by representation since both turn on essentially the same evidence. I therefore say no more about it.

Section 11 of the Millvalley 2002 ISDA Master Agreement provides:

“Expenses

A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party by reason of the early termination of any Transaction, including but not limited to costs of collection.”

It is common ground between the parties that recovery of legal costs is governed by the CPR (see The Tiburon [1992] 2 Lloyd’s Law Rep 26) but a clause such as this normally leads to the award of indemnity costs by the court as properly reflecting the terms agreed by the parties.

A separate point arises here because it is Millvalley’s case that the section 11 rights are not capable of being assigned by reason of the terms of section 7 of the Millvalley 2002 ISDA Master Agreement. This section provides:

“Transfer

Subject to Section 6(b)(ii) and to the extent permitted by applicable law, neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party, without the prior written consent of the other party except that:-

…

(b)

a party may make such a transfer of all or any part of its interest in any Early Termination Amount payable to it by a Defaulting Party, together with any amounts payable on or with respect to that interest and any other rights associated with that interest pursuant to sections 8, 9(h) and 11.

Any purported transfer that is not in compliance with this Section 7 will be void.”

It is not disputed that Wight received an assignment of the Early Termination Amount after the same became payable. It is said however that the claim for an indemnity under section 11 does not fall within the wording of section 7(b) as transferable because it is not a claim for “any amount payable on or with respect to” the Early Termination Amount. That, it appears to me, is correct, so far as it goes but ignores the additional words “and any other rights associated with that interest pursuant to sections 8, 9(h) and 11.” It is to my mind clear that a party can transfer all of its interest in any Early Termination Amount together with “any other rights” associated with that interest under section 11. Wight is therefore entitled to the benefit of section 11.

It follows from my findings that the issues fall to be answered as follows:

I therefore order that the Restructured Swap Confirmation be rectified as set out in paragraph 39 of the Amended Particulars of Claim and as set out earlier in this judgment.

The Early Termination Amount is due and payable with costs and interest and those figures may be capable of agreement between the parties. Failing that, the court will make any necessary ruling.

It appears to me that not only must costs follow the event but that costs should be payable on the indemnity basis, subject to any particular submissions that Millvalley wishes to make on the subject.

It remains for me to thank counsel for their help. Mr Paul Downes QC said everything that could properly be said on behalf of Millvalley but was reduced to seeking to make bricks with such stubble as he could gather, without the provision of appropriate straw. Mr Jonathan Nash QC was his usual concise self and I express my gratitude to both leading and junior counsel for all their assistance.