RS Luxembourg II, SARL & Anor v Deburo Real Estate Holding Gmbh

Cs are subsidiaries of an investment fund managed and advised by RS Partners that specialises in making asset-backed investments in northern and western Europe. Cs and RS Partners are together referred to as RoundShield.

Deburo and Pilatus are part of what was known as the ‘Solidare Real Estate Group’ (the Solidare Group) which sought to acquire, develop and sell or lease out ‘micro-apartment’ properties in Germany and the Netherlands. Deburo was the parent company of the group and Pilatus was its main subsidiary. In turn, Pilatus held the shares in various special purpose vehicles which acquired the individual properties. Mr Zeki Anter was the main shareholder of the Group.

The Solidare Group required financing to fund the acquisition and development of properties. On 23 May 2017, Pilatus entered into a facility agreement with RS Lux II (the 2017 Facility Agreement) which established a term loan facility with a limit of €50 million to be used by Pilatus and its subsidiaries to acquire and develop properties. The term of the Facility was five years. Deburo provided a guarantee and indemnity in respect of that facility with a limit of €10 million. Under the original 2017 facility agreement, every time Pilatus wished to use some of the facility, it had to put in a utilisation request. RoundShield then had to make the funds available within a certain time.

Various properties were acquired by Pilatus’ subsidiaries using the Facility including a dilapidated 15-storey tower block in Bonn (the Bonn Property). Prior to funds being drawn down under the Facility, at RoundShield’s request a company within the Solidare Group instructed a firm of valuers—CBRE—to prepare a valuation of the property on the assumption that it had been redeveloped as planned and was fully let to market conditions. A written valuation report was obtained dated 1 March 2018 (the 2018 Bonn Report) valuing the existing property at €17.5m under those assumptions and valuing a proposed annex to that property which required construction at €12.9m, resulting in an overall valuation of €30.4m.

RoundShield was provided with a draft of the 2018 Bonn Report in February 2018 and provided comments on it, including that the purpose of the valuation should be stated to be for “loan security purposes”. This was accepted and incorporated in the final report. The evidence was that Mr Leeb made clear to CBRE during this process that “this valuation is being provided purely for the benefit of RoundShield (being the financing party)”. Accordingly, RS Partners and RS Lux II entered into a reliance letter with CBRE dated 1 March 2018 (the Reliance Letter) which permitted them to “rely upon the information contained in the Report to the same extent as if we had been appointed directly by you to prepare the Report”.

On 29 March 2018, Pilatus and its subsidiary Rigi Property GmbH submitted a signed ‘Utilisation Request’ to RS Lux II in a form specified under the 2017 Facility Agreement requesting to draw down funds to complete the acquisition of the Bonn Property. At paragraph 3 of that request, they stated: “We confirm that each condition precedent specified in clause 4 (Conditions of utilisation) is satisfied on the date of this Utilisation Request”. In parallel to the request, lawyers acting for the parties exchanged comments on a ‘Conditions Precedent Checklist’ which recorded that the requirement for “A copy of the Valuation for the Additional German Property (dated no more than 30 days prior to the date of delivery)” was “Satisfied”. It was submitted that this could only have been a reference to the 2018 Bonn Report, and Mr Rehberger accepted this in cross-examination. Accordingly I so find.

In early 2019, the Solidare Group requested an increase in the size of the Facility and the parties duly entered into an amended and restated facility agreement dated 6 May 2019 (the Amended Facility Agreement), which increased the limit of the Facility to €70 million. Deburo entered into the Guarantee on the same day, which replaced the previous guarantee and increased Deburo’s potential primary liability to €14 million. Under the Facility Agreement, Pilatus was obliged to repay the loan fully by the Termination Date (22 May 2022) (clause 6.1), with the ‘Termination Date’ being defined as ‘the date immediately preceding the fifth anniversary of the date of this Agreement’.

In or around October 2019, RS Lux II acceded to a request to permit Pilatus to refinance some of its lending under the Facility with third party lenders at a lower interest rate. A subsidiary of Pilatus, Rigi Hahnstraße GmbH, duly entered into three loan agreements with companies within the Bayerische financial group for a total of €46 million (the BBL Loans). In return for RS Lux II permitting this refinancing, Pilatus and Rigi Hahnstraße GmbH entered into a ‘Deed of agreement in respect of interest sharing’ dated 9 October 2019 (the Interest Sharing Deed), pursuant to which they agreed to pay RS Lux II a sum equivalent to 40 per cent of the interest saving realised.

In late October 2019, a Dutch subsidiary of Pilatus, Yolufe Enschede 1 B.V., purchased a small plot of land situated at M.H. Tromplaan 51 in Enschede (Tromplaan 51), the Netherlands, for €400,000 using funds drawn down under the Facility. The land plot was next to other properties in Enschede that the Solidare Group was developing. Pursuant to a ‘CP satisfaction and waivers’ letter dated 31 October 2019, Pilatus and Yolufe Enschede 1 B.V. confirmed to RS Lux II that “all conditions precedent set out in Schedule 1, Part 4 of the Facility Agreement (Conditions Precedent) relating to Yolufe Enschede 1 B.V.” were satisfied. The annexed ‘Conditions Precedent Checklist’ duly recorded that the requirement for “A copy of the Valuation for the Additional Dutch Property (dated no more than 30 days prior to the date of delivery)” was satisfied, although no valuation satisfying the contractual requirements had in fact been provided.

In late December 2019, Yolufe Enschede 1 B.V. purchased another plot of land in Enschede (Kortenaerstraat 21), this time situated at Kortenaerstraat 21, for €160,000 again using funds drawn under the Facility. By a ‘CP satisfaction and waivers’ letter dated 24 December 2019, Pilatus and Yolufe Enschede 1 B.V. confirmed to RS Lux II that “all conditions precedent set out in Schedule 1, Part 4 of the Facility Agreement (Conditions Precedent) relating to Yolufe Enschede 1 B.V.” were satisfied. However, the annexed ‘Conditions Precedent Checklist’ recorded that the requirement for “A copy of the Valuation for the Additional Dutch Property (dated no more than 30 days prior to the date of delivery)” was not applicable (“RS confirmed N/A”).

On 25 October 2021, Pilatus and RS Lux II entered into a ‘Standstill Letter’ recording that an Event of Default under the Facility had occurred and was continuing because “the As-ls Loan to Value has exceeded 75 per cent (75%) in breach of Clause 18.1 (As-ls Loan to Value) of the Facility Agreement”. RS Lux II agreed to refrain from taking any action against Pilatus until 31 December 2021.

On 23 May 2022, the Facility fell due for repayment in full, but no repayment was received.

On 2 June 2022, RS Lux II demanded payment of all sums due in connection with the Facility in the amount then outstanding of €97,067,458. This amount included €5,930,506 due under the Interest Sharing Deed, as invoiced to Pilatus. RS Lux II made demand for payment by Deburo under the Guarantee on the same day in the amount of €14 million. Neither demand was satisfied.

On 4 July 2022, these proceedings were commenced. Deburo pointed out that the Particulars of Claim made no reference to the Loan to Value requirement, and that no case was pleaded as to how it was said to have been satisfied at the time the claim was issued.

At the date this claim was commenced, the following properties were owned by Pilatus’ subsidiaries, having been purchased utilising financing provided by RoundShield.

Deburo pointed out that Cs’ Reply admits that Tromplaan 51 and Kortenaertstraat 21 are Additional Dutch Properties for the purpose of the Facility Agreement. The Re-Amended Particulars of Claim acknowledge that there are no Valuations for these Properties.

Shortly afterwards, Pilatus entered into an insolvency process in Germany.

In September 2022, the insolvency administrator of Pilatus sold its shares in the companies owning all of the Enschede properties to Anter Holding B.V. RS Lux II received €9,197,837 from the sale which has been credited in repayment of the Facility. A number of other properties have also subsequently been sold and all proceeds received by RS Lux II have been credited in reduction of the Facility.

Also in September 2022:

In July 2023, RS Lux II and RS GR1 obtained updated valuations of the remaining properties, which it is agreed show that they are valued at no more than circa. €68 million. On 25 July 2023, RS GR1 made a further demand for payment of the sums due in connection with the Facility, then standing at some €112 million, and made a further demand for payment under the Second Guarantee Demand in the amount of €14 million plus costs and interest. On 8 August 2023, Cs amended their claim to rely upon the updated valuations and the Second Guarantee Demand. The application to amend, which had been made in July 2023, was granted on paper on 2 August 2023.

Mr Maximillian Leeb, a partner in the investment team at RoundShield Partners LLP (RS Partners) which acted as investment advisor and manager to the fund of which Cs are subsidiaries. Mr Leeb gave evidence as to the factual background to the relevant agreements, the facts and matters on which he relied in permitting funds to be drawn down under the Facility (which are relevant to Cs’ case on estoppel) and how Cs calculated the Loan to Value when making the First and Second Guarantee Demands.

Mr Zeki Anter, who was Deburo’s managing director until July 2023. C’s did not require him to attend for cross-examination.

Mr Patrick Rehberger, who was the managing director of Pilatus until July 2022 and co-managing director of Deburo until October 2022, after which he continued as an employee until mid-2023.

Mr Simon Anter,who was the managing director of certain of Pilatus’ subsidiaries.

The contractual framework.

First, the Guarantee contains some recitals as follows:

Next, the obligation undertaken under the Guarantee was as follows:

The Guarantor [Deburo] irrevocably and unconditionally:

Clauses 2.1(B) and 2.1(C) provide as follows:

Subject to paragraph (C) below but otherwise notwithstanding any other provision of this Deed to the contrary:

the maximum aggregate amount that may be claimed by RoundShield against the Guarantor, and that the Guarantor may be required to pay to RoundShield, pursuant to paragraph (A) above shall be limited to EUR10,000,000; and

RoundShield shall only be entitled to make a claim against the Guarantor pursuant to paragraph (A) above at any time that the Loan to Value exceeds 60 per cent.

If and for as long as the amount of the Secured Obligations exceeds EUR50,000,000:

the maximum aggregate amount that may be claimed by RoundShield against the Guarantor, and that the Guarantor may be required to pay to RoundShield, pursuant to paragraph (A) above shall be limited to EUR14,000,000; and

RoundShield shall only be entitled to make a claim against the Guarantor pursuant to paragraph (A) above at any time that the Loan to Value exceeds 60 per cent.

The Guarantee defines Loan to Value as follows:

“Loan to Value” means, at any time:

the sum of all Financial Indebtedness incurred by members of the Borrower Group (including any interest which has, in accordance with the terms of the Facility Agreement, been capitalised to form part of the principal of any Loan), which is outstanding at that time and payable in priority to or pari passu with the Loans; as a percentage of

the aggregate market value of each Property (determined by reference to the then most recent Valuation of each Property).

‘Members of the Borrower Group’ meant Pilatus and its subsidiaries.

‘Properties’ is defined in the Facility Agreement as (a) each Initial Property and (b) each Additional Property. ‘Initial Property’ is defined as each property agreed between the Parent and the Original Lender (i.e. Pilatus and RoundShield). ‘Additional Property’, in turn, is defined as real property located in Germany, which is (or is to be developed into) a micro-apartment building or as otherwise approved in writing by the Lender; and is owned by an Additional Propco or acquired or to be acquired by an Additional Propco, in each case, in accordance with the terms of the Facility Agreement, and which has been approved in writing by the Lender acting in its absolute discretion.

‘Additional Propco’ is defined as a limited liability company – ‘GmbH’ or limited partnership with a limited liability company as its general partner – ‘GmbH & Co. KG’ incorporated in Germany that accedes to the Facility Agreement as an Additional Propco and Additional Borrower pursuant to and in accordance with clause 24.2 (Propco Accession).

‘Valuation’ and ‘Valuer’ are defined in the Facility Agreement as follows:

‘Financial Indebtedness’ means “any indebtedness for or in respect of: (a) moneys borrowed...”.

The ‘Borrower Group’ means Pilatus (as ‘Parent’) and each of its subsidiaries.

First, it was said that the LTV Condition cannot be shown to be satisfied when the claim was issued, because certain of the valuations relied on by Cs do not satisfy the contractual requirements for a ‘Valuation’ (as set out above)andCs did not possess valuations for two properties, such that the LTV could not be calculated.

Secondly, the Loan to Value at any date later than the issuance of proceedings is irrelevant because the LTV Condition had to be met when the proceedings were first issued.

“Interpretation is the ascertainment of the objective meaning of the language in which the parties have chosen to express their agreement, in its documentary, factual and commercial context. That meaning is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. Both the text and the context are tools in the process of interpretation.

The text must be assessed in the light of (i) the natural and ordinary meaning of the words, (ii) any other relevant provisions of the contract, and (iii) the overall purpose of the clause and the contract. The factual context includes facts and circumstances known or assumed by the parties at the time that the document was executed. It also includes background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

The process is a unitary and iterative one by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. The weight to be given to each will depend on a number of factors, including the formality of the agreement and the quality of the drafting.

If the language of the contract is unambiguous the court must apply it. But if there are two possible interpretations, the court is entitled to prefer the interpretation which is consistent with business common sense as at the date of the contract and to reject the other. Nevertheless, the commercial consequences of one interpretation as against another do not detract from the importance of the words.

In exceptional circumstances the court may conclude that the parties have used the wrong words. If it is clear what the error is, and the nature of the correction required, the court may correct it.

In carrying out its task, the court must disregard the parties’ subjective intentions, and (except for limited purposes) the negotiations that preceded the making of the contract.”

The sum Pilatus owed under the Facility Agreement;

The sum Pilatus owed under the Interest Sharing Deed;

The sums Rigi Hahnstraße owes under the BBL loans which have since been assigned.

Be supplied by a Valuer at the request of, and addressed to, the Lender (i.e. RoundShield);

Provide an ‘as-is’ valuation for the relevant Property;

Provide a stabilised valuation for the relevant Property;

Be based on the market value as that term is defined in the then current Statements of Asset Valuation Practice and Guidance Notes issued by the Royal Institute of Chartered Surveyors.

The report for the Bonn Property, Bonn fails to comply with the above requirements in that it was not addressed to RoundShield. It was also stated to be ‘exclusively for Solidare Service GmbH (the “Client”)’. Since guarantees fall to be considered strictly, and here there was no strict compliance, this report did not comply with the contractual provisions.

The report for Emmastraat 210 was merely a desktop valuation, and Cs were put to proof that this contained an ‘as-is’ as well as a stabilised valuation. (Footnote: ¹)

First, the relevant contracts (i.e. the Facility Agreement and the Guarantee) set out a clear mechanism for the calculation of the Loan to Value. That wording makes clear that the calculation must be based on ‘Valuations’, and that term is expressly defined. Cs effectively seek to suggest that the calculation can be based on something other than those Valuations. The Court should not make a finding that goes against the express and clear wording of the contractual documents.

Secondly, even if there were any ambiguity, Cs’ interpretation does not accord with business common sense. The definition of ‘Valuation’ in the Facility Agreement makes clear that the lender is the party who is expected to arrange the Valuation (by instructing the relevant Valuer). From a point of enforcing the Guarantee, it is in Cs’ best interest that the value of the Properties is as low as possible for the purposes of the Loan to Value calculation. If Cs’ interpretation were correct, a lender under these arrangements could deliberately fail to arrange contract-compliant Valuations and would be rewarded for this by the relevant Properties either being taken out of the calculation entirely or being subject to an estimate that is completely within the lender’s control.

There is an established line of cases to the effect that a lender cannot sue a guarantor if a condition precedent has not been met (see e.g. the 19^th century case of Re Brown’s Estate [1893] 2 Ch 300, where it was found that a cause of action against a surety did not accrue until a demand was made).

A more modern example of this principle can be found in the decision in Martin v McLaren Construction Ltd [2019] EWHC 2059 (Ch), an insolvency case in which the relevant debt was based on a guarantee. The guarantee in that case stated that payment had to be made ‘immediately on demand’. At paragraph 20, ICC Judge Barber confirmed that the legal principles applicable to ‘on demand’ guarantees were well established and that, where a guarantee requires that a demand be made in writing before liability arises on the part of the guarantor, no cause of action arises – and nothing is due from the guarantor to the lender – unless and until such demand is made. Serving a statutory demand was not good enough for the purpose of satisfying the demand provision, and nor was an e-mail (paragraphs 32 and 34).

In Oval (717) Ltd v Aegon Insurance Co (UK) Ltd 1997 WL 1103311, the claimant (a company owned/controlled by the University of Bristol) sued an insurance company under a performance bond. The claimant had hired contractors in relation to the construction of new halls of residence. The purpose of the bond was to guarantee a contractor’s due performance of a construction contract. The terms of the guarantee enabled the employer to recover from the defendant whatever damage it may sustain as a result of the contractor’s default, up to a stipulated limit. The bond contained a condition precedent as to notification. The defendant in that case argued that, due to the failure on the claimant’s part to comply with the above notification requirement, the claim should be dismissed. Recorder Collins Reece QC noted that the notification requirement had ‘a discernable commercial purpose’ and that this was ‘an obligation the Plaintiff accepted’ and found in the Defendant’s favour. Deburo submitted that the condition in the present Guarantee, which prevents RoundShield from ‘making a claim’ unless and until a certain conditions are satisfied, is similar to the requirements in these earlier cases.

Finally, I was referred to the Australian case of Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 N.S.W.L.R. 689, which is cited in several current editions of English textbooks (e.g. Law of Guarantees, 7^th ed, 4-002, footnote 8 and The Modern Law of Guarantees, 10-007, footnote 11). In that case, a guarantee was expressed to be ‘upon the terms and conditions and at the time and in the manner herein provided’, which included ‘pre-conditions to entitlement to make demand’ (inter alia notice provisions). The dispute was as to whether the provisions had to be complied with strictly or only substantially. Such pre-conditions were held to be conditions precedent with which literal compliance was required. Samuels JA distinguished (at page 703) between promissory conditions and conditions precedent. Having summarised both English and Australian case law, he said at 705 that ‘it is meaningless to speak of the substantial performance of a condition precedent. Either it has been performed, or it has not’.

The ‘Loan’ component of the Loan to Value calculation was at least €144,318,847.41 as at the date of the issue of the Claim Form (4 July 2022), comprising:

The ‘Value’ component was no more than €75,710,000. Cs relied on the valuations of the relevant properties set out above.

In October 2021 Pilatus accepted that “the As-ls Loan to Value has exceeded 75 per cent (75%) in breach of Clause 18.1 (As-ls Loan to Value) of the Facility Agreement” such that an Event of Default had occurred under the Facility. Mr Rehberger accepted (as is indisputably true as a matter of logic) that if the As-Is Loan to Value under the Facility had exceeded 75 per cent in October 2021 then the Loan to Value under the Guarantee must also have exceeded 75 per cent at that time and that he appreciated this fact. He also accepted that nothing had materially changed by July 2022, such that it was most likely that the Loan to Value under the Guarantee also exceeded 75 per cent in July 2022.

Further, the Valuations for the properties which do exist show that they were worth no more than €75.7 million when the proceedings were issued (or €86.1 million if the valuation for the Bonn Property as at 31 May 2022 contained in the report dated 29 July 2022 is used). It is beyond fanciful to suggest that if Valuations had existed for Tromplaan 51 and Kortenaerstraat 21, they would have shown that the Loan to Value did not exceed 60 per cent. These two properties were purchased in late 2019 for €560,000 and Mr Simon Anter accepted that they would not have been worth very much more in July 2022.

Dealing first with the Bonn property, Cs relied on the valuation set out in the 2018 Bonn Report of €17.5m. They sought to address Deburo’s contention that this report is not a ‘Valuation’ because “the report was not addressed to RoundShield” and “the valuer was appointed by someone other than RoundShield”. As to this the definition of a ‘Valuation’ states that the valuation should be “supplied by the Valuer at the request of, and addressed to, [RS Lux II]”. Cs put forward 2 contentions:

It was prepared at the instruction of and addressed to RS Lux II.

It was prepared on the basis of the market value as defined by RICS.

It provided an ‘as-is’ and a ‘stabilised’ valuation of the property.

Tromplaan 51 was purchased in late October 2019 for €400,000. It can be assumed that the purchase price was representative of its market value at this time. Mr Rehberger accepted that it was not a valuable property.

A desktop valuation of Tromplaan 51 prepared by CBRE on 18 October 2019 showed that the property would have a market value of €1 million on an assumption of “refurbishment to market standard and split into two dwellings”. The market value of the unimproved property could therefore not have been more than €1 million on any view.

Kortenaerstraat 21 was purchased in late December 2019 for €160,000. Again, it can be assumed that the purchase price was representative of its market value at this time. Mr Rehberger also accepted that this was not a valuable property and that it would not have been worth much more than its purchase price in July 2022.

Mr Simon Anter’s evidence was that no significant improvements were made to these properties after their purchase and he accepted that they were therefore unlikely to have been worth much more than their purchase price in July 2022.

Even if the market value of the properties had risen by July 2022, there is no credible scenario in which such a rise could have any material impact on the Loan to Value. The properties would have needed to rise in value to approximately €165 million (an increase of some 29,000 per cent) for the Loan to Value not to have exceeded 60 per cent when the claim was issued. That is simply fanciful.

In construing a contract there is a presumption that the parties do not require the performance of the impossible: Cuckow v AXA Insurance UK Plc [2023] EWHC 701 (KB) at [114]–[119]. A construction of the ‘Loan to Value’ definition which required the market value of Tromplaan 51 and Kortenaerstraat 21 to be included in that calculation in the absence of Valuations for those properties would result in an impossibility, since the market value could not be “determined by reference to the then most recent Valuation of each Property” without such a Valuation existing. The better construction of the ‘Loan to Value’ definition is therefore that if there is no Valuation for a particular property, the market value of that property should be disregarded or treated as nil.

Alternatively, a term falls to be implied (Footnote: ²) into the definition of ‘Loan to Value’ by reason of business efficacy that if no Valuation for a property exists, RS Lux II should make a good faith estimate of that property’s market value. Such a term is necessary to give business efficacy to the Guarantee if (contrary to Cs’ submission above) the Loan to Value could not otherwise be calculated in the absence of a Valuation for a particular property. Any such good faith estimate of the value of Tromplaan 51 and Kortenaerstraat 21 would have been de minimis for the reasons already given above.

The express and allegedly implied terms of the contract.

The allegation that, as a matter of fact, the LTV condition was met at the date of commencement of these proceedings.

In the absence of any valuations which accorded with the requirements of the guarantee for Tromplaan 51 and Kortenaerstraat 21 then there was, in my view, no compliance with the terms of the guarantee.

I reject the submission that the absence of such valuations could be ignored because they were of so little value. I do not think that, absent considerations of waiver, it is open to a party simply to ignore a provision of a guarantee such as this one on the grounds of unimportance.

That leaves the other two properties. In the light of my earlier conclusions, I can deal with these briefly.

RS Lux II permitted funds to be drawn down to purchase Tromplaan 51 and Kortenaerstraat 21 without Valuations being supplied. This was because there was an agreement between Mr Leeb and Mr Simon Anter that Valuations did not need to be obtained because of the low value of these properties.

When RoundShield sought to obtain valuations for the Enschede properties (i.e. including Tromplaan 51 and Kortenaerstraat 21) in late 2021, Mr Rehberger resisted this, stating that “In our view, it does not make any sense to create any new expert reports since the Enschede properties are all to be sold and we do not want to generate any further costs and expenses here”. Mr Rehberger accepted that this represented Deburo’s position on the matter. As a result, no valuations were obtained.

In conducting themselves on this basis, the parties waived any requirement to obtain Valuations for these properties. In the premises, Deburo cannot now contend that the Loan to Value is incapable of calculation in the absence of such Valuations.

First, as to ‘implied agreement’, Deburo said it was unclear on what basis Cs say communications between Pilatus and RoundShield about the Facility Agreement would have led to a valid variation of the Guarantee between RoundShield and Deburo.

During cross-examination, Mr Rehberger was questioned about the letter of reliance (which stated that RoundShield could rely on the 2018 Bonn Report) and specifically about e-mails on the subject. It was established that Mr Rehberger did use Deburo’s (then) e-mail signature in those e-mails. They were nevertheless discussions about the 2017 Facility Agreement, in the context of a drawdown of funds pursuant to that agreement. Further, these e-mails were all from 2018, as was the reliance letter. They cannot, it was contended, have waived any conditions in the (current version of) the Guarantee, which only came into existence in May 2019.

In any event, Mr Leeb also said in evidence, about the Bonn report, ‘There is no e-mail that Deburo is representing anything about the valuation, indeed’.

Cs would have to satisfy the Court that they – while being legally represented – reasonably relied on Pilatus’s statement (if it is to be interpreted in the way Cs contend) that the Facility Agreement meant something other than it said.

Further, it was contended that any representation was made by Pilatus, not Deburo, and not in any context addressing the Guarantee. This leads to a third issue, in that the scope of any estoppel would not be wide enough to affect the Loan to Value calculation.

I start with Tromplaan 51 and Kortenaertstraat 21. I have concluded that there was no waiver by Deburo of its right to have contractually compliant valuations. The request relied on by Cs was from the borrower, not the guarantor, and, although there was commonality between the individuals involved, I do not think that this suffices to lead to the conclusion that Mr Rehberger was speaking on behalf of Deburo in making this request. Moreover, as the citation from Chitty makes clear, where a request is made from A to B to allow a contract to be performed in a manner other than that laid down, which B accedes to, it is B who waives its rights, not A (let alone C).

This makes it strictly unnecessary to deal with the Bonn property. I am satisfied that there was a representation by Pilatus that the valuation provided complied with the requirements of the Facility. However, it is not clear that the representation extended to Deburo, and I am not wholly satisfied that it would be inequitable to allow Deburo to rely on its strict rights under the guarantee on the facts of this case. However, since the point does not arise, I prefer to express no final, concluded, view on the point.

The most recent loan account statement for the Facility shows that the amount outstanding under and in connection with the Facility stood at approximately €115 million as at 31 January 2024.

As at 31 January 2024, the amount due under the BBL Loans was €55,790,887.

The market value of the remaining properties in accordance with the July 2023 valuation reports (which remain the most recent valuations) is €59,900,000.

Accordingly, the Loan to Value as at 31 January 2024 was 286 per cent. On any view, the LTV Condition is therefore satisfied at the date of trial.

“...There is no absolute rule of law or practice which precludes an amendment to rely on a cause of action which has arisen after the commencement of the proceedings in circumstances where (but for the amendment) the claim would fail. The court has a discretion whether or not to allow the amendment in such a case; a discretion which is to be exercised as justice requires. In the present case I have no doubt that, had the claimants sought to amend their particulars of claim (so as to rely on the demand of 13 March 2000) within the period from 12 April to 30 August 2000, they should have been permitted to do so. There was no reason why they should have been required to commence new proceedings.”

First, Deburo’s construction requires the words “make a claim” to be read as referring only to the step of initiating legal proceedings in court. But the natural and ordinary meaning of the word ‘claim’ is far broader and also encompasses making a formal “demand or request” for payment (as per the OED definition (Footnote: ³)). To take but one example, it is common parlance to refer to “making a claim” under an insurance policy, which refers to the process of submitting a request for payment in accordance with the terms of the policy. In the context of an obligation which is expressed to be triggered by demand, a ‘claim’ is ‘made’ on the instrument in question by making a demand for satisfaction. By making the Second Guarantee Demand, Cs made a further “claim” against Deburo and the LTV Condition will have been satisfied at the date of that claim if (as it did) the Loan to Value then exceeded 60 per cent.

Second, and relatedly, the words “make a claim” can also naturally encompass a new claim brought within existing proceedings by amendment rather than merely the initial step of issuing a claim form. When Cs amended their Particulars of Claim to rely on a new head of claim arising from the Second Guarantee Demand, they made a further “claim” against Deburo under the Guarantee. Had the drafter of the Guarantee intended to produce the result contended for by Deburo (i.e. that any amendments to the claim after issue are irrelevant), they would have needed to be considerably more specific and to have expressed the LTV Condition in terms such as: “[RS Lux II] shall only be entitled to issue proceedings against Deburo to enforce this guarantee... at any time that the Loan to Value exceeds 60 per cent”.

Third, Deburo’s construction of the LTV Condition would not prevent Cs from making a demand for payment or taking other steps to enforce the Guarantee short of bringing proceedings under the guarantee itself, even if the Loan to Value was below 60 per cent. For example, on Deburo’s construction the LTV Condition would not prevent Cs making a statutory demand for payment under the Guarantee and then commencing winding up proceedings in reliance on the failure to satisfy that demand, since neither step would entail Cs issuing proceedings to enforce the Guarantee. This cannot have been intended by the drafter of the Guarantee and the result would be contrary to the obvious purpose of the LTV Condition, which, as set out above, is to prevent Deburo from bearing liability under the Guarantee when the Loan to Value does not exceed 60 per cent.

Fourth, Deburo’s construction does not give effect to the words “at any time”. Such words suggest that the LTV Condition is not to be assessed on a one-off basis when proceedings are issued, but at any time that the Guarantee is sought to be enforced.

Fifth, the result contended for by Deburo serves no logical or commercial purpose. Its only effect would be to require Cs to issue a separate set of proceedings against Deburo, on which Cs could almost immediately seek and obtain summary judgment, since Deburo has no other defence. That would only serve to increase costs and delay. There is no commercial rationale for such an outcome and it is therefore highly unlikely to have been intended by the parties when drafting the LTV Condition.

The wording of the Guarantee, which expressly provides that the lender shall ‘only be entitled to make a claim’ at a time when the LTV Condition is met; and

The nature of the LTV Condition, which is designed to protect the guarantor and which should not be interpreted in such a way that its protective force is substantially reduced.

The natural meaning of the words in the guarantee, both “may be claimed”, and “make a claim” (which appear in different sub clauses) is in my view not limited to issuing proceedings in Court. I accept the submission that the word “claim” extends beyond the issuance of a claim form.

The protection that the Loan to Value condition provides the guarantor with is enhanced by this construction. Essentially, as Cs submit, the condition acts as a brake on liability, not as a brake on the manner in which that liability is enforced in Court. In this regard, I accept the submission that Deburo’s contention proves too much, since it would mean that other means of enforcement (eg the filing of insolvency proceedings) might be argued to be outside the ambit of the provision, which I would regard as both undesirable and unlikely.

It would follow from this construction that if, at the time of the issuance of proceedings, the Loan to Value condition was not satisfied, the claim would have to be dismissed, since the provision is a condition precedent to liability.

Turning to the ability to amend in order to introduce a new cause of action, then in my view it would be undesirable to require a Claimant to issue new proceedings as opposed to introducing the new cause of action by way of amendment. I accept Cs’ reliance on the Maridive principle. The fact that the cases involved defective service does not in my view detract from the principle involved, namely that the Court has the discretion to grant permission to amend to introduce a new cause of action. That is, essentially, what has happened in this case, if Deburo are correct in saying that the Loan to Value Condition was not satisfied at the time of the issuance of the initial claim form.