Class X Litigation: Not So Appealing

Following their loss at first instance in Titan Europe 2006-1 P.L.C. and others [2016] EWHC 969 (Ch) (the background to the case and our commentary can be found here), the Class X Noteholder appealed the decision in respect of the central issue in the proceedings – when calculating the Class X Interest Rate in accordance with the Conditions, is it necessary to take account of any additional interest due under the Loans following a default? A victory for the Class X Noteholder would likely mean a substantial pay out to them over the four CMBS transactions. However, once again, the English Courts have ruled against them on the issue. In a split decision, the Court of Appeal in Credit Suisse Asset Management LLC v Titan Europe 2006-1 PLC & Ors [2016] EWCA Civ 1293 dismissed the appeal, stating (per Arden LJ) that:

"In summary, I conclude that the "per annum interest rate" in the definition in the Ts & Cs of "Net Mortgage Rate" is the ordinary rate of interest payable on the underlying loans exclusive of any element of default interest. So default interest payable on the underlying loans is not to be taken into account in calculating the Class X Interest Rate. There was also commercial logic in excluding default interest."

That conclusion was supported by Underhill LJ, who stated "I agree with Arden LJ that the phrase "per annum interest rate", in the context in which it appears, most naturally reads as a reference to the ordinary interest rate applicable to the Loans and specified in the Offering Circular".

In contrast, Briggs LJ reached the...