In the recent case of Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc  EWHC 782 (Ch), the claimant (“Hayfin”), a holder of Class X notes in a CMBS, brought a claim against the issuer essentially alleging that there had been a miscalculation of the interest due under its notes and claiming all historical underpayments of such interest. Hayfin ultimately lost the case but, had Hayfin been right, the underpayment of Class X interest (which Hayfin claimed accrued at the Class X Interest Rate) could have potentially amounted to several million euros.
Hayfin acquired its Class X notes in July 2015, and commenced proceedings five months later, in November 2015, claiming backdated interest to July 2007 (i.e. long before it had acquired the notes). Hayfin expressly stated that its ultimate objective was to trigger an event of default so that the post-enforcement waterfall would apply (under which payments of interest due under the Class X notes were near the top).
A threshold issue that arises in this context is one of standing. CMBS and similar structures typically contain a “no-action” clause against the issuer. This clause prevents any transaction party and any noteholder from instituting proceedings directly against the issuer for non-payment or any other breach of the transaction documents. The aim of this clause is to ensure that it is only the note trustee who may enforce the terms of the notes on behalf of all holders. Typically, these clauses state that a written direction must be given to enforce by a certain percentage by value of noteholders. Even then, the note trustee will usually have no obligation to act unless and until it is indemnified to its satisfaction.
In the Hayfin case, in view of the “no action” clause, the issuer initially challenged Hayfin’s right to bring the claim. In response, Hayfin argued that it had brought a claim seeking a declaration as to the operation of its rights under the notes rather than an action for the recovery of sums. An action for declaratory relief, Hayfin argued, fell outside the ambit of the “no action” clause. As the note trustee subsequently confirmed that it would bring an identical claim on Hayfin’s instructions, were Hayfin wrong on this point, the issuer agreed to not take the argument further and it was not therefore considered by the Court. However, the question of standing may arise in a more controversial form where the noteholder bringing a claim and the noteholders best placed to direct the note trustee have diverging economic interests.
Hayfin’s right to bring the claim was also challenged as it concerned a question of interpretation of an agreement to which neither Hayfin nor the note trustee was a party. Interestingly, Snowden J accepted that Hayfin’s claim could legitimately arise in this context albeit with the proviso that the effect of the judgment would not be binding on the parties to that agreement who were not also party to the litigation.