Credit Suisse not liable for “lost chance” of selling security for a loan at a higher price

23/02/15

Rosserlane v Credit Suisse International [2015] EWHC 384 (Ch)

The Claimants were the former owners of Caspian Energy Group LP (“CEG”). CEG’s only significant asset was a 51% interest in a joint venture with the State Oil Company of Azerbaijan to produce oil from the mature onshore oil field called Kurovdag. In December 2006, the Claimants borrowed USD 127 million from Credit Suisse International (“the Bank”) to repay their existing indebtedness intending to repay the loan within a year by selling CEG.

The Claimants entered into a Participation Agreement with the Bank pursuant to which the Bank would receive an escalating equity upside on a sale in excess of USD 180 million. A separate Security Agreement allowed the Bank the rights of a mortgagee on default.

The Claimants failed to sell CEG, having valued it at a sum in excess of USD 900 million. Very few indicative offers were received from over 70 companies approached during two marketing processes, the highest of which was USD 324 million.

Immediately before the expiry of the loan, the Bank forced the sale of CEG for USD 245 million exercising its rights under the Participation Agreement rather than under the Security Agreement.

The Claimants complained that the Bank had failed to take reasonable care to sell CEG for the best price obtainable and sought damages for the lost chance of selling it for a sum in excess of USD 700 million. By the time of the trial, the Claimants alleged that there were 17 companies who would have been interested in buying CEG at around this price and pursued over 20 allegations of breach of the alleged duty of care the existence of which itself depended on a term being implied in the Participation Agreement.

Peter Smith J. dismissed all the claims made by the Claimants.

The Judge accepted that the Bank had successfully destroyed the credibility of various witnesses (many of the claims were abandoned in the light of the evidence at the trial). The Judge rejected the Claimants’ suggested implied term as it was not necessary. Both parties were incentivised to obtain the highest price for CEG. No duty analogous to that of a mortgagee was to be imposed on the Bank under the Participation Agreement, rather the Bank's duty was limited to a duty to act rationally and in good faith such as had been recognised in Socimer International Bank v Standard Bank London Ltd [2008] 1 Lloyd’s Rep 558 (CA).

The Judge disagreed with the obiter statement made by Millet J. (as he then was) in Re Charnley Davies Ltd (No.2) [1990] BCLC 760 that the law imposed the duty contended for “on anyone with a power, whether contractual or statutory, to sell property which does not belong to him”.

The Judge also went on to hold that the Bank would have been in breach of duty (had the contended for duty existed), but the breach was not causative of any loss. Although the Judge found that there was a substantial (65%) chance that GazpromNeft would have been prepared to pay up to USD 400 million for CEG if it had been contacted by the Bank, a witness called from GazpromNeft gave evidence that it would have required a site visit before making a firm offer for CEG. At the time the Claimants’ policy was to refuse site visits. The Claimants had not adduced evidence to prove on the balance of probabilities that they would have relaxed that policy for GazpromNeft and this was fatal to the claim

Permission to appeal was refused.The Claimants had no prospect of success unless the appeal succeeded on both the duty and the facts and there was no realistic prospect on either ground. In particular, there was no prospect that the Court of Appeal would accept the contention that the Judge had reached a decision on the facts which no reasonable Judge in his position would have come to.

The judgment is here.