In 2009, Tael One Partners Ltd participated, together with a number of other lenders, in a syndicated loan which was made to a third party borrower, Finspace SA. Tael contributed $32m of the total loan facility of $100m. In addition to interest payments, the facility provided for a “Payment Premium” to be paid by the borrower upon repayment of the principal.

Tael transferred $11m of its $32m participation in the loan to Morgan Stanley & Co International plc on the 14 January 2010 (the “Settlement Date”). The transfer was documented in a transfer certificate and was subject to the Loan Market Association (“LMA”) Trade Confirmation, which incorporated the standard terms and conditions of the LMA. A letter was also entered into which set out the total purchase price due from Morgan Stanley to Tael in respect of the transfer (the “Purchase Price Letter”). This was stated as the amount of the participation plus accrued interest up to the Settlement Date. The Purchase Price Letter did not explicitly provide for any payment to be made by Morgan Stanley to Tael in respect of the Payment Premium. Morgan Stanley subsequently made a further transfer of the entire $11m participation, to a company called Spinnaker Global Strategic Fund Limited.

In late 2010, Finspace SA repaid the loan in full and paid the Payment Premium to the current lenders, proportionally to their respective levels of participation. Tael claimed that in accordance with the LMA terms, Morgan Stanley was required to pay to it that proportion of the Payment Premium that accrued in relation to Tael’s participation in the period before the Settlement Date. Tael relied upon Condition 11.9(a) of the LMA Terms, arguing that this Condition allowed for payments that accrue later but in respect of the period before the Settlement Date. Morgan Stanley argued that Condition 11.9(a) simply defined what was capable of falling within Condition 11.3(a) of the LMA Terms and that the payment premium did not constitute “fees” within Conditions 11.3(a) or 11.9(a).

Tael was successful at first instance.

Court of Appeal

Morgan Stanley appealed to the Court of Appeal, where the case was heard by Lord Justice Longmore, Lord Justice Rimer and Lord Justice Tomlinson. Lord Justice Longmore gave the lead judgment, with which there was unanimous judicial consent.

The appeal was allowed on the basis that Condition 11.9(a) did not impose an extra requirement over those in 11.3(a). Longmore LJ noted that condition 11.9(a) does not use the words “shall pay”, “payment”, “be payable” or “paid” but instead uses the phrase “shall be for the account of”. Longmore LJ pointed out that this wording occurs elsewhere in Condition 11 itself, at paragraph 29:

“It would be odd, if Condition 11.9(a) was intended to create an extra entitlement, that it should be the one condition in which the phrase “for the account of” should be used”[1].

If condition 11.9(a) was intended to confer an extra entitlement in respect of sums not accrued by the Settlement Date, but accruing thereafter, the contract specified no mechanism for that implementation.

Longmore LJ also reflected on the fact the schedule to the Purchase Price Letter made no mention of the Payment Premium even though the schedule itemised the amount of the loan and the accrued interest. It would be expected that had the parties intended Tael to recover any part of the Payment Premium from Morgan Stanley it would have been mentioned in the Purchase Price Letter. This led Longmore LJ to conclude at paragraph 37:

“I do not think that the Seller can obtain a better or more extensive price than that set out in the schedule attached to the Purchase Price Letter”[2].

For these reasons the Court of Appeal allowed the appeal and found that Tael was not entitled to a proportion of the payment premium, to the extent that it had accrued in respect of the period before the transfer.

Appeal to the Supreme Court

Tael’s appeal is due to be heard in the Supreme Court on 17 November 2014 by Lord Neuberger, Lord Kerr, Lord Reed, Lord Toulson and Lord Hodge. The issue for the Court to decide will be whether, on a true construction of the contract between the parties, Morgan Stanley is required to make a proportionate payment to Tael in respect of the ‘Payment Premium’.



[1] Tael One Partners Ltd v Morgan Stanley & Co International plc [2013] EWCA Civ 473,  para 29

[2] Ibid.,  para 37