Europa Plus SCA SIF v Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm)

The Court interpreted the terms of a Termination Agreement and found that the Applicant, Europa, was entitled to €1.3 million from the Defendant, AII, in relation to funds invested on Europa's behalf, which had been paid out and held by AII. As a matter of construction, it could not have been intended that AII should be left with sums owing to an investor following a Termination Agreement.

Europa, an investment company incorporated in Luxembourg, was the beneficial owner of Anthracite Balanced Company (R-26) Ltd ("Balco"), a Cayman Island incorporated special purpose vehicle.

Anthracite Investments (Ireland) PLC ("AII"), incorporated in the Republic of Ireland, was a special purpose vehicle established by Lehman Brothers as an "orphaned company" and was not intended to have commercial shareholders with an economic interest. The share trustees were instead charitable trusts to which dividends were limited to a maximum of €500. The purpose of the structure was to make AII "bankruptcy remote"; in other words to be a vehicle operating not for the benefit of shareholders but its noteholders.

The dispute in this case related to the issue of notes that were 100% subscribed to by Fondazione Enasarco, an Italian pension fund provider, to invest €780.47m in a portfolio of assets managed by Lehman Brothers Asset Management Ltd.

The portfolio included two hedge funds ("the Original Funds") managed by an Italian company, Duemme Hedge, which AII invested sums into on behalf of Balco. The sums were invested under an agreement whereby AII would hold the investments in the fund and act as a conduit through which the entire financial benefit of those investments would pass to Balco.

In April 2008, AII submitted requests for €1.3 million and €1.6 million worth of shares to be redeemed from the Original Funds. These funds were paid into AII's account in July 2008, and under the terms of the agreement they should have been paid by AII to Balco but were overlooked in circumstances which are unexplained, and these are the funds in dispute in this action.

In 2009, the Original Funds were merged into a single fund ("the New Fund"). In December 2011, Europa were transferred ownership of the redeemable preference shares in Balco.

Subsequently four letters requested the redemption of all of the shares from the Original Funds in instalments, followed by a Termination Agreement on which the agreement would be irrevocably terminated in full with immediate effect. The Termination Agreement was entered into in March 2012, before the full realisations had taken place.

In April 2013, AII discovered the €1.3 million and €1.6 million remained in its bank account. AII took advice from Matheson, its Irish lawyers, as to who was entitled to the sums. Matheson advised that the €1.6 million was payable to Europa, but not the €1.3 million. AII paid the €1.6 million to Europa in May 2014. Europa sought to recover the €1.3 million and AII sought the repayment of the €1.6 million on the basis that it was made in the mistaken belief that AII was liable under paragraph 14 of the Termination Agreement: "Any payment or distribution received or collected by any party […] in respect of the Duemme Shares prior to the Transfer Registration which was not paid over (or forwarded on) to the Balanced Company prior to the Transfer Registration […] shall constitute property of Europa to which Europa shall have an absolute right. The relevant Receiving Party shall hold the payments or distributions referred to […] above for the account and sole benefit of Europa."

The Court looked at the construction of all of the agreements between the parties, including the Termination Agreement, as to whether the funds rightfully belonged to Europa. There were arguments put forward by both sides as to whether "Duemme Shares" only referred to the New Fund or whether the Original Funds were also included.

The Court stated that it was clear that at the time of the Termination Agreement, AII, Balco and Europa were all unaware that the July 2008 payments had not been paid on by AII to Balco; however, each could have discovered this had they made enquiries reasonably open to them.

The Court stated that it was obviously not envisaged that AII would be entitled to obtain for its own benefit sums running to millions of Euros to be kept as a windfall.

The Court found that as a matter of construction, the expression "Duemme Shares" in paragraph 14 included the Original Funds and therefore AII were obliged to pay to Europa the amount of the July 2008 payments. Therefore Europa's claim for €1.3 million succeeded and AII's counterclaim for €1.6 million failed because there was no mistake in treating it as payable.

This article was written by Alan Bennett and Olivia Reader.

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