UBS AG, London Branch v Glas Trust Corporation Limited 13/7/17 (Comm)

An issue arose as to whether a Trustee of Notes was permitted to incur certain legal and other expenses referable to the work of an ad hoc group of Noteholders arising from a securitisation transaction in respect of the cashflows generated by a portfolio of sheltered housing. UBS and another bank had entered into a number of initial and forward-starting interest rate swaps, deposit contracts and inflation-linked retail price index swaps which were said to have been intended to hedge the Issuer’s obligations under the Notes. The cashflows generated by the underlying assets had not supported the Issuer’s liability to the Noteholders and the liability to the banks under the swaps. In October 2015 UBS exercised its right of optional early termination under the swaps. A group of noteholders sought to replace the original trustee of the notes with a new trustee. A potential event of default then occurred with the Issuer not paying interest due on the notes. The Issuer then sought to rescind the swaps on the basis that alleged fraudulent misrepresentations had been made by the banks in relation to the swaps. An extraordinary resolution of the Noteholders authorised and directed the new Note Trustee to meet certain legal and financial expenses of the group who had been behind the replacement of the original trustee and the challenge to the swaps. It was not appropriate for the Note Trustee to adopt the expenses en bloc without review as to their reasonableness or whether they came within the provisions of the Trust Deed.