The Promontoria Argument
The transfer from NAB / Clydesdale Bank to the various Promontoria entities is a Novation and is therefore invalid.
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This is an important paper for all those NAB / Clydesdale (and Yorkshire) victims who had TBL loans converted to overdraft facilities and subsequently transferred to one of the numerous Promontoria (Cerberus) entities.
Victims will have been transferred on or around 8 October 2012 to NAB and then "groomed" to facilitate the transfer of their loans to Cerberus. In most cases their overdraft facility will have been allowed to expire prior to the transfer.
In this context it is important to note that in October 2012 only the management of the loans was transferred to NAB. The legal ownership of the loans remained vested in Clydesdale. Each customer received a letter confirming the transfer on or around 5th October 2012. That is why Clydesdale is a party to the transfer deed to Promontoria. NAB is defined as the "Seller" but had nothing to sell.
The overdraft facility letter
The analysis of Novation starts with the Terms and Conditions of the Overdraft Facility letter.
The key is to understand the full effect and consequences of Clause 6.2 of the Terms and Conditions.
Clause 6.2 says with the key phrases highlighted and underlined:-
"The Bank may (1) assign any of its rights or benefits and /or (2) transfer by novation any of its obligations, under this letter or any other Relevant Document to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities and other financial assets or to any other person or persons and /or (3) otherwise deal with its rights, benefits and/or obligations under this letter or any other Relevant Document, in whole or in part".
Within the constraints of this clause, on the face of it the Bank can transfer the loan to anyone it chooses.
The Assignment and Assumption Deed
Clause 2.1(a) (i) (ii) (iii) and (iv) deals with the transfer of rights and benefits and complies with clause 6.2(1) of the overdraft facility. Rights and benefits can be assigned.
However, Clause 2.1 (b) says " each of the Seller and /or Clydesdale (as applicable):
(i) are released of all of their respective obligations under the Relevant Documents; and
(ii) resigns from each Relevant Document in its capacity as the Lender "
Clause 2.1 (c) says:-
"the Buyer becomes a party to each Relevant Document in the capacity of the Lender and is bound by obligations equivalent to those from which the Seller and/or Clydesdale are released under paragraph (b) above--------------"
Clause 2.2 says "The Buyer agrees that with effect on and from the Effective Time:
(a) it accepts the assignment of rights ----------------------------"
(b) it shall assume, perform and comply with the terms of and the obligations of the Lender under the Relevant Documents as if originally named as a party in the Relevant Documents in place of the Seller and/or Clydesdale (as applicable) --------------"
The important key words are highlighted.
In order to understand the significance of these clauses we need to consider other clauses and documents:-
In the Assignment and Assumption Deed, NAB is referred to as "the Seller"; Clydesdale is referred to as "Clydesdale" and Promontoria is referred to as the " Novated Buyer" or "Buyer". The reference to "Novated Buyer" is simply a reference to the novation from Promontoria BV in the Netherlands to the various entities Henrico, Chestnut, Oak etc..
On 8 October 2012 Clydesdale transferred the management of it CRE loans to NAB but crucially the legal ownership of the loans remained with Clydesdale as stated above.
As a consequence in the transfer NAB, defined as the "Seller", had nothing to sell. That is why Clydesdale is included in the Assignment and Assumption Deed. This is important to note when considering the redacted clause 5 later in this narrative.
Now refer to Clause 6.2 of the facility. The clause makes a distinction between three types of transfer. (1) assignment of rights and benefits, (2) transfer by novation of its obligations and (3) other dealings with rights and benefits and /or obligations.
Assignment and novation are different concepts in law.
Assignment is a mechanism by which one party transfers the contractual rights and benefits (but not the obligations) under a contract to a third party. Consent of the counter party is not required. In terms of a loan the facility letter is a contract between the Bank and the borrower. An assignment allows a Bank to transfer its contractual rights and benefits to a third party who can then pursue the borrower for any sums that were due to the Bank. Another common example of assignment is when a supplier of goods "factors" his invoices to a third party. The third party can demand payment from the purchaser but the contract between supplier and purchaser remains in place. If the goods prove to be faulty the purchaser sues the original supplier and not the third party to whom payment was made.
On the other hand a novation is a mechanism by which one party transfers all of its rights, benefits and obligations to a third party. The consent of all parties to the original contract is required under novation. In terms of a loan, a novation involves an agreement between the borrower and the Bank that releases the Bank of its obligations and the third party takes the place of the Bank in the contract for all purposes. (refer to clause 2.2 (b) above)
Another simple example of novation compared to assignment is:-
I agree to sell you 10 bananas for £10. I supply those bananas but before you are required to pay me I have a cash flow problem which prevents me from buying more bananas to sell to somebody else, so I assign my right to payment from you to a third party for a discounted payment of £9 and I go out and buy more bananas. When the date arrives for you to pay for your bananas you pay the third party. My assignment of your debt does not require your consent and the contract between us is unchanged.
OR
I agree to sell you 10 bananas for £10. Before I can supply those bananas I run out of stock so I contact you to ask if I can novate our contract to a third party who will supply you with 10 bananas for the same price. You go and see the intended third party and look at his bananas. They are not the same quality as the bananas I was going to supply you with so you refuse. Because you refuse the novation of our contract to the third party it cannot take place. If I novate the contract without your consent the novation is invalid.
It is that simple.
Now consider clause 2.1 and 2.2 of the Assignment and Assumption Deed referred to above. The clauses are crystal clear that obligations are being transferred and Promontoria is taking the place of Clydesdale in the contract.
Notwithstanding what it says in the title of the Deed, a NOVATION of obligations has taken place without your CONSENT and as a consequence the transfer is INVALID.
There is now an un-redacted copy of the transfer in the public domain which is very helpful. See Promontoria contracts :-
You will see that the redactions to Clause 1 are clauses that refer to the earlier "Sale and Purchase Agreement" between NAB, Clydesdale and Promontoria BV. Clearly they do not want us to be aware of that document but it does not alter the novation argument.
Redacted clause 3 refers to a requirement for NAB to advise Promontoria in writing that money has been received. Clydesdale has been asked for copies of these letters but the request was refused.
Redacted clause 4 refers to the earlier Sale and Purchase Agreement.
Redacted clause 5 is the key. Remember that NAB, the Seller, does not own your loan, it still resides with Clydesdale. Clause 5 places an undertaking on Clydesdale to "take reasonable steps to obtain the consent of any third party or entering into any transfer documentation in respect of any relevant loan asset". It also requires this to be done within 3 months of completion.
Borrower and guarantor customers are the third party. In every case Clydesdale did not seek or obtain third party consent which is probably why the clause was redacted. NAB, Clydesdale and Promontoria will have been well aware that no third party would consent to a transfer of their loans to an unregulated off shore entity, let alone a US vulture fund.
In summary, therefore, the Deed confirms that Obligations were transferred and Promontoria took the place of Clydesdale as Lender - the Deed is therefore a Novation and was executed without the borrower's consent. It is invalid.
In addition there are supplementary arguments to show that a Novation of these loans was invalid because Promontoria (all of the Promontoria entities including BV) are not able to "assume, perform and comply with the terms of and the obligations of the Lender " as described in Clause 2.2(b) of the transfer, because they are not a Bank, they are not regulated and they do not have a Banking Licence.
However, Promontoria are acting (illegally) as if they are a Bank regulated in the UK. In all correspondence, Promontoria is referred to as the "new Lender". Clydesdale is referred to as the "former Lender".
It is common knowledge that Promontoria employs Engage Commercial, a trading name of Pepper (UK) Ltd, to administer the loan book. Engage appoints a "relationship manager" to each account. This is consistent with Promontoria acting as a Lender.
Furthermore, Clydesdale / NAB / Engage, in describing Promontoria as the "new Lender" and in recognition of the terms of clause 6.2 of the facility letter, have transferred to an entity that is "regularly engaged in or established for the purpose of making loans". Promontoria is barred from that role for the reasons stated above.
There is a letter from Clydesdale which states " The contractors of Promontoria, Engage Commercial through Pepper (UK)Ltd, have a banking licence so can address matters as required". This letter was in response to an accusation that Promontoria does not hold a Banking Licence. Clydesdale's answer is flawed for two reasons:-
1) Promontoria cannot rely on a Banking Licence held by its agents.
2) The Licence held by Engage only authorises them to administer certain regulated mortgage products and certain regulated insurance products. Engage's licence does not extend to the operation of overdraft facilities.
There are additional letters from Clydesdale which are consistent with the transfer being a novation.
In one letter the Bank said it carried out extensive due diligence on Promontoria prior to the transfer and :-
"Promontoria gave certain undertakings to the Bank to ensure that:
1) any transferring lending would be managed in accordance with the standards of a reasonably prudent mortgage lender managing facilities of the type made available to the transferring borrowers
2) any transferring lending would be managed in compliance with all applicable laws and regulations, including the directions of any regulatory authority
3) Engage Commercial (a trading name of Pepper UK Ltd which is regulated by the FCA) holds all licences, consents, approvals and permissions as are required in order to service the transferring lending on behalf of Promontoria
These are interesting admissions by the Clydesdale and are consistent with the transfer being a novation. A simple assignment of rights and benefits would not require such due diligence nor the actions described in point 1. However, the Bank has lied in points 2 and 3 because Promontoria cannot and does not act in accordance with point 2 because it is not regulated and under point 3, Engage does not have "all licences, consents etc" to service the lending. In this respect, Clydesdale fails to comply with its obligations under the "Lending Code" to which it is a signatory.
In the same letter, Clydesdale also admits to novation of obligations but then attempts to suggest it didn't mean to ! The bank states:-
" As you have highlighted, clauses 2.2(b) and (c) and 2.2(b) of the Assignment Deed provide for Promontoria to assume and perform the obligations of the Former Lenders but these clauses are not intended to constitute a novation of those obligations"
The question of whether a novation has taken place is one of objective fact and not of subjective intentions. Because obligations can only be transferred by novation, objectively a novation has taken place.