Securitisation and the right to sue
We came across an interesting argument concerning the right to sue after securitisation of assets in a recent reported case we ran for an asset finance company, Haydock Finance Limited v Starcruiser Bussing Limited  EWHC 622 (Comm).
The case involved commercial vehicles and acting for the funder we brought a claim against the hirer for return of the vehicles and the guarantor for a substantial sum. There appeared to be no merit whatsoever in the Defence as served, but by the time of the hearing the Defendants turned up with a so-called “Securitisation Analysis Report” prepared by an academic in California who describes himself as an “Expert Analysis on Auto Agreement Backed Securities Data.”
The Report purported to set out a complex train of transactions which its author seems to have investigated, though the basis of his investigation was not entirely clear and it was certainly lacking in accuracy.
However, the essential point being made was that the securitisation process had the effect of depriving the funder of the right to bring proceedings for the return of the vehicles and/or for a claim for damages against the guarantor.
Fortunately the claim was dealt with by a specialist judge in the Manchester Circuit Commercial Court HH J Pearce, who commented as follows:
“The typical structure of so-called securitisation is the packaging of non-marketable assets into marketable securities by the holder of the assets selling them to a company which issues bonds or notes to investors under a trust deed, the assets being charged to the trustee to secure payment of the bonds or notes and the sale price being discharged from the proceeds of issue. Broadly speaking, this is what the Defendants allege has happened here”.
The judge was not impressed with this argument or the way it was presented, and after hearing our submissions he ruled as follows:
“I have … considered the possibility that, by reason of an assignment of its interest in the vehicle, the Claimant may no longer be entitled to recovery of the vehicle. It is certainly possible that assignment could lead to the loss of the right to recover, although whether it did so would require careful consideration of the detail of the assignment. However, it is not clear that there has been any assignment here and, even if there has, there is no suggestion that the Defendants have been given notice of assignment. In those circumstances, even if assignment were possible, it could only be equitable in nature. In the case of an equitable assignment, the assignor retains the right to sue on the agreement (see Three Rivers DC v Governor of the Bank of England  QB 292). I conclude that the Defendants show no even arguable basis that any transaction by way of securitisation has deprived the Claimant of the right to bring this claim”.
This is an interesting case because the challenge based on securitisation came as something of an afterthought but apparently involved a so-called expert who was willing to put his name to a witness statement impinging the funder’s right to sue. Perhaps this is the forerunner of asset financiers and ultimately invoice financiers being subject to the “ambulance chasing” tactics which have bedevilled consumer credit funders over the years.
Although the type of securitisation involved in this case would not normally apply in invoice finance, there are a number of funding structures including back-to-back finance and appointment of security trustees that may give rise to similar arguments being raised in future cases and invoice financiers need to be aware of points like this being taken.
Perhaps the real value of the case is in demonstrating the value of utilising the expertise of specialist commercial judges, because if the point had been raised in the normal run of litigation in a typical court it is by no means clear that the judge would have had the specialist knowledge required to understand the point and dismiss it without causing at least a delay in the proceedings.