Bank of Scotland v Dunedin Properties [1998] ScotCS CSIH_118 (01 May 1998)

Bank of Scotland v Dunedin Properties [1998] ScotCS CSIH_118 (01 May 1998)

The breakage cost incurred by the Bank on early termination of the interest rate swap was a cost incurred 'in connection with the Stock' within the meaning of Condition 3 of the Loan Stock Deed. The swap was entered into solely to facilitate the loan stock transaction, and both parties were aware that hedging would occur and that early redemption would trigger a cost. The connection need not be direct; a substantial relationship in a practical business sense suffices. Thus, the Bank is entitled to recover the breakage cost from Dunedin.

Citation
[1998] ScotCS CSIH_118
Parties
Pursuer/reclaimer: Bank of Scotland; Defender/respondent: Dunedin Property Investment Company Limited
Jurisdiction
Scotland
Judgment Date
01 May 1998
Procedural Posture
Civil Appeal (reclaiming Motion) / Appellate (court of Session, Inner House, First Division)
Outcome
Reclaiming motion allowed; Lord Ordinary's interlocutor recalled; case put out By Order for further submissions on disposal.
Legal Topics
Interpretation of Commercial Contracts, Loan Stock Agreements, Hedging and Interest Rate Swaps, Costs of Early Redemption
Contract Law Banking Law Interpretation of Commercial Contracts Loan Stock Agreements Hedging and Interest Rate Swaps Costs of Early Redemption

Case Brief

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Parties

Bank of Scotland

Pursuer/reclaimer

Dunedin Property Investment Company Limited

Defender/respondent

Procedural Posture

Civil Appeal (reclaiming Motion) / Appellate (court of Session, Inner House, First Division)

Legal Issues

  1. 1 Whether the Bank is entitled to recover from Dunedin the breakage cost incurred on early termination of an interest rate swap as a 'cost, charge or expense incurred...in connection with the Stock' under Condition 3 of the Loan Stock Deed.

Ratio Decidendi

The breakage cost incurred by the Bank on early termination of the interest rate swap was a cost incurred 'in connection with the Stock' within the meaning of Condition 3 of the Loan Stock Deed. The swap was entered into solely to facilitate the loan stock transaction, and both parties were aware that hedging would occur and that early redemption would trigger a cost. The connection need not be direct; a substantial relationship in a practical business sense suffices. Thus, the Bank is entitled to recover the breakage cost from Dunedin.

Court Disposition

Reclaiming motion allowed; Lord Ordinary's interlocutor recalled; case put out By Order for further submissions on disposal.

Orders

  • Recall of Lord Ordinary's interlocutor assoilzieing Dunedin.
  • Case to be put out By Order for parties to address on final disposal and quantification.