Edgeworth Capital (Luxembourg) S.A.R.L. and another v Ramblas Investments B.V [2015] EWHC 150 (Comm)

The High Court has held that a fee of €105,200,000 payable under an upside fee agreement, entered into in connection with the financing of the acquisition of Santander’s Madrid headquarters, was not penal.


Marme Inversiones 2007 S.L. (“Marme”) proposed to buy the Ciudad Financiera (the “Property”), the Madrid headquarters of Banco Santander SA, for €1,900,000,000. Apart from a senior €1,575,000,000 loan agreement the financing arrangements for the acquisition of the Property included:

  1. a junior loan agreement under which The Royal Bank of Scotland plc (“RBS”) loaned Marme’s parent, Ramblas Investments BV (“Ramblas”), €200,000,000 (the “Junior Loan”);
  2. a personal loan of €75,000,000 from RBS to Ramblas’s owners Mr Maud and Mr Quinlan (the “Personal Loan”); and
  3. an upside fee agreement made between RBS and Ramblas dated 12 September 2008 (the “UFA”) which provided for a fee in consideration of RBS procuring the Junior Loan.

In 2010 Edgeworth Capital (Luxembourg) S.A.R.L.(“Edgeworth”) acquired RBS’s interest in these arrangements and shortly afterwards Mr Maud and Mr Quinlan defaulted under the Personal Loan. This caused a cross default under the Junior Loan which was accelerated. This in turn was a Payment Event under the UFA. Edgeworth claimed a fee of €105,201,095.89 under the UFA. Ramblas claimed it was unenforceable as a penalty.


Hamblen J sitting in the Commercial Court held:

  1. a clause will be a penalty where it is “extravagant and unconscionable with a predominant function of deterrence”;
  2. a clause will not be a penalty if it is a genuine pre-estimate of loss; and
  3. even if it is not a genuine pre-estimate of loss it will not be a penalty where it is commercially justifiable and it can be shown that its predominant function is not deterrence.

But the fee here was going to be payable by Ramblas at some stage in any event. The effect of the triggering event was therefore to advance the time for payment of the fee, but it did not increase Ramblas’s overall obligation. As such it was akin to an acceleration clause and such clauses have generally not been regarded as being penal.

Further the relevant triggering event in this case was a breach of duty by Mr Maud and Mr Quinlan under the Personal Loan. Not by Ramblas. On well-established authority the rule against penalties only applies if the clause in question is triggered by a breach of duty owed by the party claiming relief to the party seeking to enforce the clause.

But if the court was wrong in that, given the challenging commercial circumstances in which the financing agreements were concluded – just before the Lehman’s’ collapse – and the fact that the Junior Loan was in effect a bridging loan there was a clear commercial justification for a large fee being charged, which the fee undoubtedly was. And that, said the judge, was the bargain made.


A rare penalty case on fees in lending transactions. It is a reminder that such fees are capable of being penalties and can be struck down as such. But it is also a reminder that even if the fee is payable in a number of circumstances – some of which are breaches and some of which are not – a breach must occur for the doctrine of penalties to engage.

The fee in this case amounted to a swinging 52% of the original Junior Loan. But no breach. No penalty.

It is possible that this area of the law may be reviewed when the Supreme Court hears the appeal from the Court of Appeal decision of El Makdessi v Cavendish Square Holdings BV [2013] EWCA Civ 1539. This is currently due later this year.