Vos J’s judgment in Deutsche Trustee Company Ltd v Duchess VI CLO B.V. and others, given on Thursday and published on Monday, is another courtroom exegesis of the specific wording of a pre-GFC securitization, but it teaches an important lesson: about the enormous responsibility that the lawyers doing the drafting have, and the need to find time that the client may not want to give you to do a check on the critical wording that you might be too tired to do yourself. If in doubt get a fresh pair or eyes to read any critical late night drafting. Barings (U.K.) Ltd was the CLO “collateral manager” and was entitled to an “incentive collateral management fee” (ICMF) equal to 20% of the “cumulative subordinated income” (broadly, this meant the sum of four quarters of interest and principal proceeds available to the class F notes). In January 2018, the class F noteholders (mainly or perhaps entirely Napier Park Global Capital Limited) voted for an early redemption of the CLO Duchess VI, and presumably the surplus after paying all the more senior notes off was about €86m, because Barings claimed it was entitled to €15.3m of ICMF on early redemption, which would be 20%. The judgment is very much based on the documentation: both sides argued Arnold v Britton of course (including “commercial common sense”) and the Judge applied it as he saw fit, concluding that the wording was clear – that on optional early redemption Barings was not entitled to its fee, and so the €15.3m went to Napier Capital. Echoing other judges in earlier similar cases, Vos J concluded that:

“Commercial parties buying into such traded instruments expect to be bound by the language of them. They are entitled to the certainty and predictability that the adoption of a proper contextual interpretation of the language produces”.