Barclays Mercantile Business Finance Limited v Mawson

Tony Beare examines the recent decision by Park J. in Barclays Mercantile Business Finance Limited v Mawson (2002 STC 1068) and explains why it is of some significance to a leasing industry still reeling after a spate of recent legislative changes.

Tony Beare is a partner in Slaughter and May.

The case concerned a lease over a gas pipeline granted by the taxpayer (“BMBF”), a leasing company subsidiary of Barclays Bank PLC (“Barclays”), to the Irish Gas Board (“BGE”), the subsequent sub-lease of the pipeline by BGE to one of its wholly-owned UK resident subsidiaries, BGE (UK) Limited (“BGE(UK)”), and the related security and financing arrangements. The pipeline in question, which was owned at inception by BGE and had initially been financed in part by way of debt, was sold by BGE to BMBF for a lump sum and then leased back to BGE by way of headlease before being leased by BGE to BGE(UK) by way of sublease. BGE(UK) then entered into a “take or pay” contract with BGE under which BGE(UK) agreed to supply gas to BGE through the pipeline in return for certain payments the quantum of which, regardless of BGE’s actual usage of the pipeline, would be sufficient to enable BGE(UK) to discharge its sublease obligations. At the same time, BGE, BGE(UK) and BMBF entered into an assumption agreement under which it was agreed that BGE(UK) would make its sub-lease rental payments directly to BMBF to the extent that they did not exceed BGE’s headlease rental payment obligations to BMBF (as was the case at inception) and that this would serve to discharge both BGE(UK)’s obligations under the sub-lease and BGE’s obligations under the headlease by an equivalent amount.