PT-2021-000393 - [2025] EWHC 2749 (Ch)

Fecha: 23-Oct-2025

Interpretation of the express terms

Interpretation of the express terms

35.

Mr Cowen submitted that in interpreting the Facility Letter I was to apply the principles set out in Arnold v Britton [2015] UKSC 36 and confirmed by the Court of Appeal in this case. The Court of Appeal Judgment also made reference to Wood v Capita Insurance Services Ltd [2017] UKSC 24 and its own decision in EMFC Loan Syndications LLP v The Resort Group plc [2021] EWCA Civ 844. In Arnold, Lord Neuberger summarised the approach in seven points (paragraphs [17]-[23]). I note, in particular, the following:

“The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision.” (Paragraph [17])

ii)

“…when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.” (Paragraph [18])

iii)

“…commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made.” (Paragraph [19])

iv)

“The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid rewriting it in an attempt to assist an unwise party or to penalise an astute party.” (Paragraph [20])

36.

The Claimants’ position is that the Facility Letter permitted the Claimants to repay the entirety of the Loan at any time. I understood that to be accepted by LCL. The Claimants go further, however and say that LCL was obliged to accept offers of repayment. This is said to arise from clauses 5.1 and 5.3 of the Facility Letter. These provide:

5.1

Interest due on the Loan shall be paid, together with the Loan amount and all other sums due to the Lender under the Finance Documents, in full by no later than 12 noon on the Repayment Date. The Facility shall be cancelled in full on the Repayment Date.

…

5.3

Subject to Clause 7.3, the Borrower shall be entitled to repay (or prepay) either the whole or part only of the Loan in tranches of £50,000.00 (Fifty Thousand Pounds Sterling) or such lesser tranches as the Lender shall agree.

37.

Mr Cowen submitted that the natural and ordinary meaning of those words is that CEK can repay the Loan before the defined Repayment Date i.e. the term date of the Facility. He further submitted that part only of the Facility could be repaid in tranches of £50,000 (or tranches of a lesser sum as agreed by LCL), but those tranches could also discharge the entirety of the Loan. There was no limit on how many tranches could be repaid nor when those repayments could be made.

38.

Again, I did not understand that to be controversial subject to being clear on exactly what was being submitted. Provided the tranches added up to the total sum due, that is the capital plus the accrued interest calculated up to the date of payment, those tranches could discharge the entirety of the debt before the Repayment Date. There would be a mathematical limit on the number of tranches that could be repaid, at least in the absence of further agreement from LCL, because the minimum value of any tranche was £50,000 or the whole of the outstanding debt. As a matter of mathematics, in the absence of default interest the maximum number of tranches is therefore 38. In principle, though, I accept Mr Cowen’s point. Likewise, there is an absolute time limit, in the form of the Repayment Date, an important point to which I return below, but within that there is no limit on when payment could be made.

39.

There, any consensus ends. The Claimants contend that the “logical consequence” of their being able to repay the Loan in that manner, which I take to mean both in tranches and ahead of the Repayment Date, is that LCL must be obliged to accept offers of repayment. If that were not the case, Mr Cowen submitted, LCL could thwart any refinancing, and defeat the rights granted to CEK, simply by refusing to cooperate.

40.

Mr Cowen further submitted that LCL’s position in its Reply to Defence to Counterclaim, that the Facility Letter is not concerned with offers of repayment but only tenders of actual repayments, was an impermissible construction, which flew in the face of both common sense and the matrix of fact that this was a bridging loan where the exit was to be by refinancing. Repayment of the Loan had to involve an offer first being made by CEK and accepted by LCL because the refinancing could only be completed with LCL’s agreement to release their security over the secured properties.

41.

Finally, Mr Cowen submitted that even if I considered that LCL’s construction of the Facility Letter was a plain reading of the language used, for the reasons he had given it accorded less with business common sense than that of the Claimants, such that the Claimants’ construction was to be preferred.

42.

Mr Wheeler submitted that the Claimants’ case was not an attempt to interpret the written agreement; it was an attempt to rewrite it. He directed me, first, to clause 9 of the Facility Letter, which deals with payments generally. This provides:

All payments of principal and interest and any other amounts due from the Borrower to the Lender under this Facility Letter shall be made in Sterling and in immediately available funds to such account as the Lender specifies to the Borrower. Whenever any such payment would (but for this Clause 9) fall due on a day which is not a Business Day then the due date for payment thereof shall be postponed to the next succeeding day which is a Business Day unless such day falls in the next calendar month (in which event such payment shall be made on the immediately preceding Business Day). All such payments shall be made free and clear of any restrictions or conditions and free and clear of, and (subject as provided in the next sentence) without deduction for any taxes. If any such deduction is required by law to be made from any such payment, the Borrower shall pay in the same manner and at the same time such additional amounts as will result in receipt by the Lender of such amount as would have been received by the Lender had no such deduction been required to be made.

43.

The obligation was clear – to make unconditional payment in immediately available funds. None of that was surprising; on the contrary, it was typical for a loan agreement of this nature. Mr Wheeler recognised that in practice there would be a process involved – that the borrower would approach the lender and say that it wished to make a repayment. In that sense one could say the borrower was offering to repay. But, Mr Wheeler submitted, it had to be an offer to pay in accordance with the terms of the Facility Letter, and what the Claimants had done, if anything, was to offer payment on other terms.

44.

In my view Mr Wheeler is plainly right in his reading of the Facility Letter, and in particular of clauses 5.1, 5.3 and 9:

The starting point is the plain and ordinary meaning of the language of the Facility Letter. The language used in clause 5.1 was “shall be paid”. Under clause 9, payment is to be in immediately available funds. “Shall”, obviously, is mandatory. There is no reference to an offer and the use of the past tense shows that by the whole operation of payment in immediately available funds needed to be completed by the Repayment Date. That would not be the effect of the Claimants’ preferred construction. On the contrary, the process of repayment might only just be starting on that date, since all they would have to do by then would be to make an offer, not make payment.

ii)

That is compounded by the proper interpretation of the provisions on interest. The Court of Appeal Judgment found that the Default Rate and the Standard Rate were strict alternatives, such that if LCL could not claim the Default Rate after the Repayment Date it equally could not claim Standard Interest. If the Claimants were right, there would be no default provided an offer of payment was made on or before the Repayment Date, so Default Interest could not be charged. I should observe that there seems to me to be a lacuna in the Claimants’ pleaded case on this point. The Defence to Counterclaim at paragraph 12.1 states that the CEK would not be in breach of its obligations to make payment under the Facility Letter if it made an offer to redeem the Loan on or before the Repayment Date and that offer was refused by LCL. It does not deal with what would happen if CEK made such an offer on or before the Repayment Date but the acceptance that LCL was apparently obliged to give was received only after the Repayment Date. The logic of the Claimants’ position must be, however, that the offer stops interest running, since it seems to be the Claimants’ case from paragraph 9.2 of the Defence to Counterclaim that acceptance is a legal obligation of LCL, and so something of a formality. Were the Claimants correct it would have, in my view at least, a surprising outcome. As the Court of Appeal Judgment specified, there would be no right to the Standard Rate. Because there would be no breach of the repayment obligation there would be no right to the Default Rate. That means the effect of the Claimants’ reading is that, at their unilateral option, they could convert the Loan into an interest free facility for the period in which it took their offer to become an actual payment. I regard the language of clauses 5 and 9 to be clear in requiring payment in immediately available funds but even were there an ambiguity I would consider the effect of the Claimant’s reading to be wholly uncommercial.

iii)

The position is further aggravated because with the long-stop of the Repayment Date gone there is no fixed endpoint to the interest free arrangement that would arise. If the gap between what is said to be the offer and actual payment is lengthy, the economics of the deal would move quickly against LCL. This can be seen with reference to one of the alleged offers of payment in this case, a letter from the Claimants’ solicitors, Hugh Cartwright Amin (HCA), of 23 March 2021. I will address the terms of that communication along with the other exchanges when I come to the analysis of the alleged offers relied on by the Claimants, but what is significant at this stage is that it is described, in the Defence to Counterclaim, as “an open offer to pay £1.85 million”. That “offer” was to be funded in part by a loan to be obtained by the Claimants of £650,000. In a follow-up email, Mr Amin, of HCA, emphasised that the lenders required seven days’ notice to draw down funds such that there was “urgency … in coming to an agreement in relation to the payment of £1.85 million”. LCL’s then solicitors, Gunnercooke, asked for a copy of the offer letter in relation to the £650,000 loan. HCA responded to say that they “understood that this is being finalised and will be available shortly.” However, the following day HCA sent a Term Sheet from Overture Capital and stated that: “Our clients do not wish to incur unnecessary and abortive legal expenses in dealing with compliance with OCL’s requirements if as we suspect, your client will simply let matters drag on…”. Before me there was some disagreement about how onerous Overture’s requirements would be to satisfy. For these purposes that is not really the point. I am asked to accept that the 23 March letter constituted an offer of payment that could stop interest running in a situation where it was unsupported by either funds or even a binding offer of funds. Assuming such an offer were made on the Repayment Date there would then be some delay in satisfying the various requirements of the Term Sheet. Mr Griffiths’ evidence was that a refinance could easily take 35-50 days to arrange, and while some of that would involve finding a lender and getting indicative terms, there would still be some time taken to get from the Term Sheet to an offer. From there one would need, the evidence suggests, 7-14 days to get to drawdown. Even a relatively short delay changes the economics of the deal significantly for a lender. From the point the “offer” is made, assume that the delay needed to agree repayment (which on the Claimants’ case is a necessary step), satisfy conditions precedent to the Term Sheet and draw down on funds was a month. Using simplified figures for ease of illustration, further assume the loan had been for £1,000 at a rate of interest of 12% p.a. and a duration of one year. Interest for the term is £120. If repayment only happens 13 months after drawdown and no interest can be charged for the 13^th month, the £120 is earned over 13 months, not 12. That equates to an annual interest rate of around 11.07%. An additional two-week delay takes the rate to 10.67%; if the total delay is two months – Mr Griffiths’ 50 days plus the average of 7-14 days for drawdown – the annual rate is below 10.3%. That is a significant loss of yield for a lender, over which it has no control. Of course, as Lord Neuberger observed in Arnold it is not the place of the law of obligations to assist parties who have made imprudent bargains. But as he also made clear, the starting point is the language used and here clause 5.1 required that the sums due “shall be paid” by the Repayment Date and clause 9.1 made clear that meant paid in immediately available funds. Having made both those points clear, it is hard to see that LCL had been imprudent.

iv)

By contrast, the uncommerciality advanced by Mr Cowen, that the borrower may be unable to exercise its right to prepay where it needs security to be released in favour of the new lender, does not arise. As Mr Wheeler accepted, I think rightly given what was said in Shearer at [217]-[220], a tender conditional on release of security would still be a valid tender because the condition “imposed” by the offeror is no more than the law imposes in any event.

45.

In my view clauses 5.1 and 5.3 plainly contemplate actual payment of the sum due by no later than the Repayment Date. Particularly in light of the contractual right of CEK to prepay I would accept that a tender in accordance with those terms would stop interest from running on the Loan. I do not consider that an offer of payment at some point in the future has the same effect and less still do I accept that such an offer conditional on funding being secured comes close to doing so.