BL-2023-MAN-000072 - [2025] EWHC 2442 (Ch)

I consider that there is sufficient lack of clarity in the wording of clause 13 to mean that the interpretation of the meaning thereof cannot simply be decided on the basis that the wording of clause 13 is so clear and unambiguous in itself that the issue must be decided in JAK’s favour.

I consider that the wording of clause 13 points to there being two possible reasons for it being included as a provision of the Deed of Postponement:

So far as the wording of clause 13 is concerned, it might be said that the reference to “the term” of the two loans is somewhat odd given that they were not fixed term loans, but there was no real disagreement between the parties that the reference to the respective “terms” coming to an end, is a reference to the determination of the respective loan agreements, e.g. upon the happening of an “Event of Default” in the case of the JAK Loan.

The language that is really an issue is the wording: “… all sums due and payable by the Chargor pursuant to the Second Charge will be paid to the Second Chargee in accordance with the loan agreement associated with the Second Charge”.

One can see JAK’s point that the reference to sums due and payable “pursuant to the Second Charge” and the reference to “will be paid” might be said to point to the enforcement of the JAK Charge rather than simply recoverability of the debt secured thereby. However, as against this, the reference is to the sums “due and payable” pursuant to the Second Charge, rather than, specifically, to enforcement of the latter as security, and the wording goes on to provide that the relevant sums “will be paid” in accordance with the JAK Loan Agreement, rather than talking specifically in terms of recovery through enforcement of security which is what clause 8 of the Deed of Postponement is all about.

This does, to my mind, provide sufficient ambiguity of language to require a wider exercise than simply a consideration of the wording of clause 13 in order to ascertain its true meaning and effect.

I consider that, if anything, the wording of clause 13 points against an intention to affect the priority as between charges provided for by clause 8 and other provisions of the Deed of Postponement given that it does not talk, in terms, about the enforcement of the relevant charges, but rather in terms of payment of the underlying debt. Surely if it had been intended that clause 13 would reverse the priority as between the two charges in the event of the JAK Loan Agreement determining first, it would have more clearly said so by saying that the JAK Charge might, in those circumstances, be enforced in priority to the Together Charge.

Further, whilst clause 13 does begin by talking in terms of the parties agreeing the matters therein referred to, it also talks in terms of the parties declaring a certain state of affairs, which points more, I consider, to confirming something, for the avoidance of doubt than altering priorities.

I agree with Mr Demachkie that there are other provisions of the Deed of Postponement which point, if anything, against the meaning contended for by JAK. In particular:

When it comes to a consideration of clause 13 within the overall commercial context of the Deed of Postponement, Together’s essential point is that clause 13 would serve to wholly, or at least significantly undermine the commercial purpose of the Deed of Postponement. The overall commercial purpose is that identified in paragraph 7 above as carried into effect by the terms of the Development Services Agreement, and as reflected, in particular, in clause 19 of the latter. In short, with a view to both Mulbury and JAK making a profit out of the development of the Property, development funding was to be attracted by JAK agreeing to subordinate its security over the Property to the security offered to the development funder so that the latter had unencumbered first charge security.

The point is made by Mr Demachkie on behalf of Together that the circumstances in which JAK was entitled to determine the JAK Loan Agreement were extremely wide given the expansive definition of “Event of Default” in clause 11 of the latter. Thus, in a variety of circumstances, JAK could determine the JAK Loan Agreement before Together had taken any steps to determine the loan agreement in respect of the Together Loan, as in fact occurred, and thereby obtain priority in respect of the JAK Charge over the Together Charge. As Mr Demachkie put it, such a race to determine the respective loan agreements in order to secure priority cannot reasonably have been intended viewing the matter objectively.

Mr Hodge argues that the effect of clause 13 is not to undermine the priority as between charges provided for by clause 8, but merely to provide that in certain circumstances JAK might be in a position to secure priority. However, was not the significance as to who had priority most likely to matter in the very situation where Mulbury was in some form of default, and therefore in circumstances in which JAK might have been in a position to win the race to determine the JAK Loan Agreement. In these circumstances, it does seem to me that clause 13 as sought to be interpreted by JAK does fundamentally undermine the value of the priority provided for by the other provisions of the Deed of Postponement.

In the circumstances, I am satisfied that a consideration of the commercial circumstances, and notions of commercial common sense point firmly in favour of the interpretation contended for by Together.

I am satisfied that the terms of the Development Services Agreement do provide part of the admissible background available to the Court in considering the commercial context, and what the parties, objectively considered, meant by the language that they used in clause 13. I reach this conclusion on the basis that the Development Services Agreement was a document reasonably available to both parties to the Deed of Postponement as evidenced by the fact that it was specifically referred to in the JAK Loan Agreement, which was provided to Together and/or its Solicitors at an early stage, and the fact that it was provided on request, as might have been expected, when Priority asked to see it in the circumstances leading up to the execution of the Deed of Postponement, even if Together or Priority did not have it at an earlier stage.

I do not consider it necessary to rely upon the terms of the Development Services Agreement for the purposes of reaching the conclusion that I do as to the proper interpretation of clause 13 in that I consider that the relevant commercial context is otherwise sufficiently identified. However, a consideration of the Development Services Agreement, and clause 19 thereof in particular, does, I consider, reinforce the conclusion that I have reached. I consider this particularly so given that, by clause 19.4 thereof, JAK expressly agreed that a charge with first priority over the Property would be offered “as unencumbered security” to any funding institution to assist Mulbury in obtaining the most preferential terms possible for the provision of development finance.

As to the question of surplusage of wording in clause 13, and whether it is to be presumed that the parties must have intended clause 13 to have some contractual effect rather than being included “for the avoidance of doubt”, I consider this to be one of those cases where presumption against surplusage of wording is of limited if any value given that one can identify an alternative purpose for including clause 13 in the Deed of Postponement than that contended by JAK, as I have identified in paragraph 43 above. To this extent, the wording of clause 13 is not surplus albeit that it has no operative effect as such.

There is one final point that I should mention. It might be said that JAK’s own actions in seeking to wind up Mulbury rather than seeking to enforce the JAK Charge supports Together’s interpretation of clause 13 given that these are, prima facie, the actions of a party that does not believe that it is secured. However, the subsequent actions of the parties are not, generally speaking, admissible as an aid to construction. This makes sense given that the interpretation exercise is an objective one, that is not dependent upon the subjective intentions or understandings of the parties.

In the circumstances, I do not consider that clause 13 falls to be interpreted as contended by JAK. Consequently, I do not consider that JAK is entitled to the declaration that it seeks. Rather, I consider that I should declare that, in consequence of the true interpretation of clause 13 of the Deed of Postponement, the Together Charge has priority over the JAK Charge in relation to its entitlement to be paid out of the proceeds of sale of the Property.