Burdale Financial Ltd v Agilo Master Fund Ltd

In construing a commercial agreement, the court must read the words in their contractual and commercial context, while giving effect to their ordinary meaning. Commercial considerations cannot justify a strained construction.

Where an agreement prohibits acceleration of a debt and permits action only after notice and within a specified period, the notice must identify the action intended. The reference to the first step of that action means the first step of the action itself, not a preliminary step towards it. A default letter indicating that acceleration may occur later is not the first step of acceleration where acceleration is treated as a single event. If the letter forms part of an acceleration process, notice must precede that process.

The court tried a Part 8 claim by Burdale Financial Ltd, the Senior Creditor, against Agilo Master Fund Ltd, the Junior Creditor. It also determined a preliminary issue in a related Part 7 claim brought by Abbeycrest plc, the Debtor.

The claims concerned the construction of an intercreditor deed regulating the priority and enforcement rights of the parties. The Junior Creditor had sent a default letter to the Debtor and a notice to the Senior Creditor, seeking to rely on the deed’s January-to-March enforcement window and its 45-day notice requirement.

The central issue was whether the default letter constituted the first step of the intended acceleration of the Junior Debt, so that the Junior Creditor could later accelerate it.

1. The court held that the submissions of the Senior Creditor and the Debtor were correct and made the declarations sought in both claims.

2. Clause 11 of the Intercreditor Deed had to be construed in the context of the overall refinancing transaction, including the Facility Agreement and the commercial background. However, the commercial context did not justify departing from the ordinary meaning of the language or adopting a strained construction.

3. Clause 11(i) applied to the actions listed in paragraphs (a) to (f), and its two limbs referred to the same action. The first limb required the Junior Creditor first to give at least 45 days’ written notice of its intention to take the specified action. The notice had to identify the action intended; notice of an intention to accelerate could not justify later legal proceedings unless an intention to bring those proceedings was also stated.

4. In the context of clause 11(a), acceleration or a declaration that the debt was prematurely due was an event occurring at a point in time, rather than a process extending over time. The default letter did not itself accelerate the Junior Debt or declare it prematurely due. It was therefore not the first step of the acceleration within clause 11(i), but at most a preliminary step.

5. Alternatively, if the default letter and subsequent acceleration were treated as one process, sending the letter would itself be a step in the prohibited process. The required 45-day notice would then have to precede the sending of the letter. That had not occurred.

6. The Junior Creditor’s notice could not rely on the March date to satisfy clause 11(i). The attempted construction treated the notice requirement as applying only to completion of the action, rather than to the commencement of the relevant action or process, and was artificial and strained.

Not stated in the judgment.