Re Golden Key Ltd

When construing complex commercial documentation, the court must ascertain the parties’ objective commercial aim from the documents and admissible background. Where more than one meaning is properly available, commerciality may favour the construction which avoids an implausible or arbitrary result.

An acceleration redemption notice may replace the contractual payment date for notes which have not matured when the notice is delivered. Clear words are required to postpone or remove an accrued right to payment under notes which have already matured. In the absence of such words, notes maturing on or before delivery of the notice retain their original priority.

Golden Key Ltd financed a structured investment vehicle by issuing commercial paper with different maturity dates. Its assets were insufficient to satisfy all secured liabilities. The documentation provided for payment by maturity date before an Acceleration Redemption Date and pro rata, pari passu payment afterwards.

Henderson J, in [2009] EWHC 148 (Ch), held that commercial paper maturing before the Acceleration Redemption Date remained payable on its original maturity date. Holders of later-maturing paper appealed, contending that all outstanding paper became payable together on the Acceleration Redemption Date.

The central issue was whether delivery of an Acceleration Redemption Notice postponed payment of paper maturing before the Acceleration Redemption Date, including paper which had matured before or on the date of delivery.

1. The appeal was dismissed unanimously. The Court of Appeal agreed that Parties A and B retained priority based on their original maturity dates, although Arden and Lloyd LJJ differed from Henderson J concerning the effect of an Acceleration Redemption Notice on notes which had not matured when it was delivered.

2. Commercial documents must be construed objectively and as a whole. The court cannot rewrite the parties’ bargain. Nevertheless, the parties’ objectively ascertainable commercial aim forms part of the interpretative process. Where the drafting leaves more than one meaning properly available, the commerciality of the competing constructions may be decisive, particularly where one construction produces an arbitrary or implausible result.

3. Per Arden and Lloyd LJJ, with Lord Clarke MR agreeing in the result and construction, the operative trigger under section 5 of the terms of issue was delivery of the Acceleration Redemption Notice, not the mere occurrence of a Mandatory Acceleration Event. The documentation generally attached changes of operating state to written notification. The Security Trustee was obliged to deliver a notice satisfying the requirements of an Acceleration Redemption Notice.

4. Delivery of the notice caused commercial paper which had not yet matured to become payable on the Acceleration Redemption Date instead of its original maturity date. This applied whether the original maturity date fell before or after the Acceleration Redemption Date. A contrary construction would allow the issuer’s choice or omission concerning the redemption date to alter priorities among noteholders for what appeared to be an administrative purpose.

5. The notice did not affect paper whose maturity date fell on or before the date of its delivery. Such paper was already due and payable. Clearer language than the general reference to “the USCP Notes” was required to postpone or divest an accrued right to immediate payment. A maturity date began at the start of the specified day, so Party B’s right accrued before the notice was delivered later that morning.

6. The absence of a separately established Note Defeasance Account did not defeat accrued rights; equity treated the required machinery as having been implemented. An ill-founded third-party claim over the relevant funds could delay satisfaction but could not destroy the noteholders’ accrued rights. The parties were to submit an agreed draft order.

1. Court of Appeal (Civil Division): The appeal in [2009] EWCA Civ 636 was dismissed. The court upheld the priority of commercial paper maturing on or before delivery of the Acceleration Redemption Notice, while differing from the judge about unmatured paper.

2. High Court, Chancery Division: Henderson J held in [2009] EWHC 148 (Ch) that commercial paper maturing before the Acceleration Redemption Date remained payable according to its original maturity date.