Nakanishi Marine Co Ltd v Gora Shipping Ltd & Ors

In construing commercial finance agreements, the court must give effect to the language used, read in its commercial context. A proof-of-default clause does not alter the definition of an event of default or the contractual consequences of default unless it clearly does so. A valid notice under a payment-blocking provision generally operates prospectively, not retrospectively, where retrospectivity would remove accrued rights. A contractual subordination clause may prevent payment or enforcement by the junior creditor while preserving the creditor’s right to seek declaratory relief. An independent or primary obligation in a guarantee may remain enforceable against the guarantor even where payment by the borrower is contractually blocked.

The claimant sought summary determination of issues arising from loans made to Gora Shipping Ltd and guaranteed by MFS Group SA. Attica Finance Inc had made an earlier loan to Gora, and the claimant’s loan was subordinated under a Deed of Co-ordination.

The court assumed for present purposes that Attica’s loan was genuine, sums were due under it, and an event of default had occurred. The issues concerned the validity and timing of Attica’s notice, acceleration under the claimant’s loan agreement, the effect of the subordination and enforcement provisions, and MFS’s liability under the guarantee.

1. Notice of default. The email sent to the claimant’s solicitors did not comply with the detailed contractual notice clause and was not shown to have reached the claimant. The solicitors had no express, implied or ostensible authority to accept that notice. The later June notice was valid, although late. Non-compliance with the obligation to notify promptly did not invalidate a notice once served.
2. Acceleration. Non-payment on the due date constituted an event of default under clause 7.1 of the Nakanishi Loan Agreement. Clause 7.7 provided three disjunctive consequences, each available at any time after default. Clause 7.9 was a proof-of-default provision. It did not require a prior period of notice before acceleration under clause 7.7(c). The declaration of 17 January 2012 validly accelerated the loan.
3. Subordination and payment blockage. Before service of the valid June notice, clause 3.3 of the Deed permitted only scheduled payments. The June notice was effective prospectively and prevented all payments thereafter, including scheduled payments. It did not retrospectively invalidate accrued rights or payments previously made.
4. Enforcement and declarations. Clause 5.1 prevented enforcement of rights against Gora, but seeking a declaration as to the existence of rights was not itself a step to enforce them. The claimant could therefore pursue declaratory relief.
5. Guarantee. Clauses 3.1 and 3.2 of the Guarantee imposed primary and independent obligations on MFS. The claimant’s inability to recover payment from Gora because of clause 3.3 did not prevent a declaration of MFS’s liability. A claim against MFS was not a claim for repayment of principal or interest by Gora within clause 3.3. Clause 3.5 could require sums received to be held on trust, subject to the contractual exception for sums the claimant was permitted to receive.
6. The parties were directed to agree an order reflecting the conclusions on the eight issues.

The matter came before Burton J on an application under Part 24. Hamblen J had previously directed that the issues suitable for summary determination should be identified. The court determined the remaining issues on the assumed factual basis described in the judgment.