BMA Special Opportunity Hub Fund Ltd. & Ors v African Minerals Finance Ltd

Commercial contracts are construed objectively from their wording, read in context and against the relevant factual background. The text remains the starting point. Where two constructions are available, commercial common sense may favour one, but it is not an overriding criterion and must not reflect one party’s interests or the judge’s preferred bargain.

Distinct prepayment provisions in a detailed loan agreement may be mutually exclusive. A fee expressly attached only to voluntary prepayment does not apply to a mandatory prepayment from refinancing proceeds. An intentional decision to refinance does not make the resulting contractually required prepayment voluntary.

The appellants were lenders under a US$500 million facility for an iron ore project. The respondent borrower refinanced the facility and used the resulting funds to repay the outstanding loan before the first anniversary of the facility. The lenders claimed a 6% prepayment fee of US$17.466 million.

Eder J, in [2012] EWHC 2173 (Comm), granted summary judgment for the borrower and dismissed the claim. He held that the refinancing proceeds triggered mandatory prepayment under clause 8.3, whereas the fee under clause 8.8(d)(i) applied only to voluntary prepayment under clause 8.5.

The issue on appeal was whether the repayment could nevertheless be characterised as voluntary because the borrower had intentionally chosen to refinance.

1. Appeal dismissed unanimously. The structure and language of clause 8 showed that its separate prepayment provisions addressed distinct and mutually exclusive circumstances. Clause 8.6 listed the different types of prepayment separately. Clause 8.8(a) distinguished partial voluntary prepayments under clauses 8.5 and 8.7 from prepayments under clause 8.3. Most importantly, clause 8.8(d) expressly imposed the fee only on prepayment pursuant to clause 8.5.

2. Clause 8.3 created an obligation to apply disposal proceeds or finance proceeds in prepayment of the loan. It was independent of clause 19.6(b)(ii), which merely identified circumstances in which financial indebtedness could be incurred without the facility agent’s consent. The borrower’s intentional decision to obtain refinancing was separate from its subsequent contractual obligation to apply the proceeds in repayment.

3. Once the refinancing proceeds had been received, clause 8.3 required their application in prepayment. It was therefore inappropriate to characterise the repayment itself as voluntary. Because the repayment fell within clause 8.3, it could not also fall within clause 8.5. The 6% fee under clause 8.8(d)(i) was consequently not payable.

4. The commercial-common-sense argument did not alter the clear contractual language. Commercial common sense is an aid where two constructions are available, but it is neither overriding nor assessed solely from one party’s perspective. Sophisticated parties, advised by experienced lawyers, could commercially agree that a substantial fee would arise only in limited circumstances. The court could not extend the fee to refinancing when the parties had omitted clause 8.3 from clause 8.8(d).

5. The sums advanced under the refinancing facility were “cash proceeds” within the contractual definition of “Finance Proceeds”. Their required use to discharge the existing loan did not change their character. Eder J’s order dismissing the lenders’ claim was therefore upheld.

1. Court of Appeal (Civil Division): By [2013] EWCA Civ 416, unanimously dismissed the lenders’ appeal and upheld the dismissal of their claim for the prepayment fee.

2. High Court, Commercial Court: Eder J, in [2012] EWHC 2173 (Comm), granted the borrower’s cross-application for summary judgment and dismissed the lenders’ claim. He gave the lenders permission to appeal.