The Bank of New York Mellon (London Branch) v Truvo NV & Ors

In construing interlocking commercial agreements, the court must ascertain the objective meaning of the language used in its contractual and commercial context. The provisions must be read together through an iterative process, testing rival interpretations against the agreement as a whole and their commercial consequences.

A contractual provision requiring unanimous consent for changes to the order of priority or subordination of liabilities does not necessarily require unanimous consent for every change to the order in which mandatory prepayments are applied. The particular language and structure of the agreements remain decisive. An apparently adverse commercial consequence cannot justify rewriting the bargain.

The claimant, acting as agent and security agent, sought declarations concerning the construction of a Senior Facilities Agreement and an Intercreditor Agreement entered into by Truvo, the lenders and other parties.

The dispute concerned an amendment to the mandatory prepayment waterfall in clause 11.3 of the Senior Facilities Agreement. The amendment had been approved by lenders holding more than two-thirds of the total commitments, but was opposed by lenders holding Second Lien Debt. The central issue was whether the amendment changed the order of priority or subordination under the Intercreditor Agreement, thereby requiring the consent of all lenders under clause 40.3(a)(v) of the Senior Facilities Agreement and clause 27.1(b) of the Intercreditor Agreement.

1. Construction principles. The court applied the objective approach to contractual interpretation stated in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900. The proper meaning was to be assessed by an iterative process, considering the language, the contractual scheme and the commercial consequences. Previous negotiations and subjective intentions were excluded as background evidence.
2. The LMA standard form could be considered as part of the background, but comparison with it was unsafe without evidence explaining the differences between that form and the executed agreements. The contracts had to be construed on their own terms against the commercial background existing when they were made, consistently with Seadrill Management Services Ltd v AOA Gazprom [2010] EWCA Civ 691.
3. Clause 40.2 of the Senior Facilities Agreement stated the default rule: amendments required the consent of the Majority Lenders and Truvo. Clause 40.3(a)(v) was an exception requiring unanimous consent for an amendment to the order of priority or subordination under the Intercreditor Agreement.
4. The amendment to clause 11.3 altered the order in which mandatory prepayment proceeds were applied. However, clause 11.3 did not use the concepts of priority or subordination. Those concepts were used in the Intercreditor Agreement, particularly in provisions addressing the ranking of liabilities and the application of enforcement proceeds. The cross-references in clauses 14 and 27 of the Intercreditor Agreement did not convert the amendment to clause 11.3 into an amendment of the order of priority or subordination under that agreement.
5. Accordingly, unanimous lender consent was unnecessary. Consent from the Majority Lenders and Truvo was sufficient and had been given. The amendment was valid and effective. The parties were directed to seek agreement on the order, including costs.