Edgeworth Capital (Luxembourg) SARL & Anor v Ramblas Investments BV

A contractual fee may become payable when accelerated loan repayment falls due, even where the repayment follows a cross-default under a different agreement. Clear and general contractual language is not restricted by commercial purpose where the agreement separately addresses transaction-based exits. The rule against penalties applies only where the relevant consequence is triggered by breach of a contractual duty owed by the party seeking enforcement. A fee may nevertheless be commercially justified, and therefore enforceable, even if it is not a genuine pre-estimate of loss, where its predominant function is not deterrence.

The claimants, having acquired rights under a junior loan and an associated Upside Fee Agreement, claimed €105,201,095.89 from the defendant. The fee was said to arise after acceleration of the junior loan following defaults by personal borrowers under a separate personal loan.

The defendant argued that the agreement covered only disposal, refinancing or another exit; that no fee arose without actual repayment; that the fee was an unenforceable penalty; and that the claimants could not recover the interest claimed. The central issues were construction, penalties and interest.

1. Construction. The agreement’s definition of “Payment Event” covered any repayment of the loan which was made or fell to be made, expressly including repayment following acceleration. The definition was general and unqualified. Transaction-based events were dealt with separately under clause 2.1(b)(iv)(C), so they did not restrict the wider definition.
2. The fee was payable for the provision of services, namely procuring, arranging and negotiating the junior facility. The defendant’s liability arose under the fee agreement, not under the junior loan. A repayment which was obliged to be made was sufficient; actual repayment was unnecessary.
3. The claimants’ calculation under clause 2.1(b)(iv)(B), applying the 20 per cent annualised IRR, was upheld. Although the drafting could have been clearer, the calculation was consistent with the contractual wording and no supportable alternative construction was advanced.
4. Penalty. The rule against penalties did not apply. The fee operated in substance as an acceleration of a fee which would have become payable in any event, and the triggering breach was by the personal borrowers under a different agreement. A breach by one party of one contract could not be treated as a breach by another party of another contract.
5. Alternatively, if the rule applied, the fee was commercially justifiable in the circumstances of the bridging finance and its predominant function was not deterrence. It was therefore not a penalty.
6. Interest. A contractual interest claim under the junior loan was barred by the compromise of the earlier junior loan claim and the rule in Henderson v Henderson. Permission was granted to amend to claim simple interest under s.35A of the Senior Courts Act 1981. Interest was awarded at 2 per cent above the applicable Euribor rate.

First-instance judgment in the High Court (Commercial Court). No appellate history was stated in the judgment.