Astor Management AG v Atalaya Mining Plc & Ors

A contractual condition precedent is governed by the construction of the particular agreement. There is no free-standing principle allowing a court to disregard a condition merely because compliance appears futile or unnecessary. A condition may cease to operate where, properly construed in light of a subsequent event, it no longer applies.

Where an unanticipated event is relied on, the court must be satisfied both that the event was neither intended nor contemplated and that the parties’ intended response is clear. An express requirement for a particular form of finance cannot be replaced by alternative funding that the parties contemplated. A cash-sweep clause may require early payment of an accrued underlying debt although the contractual instalment dates have not arrived. It does not extend to contingent payments that are not yet owed.

Astor sold its interest in a Spanish copper-mining project to the EMED group under a Master Agreement. Most of the price was deferred. Schedule 2 made the first instalment payable only after permit approval and the securing of a Senior Debt Facility sufficient to restart mining operations.

Mining restarted after permit approval, but through equity fundraising and intra-group loans rather than senior debt. Leggatt J held that this did not trigger the deferred-payment timetable, but that clause 6(g)(iv) prevented distributions and repayments of group loans, and required excess cash to be applied in early payment of the basic Deferred Consideration. He excluded contingent Up-tick Payments: [2017] EWHC 425 (Comm); [2017] EWHC 680 (Comm).

Astor appealed the finding that senior debt was required. EMED appealed the cash-sweep declarations, and Astor cross-appealed on the Up-tick Payments.

Appeals dismissed. Simon LJ and Gloster LJ, with whom Macur LJ agreed, upheld the judge’s construction of the Master Agreement.

1. There was no autonomous “futility principle” permitting a court to disregard a contractual precondition merely because compliance would serve no useful purpose. The issue was one of contractual construction. A condition may fall away if, on the agreement’s proper construction and in light of later events, it has ceased to apply. This was consistent with the qualified approach to construction reflected in [2016] AC 1619.

2. The alternative equity and intra-group funding did not justify treating the Senior Debt Facility requirement as dispensed with. The relevant inquiry required both an event neither intended nor contemplated by the parties and clarity as to what they would have intended. Sophisticated parties had contemplated that financing might be raised otherwise than by senior debt. The express choice of senior debt was deliberate, and the court could not confidently infer that alternative funding should have triggered payment.

3. The intra-group loans were not a Senior Debt Facility. Senior debt has repayment priority on insolvency. An unsecured intra-group loan lacked that characteristic. The agreement itself distinguished a Senior Debt Facility from EMED Group Loans.

4. The basic Deferred Consideration was an accrued debt from the date of the Master Agreement, although Schedule 2 provided machinery for the timing of instalment payments. Clause 6(g)(iv)(B) therefore required available excess cash to be applied in early payment. Clause 6(g)(iv)(A) correspondingly prohibited distributions and repayments of EMED Group Loans, subject to its stated exception, until that consideration was paid in full.

5. Up-tick Payments were different. They were contingent on a specified copper price at a specified time and were not owed unless that condition occurred. They could not be paid early and did not extend the restrictions in clause 6(g)(iv).

• Court of Appeal (Civil Division): Astor’s appeals, EMED’s appeals, and Astor’s cross-appeal were dismissed: [2018] EWCA Civ 2407.
• High Court, Commercial Court: Leggatt J held that alternative intra-group funding did not satisfy the Senior Debt Facility condition, but granted declarations giving effect to the cash-sweep and payment restrictions. He held that Up-tick Payments were not included in the deferred amount protected by those restrictions: [2017] EWHC 425 (Comm); [2017] EWHC 680 (Comm).