Adare Finance DAC v Yellowstone Capital Management SA & Anor

On an application for summary judgment, the court may decide a sufficiently clear issue of law or contractual construction where the evidence is adequate, provided it does not conduct a mini-trial. An unconscionable bargain requires a relevant disadvantage, unconscientious exploitation of that disadvantage, and terms which are overreaching and oppressive. Lawful-act economic duress requires illegitimate pressure, significant inducement and practical compulsion; lawful pressure used in good faith to pursue a legally available result is insufficient. An acceleration clause in a negotiated commercial loan agreement is not ordinarily a penalty where it requires earlier payment of money already owed and protects a legitimate interest. A contractual option remains subject to its express conditions.

The claimant sought summary judgment under CPR rule 24.2 and, alternatively, strike out under CPR rule 3.4(2)(a). Its claim concerned sums due under a refinancing facility, an extension fee deed and a personal guarantee.

The defendants alleged that the extension fee deed was an unconscionable bargain, was procured by economic duress, operated as an unlawful penalty, and did not require payment of the extension fee by the date relied upon. They also advanced a counterclaim concerning an alleged deduction made under earlier facility agreements.

1. Summary judgment and strike out. The court applied the principles under CPR rule 24.2. It could determine legal and construction issues on a summary application where the necessary evidence was available, while assuming unresolved factual disputes in favour of the party resisting judgment. There was no compelling reason for a trial.
2. Unconscionable bargain. The doctrine requires: (i) a disadvantage rendering the weaker party vulnerable; (ii) unconscionable conduct taking advantage of that disadvantage; and (iii) unfair and unreasonable terms which are overreaching and oppressive. Sophisticated commercial parties advised by lawyers will rarely satisfy the first requirement. The defendants had no real prospect of establishing the doctrine. The extension fee deed was negotiated, was proposed at least in part by their adviser, and compensated the claimant for delay.
3. Economic duress. The elements identified in Times Travel (UK) Ltd v Pakistan International Airlines Corp [2019] EWCA Civ 828 are illegitimate pressure, significant inducement and practical compulsion or lack of practical choice. Lawful pressure is not illegitimate merely because it is commercially strong or objectively unreasonable. In commercial dealings, lawful pressure used in good faith to obtain a result believed to be legally available does not constitute lawful-act duress. The pleaded facts did not establish bad faith, and the deed was an accommodation which enabled the refinancing to proceed.
4. Penalty. The acceleration provisions were enforceable. They required repayment of sums already owed at an earlier date following an event of default, protected the claimant’s legitimate interest, and operated as a conditional primary obligation rather than a secondary penal obligation. The cross-default arrangement was a conventional commercial lending provision.
5. Construction and counterclaim. The extension fee was expressly payable within ten business days of the facility agreement effective date. Non-payment was an event of default. The early repayment option was conditional on payment of the extension fee and did not restrict the claimant’s acceleration rights. The deed of termination and release discharged any liability forming the subject of the counterclaim.
6. Disposition. Summary judgment was entered for the claimant on its claim, and the defendants’ counterclaim was dismissed.