Fundingsecure Ltd, Re

Where contractual terms govern the distribution of proceeds from enforcing security, the court must determine their objective meaning by reading the contract as a whole, considering the relevant factual background and commercial consequences. Repeated use of the same expression ordinarily supports a consistent meaning. Under the relevant lending arrangements, the 5% enforcement fee was payable only after repayment of investors, including capital and interest. It was calculated by reference to the original loan amount. The fee arose where the loan term had expired, the loan remained unpaid and the security had been sold. Subsequent statements about how the scheme operated did not alter the contractual construction. They were potentially relevant to estoppel, but no estoppel was established without clear representations and evidence of reliance.

Joint administrators of FundingSecure Ltd sought directions on the construction of contractual terms governing short-term peer-to-peer loans. The principal dispute concerned a 5% fee payable on the sale of secured assets following borrower default.

The court considered four issues: whether the fee ranked before or after investors’ repayment; whether it was calculated by reference to the original loan or the realised proceeds; when it became payable; and whether the company’s previous statements or conduct gave rise to contractual, promissory or conventional estoppel.

1. Construction. The court applied the objective approach to contractual interpretation. The contract was to be read as a whole, with appropriate regard to the relevant background, commercial consequences and the ordinary meaning of repeated expressions. Post-contractual statements and inconsistent performance did not assist in construing contracts entered into earlier.
2. Priority of the 5% fee. Although the fee was mentioned in clause 6.2.4 before the payment waterfall in clause 6.2.5, that drafting sequence was not significant. The repeated reference to the “net proceeds of sale”, the reference to administration fees in the waterfall and the statement that FundingSecure charged investors no fees supported a consistent construction. Commercially, prioritising investors’ capital and interest, while allowing recovery of direct enforcement costs before investor interest, better reflected the allocation of risks. The 5% fee was therefore payable only after repayment of the investors.
3. Calculation. “Loan value” meant the amount of the loan, namely the original advance, rather than the amount realised on sale of the security.
4. Trigger. The fee arose where the loan term had expired and the loan remained unpaid. It was recoverable from sums received on realisation after the security asset had been sold.
5. Estoppel. The estoppel arguments were academic in light of the contractual conclusion. In any event, contractual, promissory and conventional estoppel were not established. Some company materials were representations about the fee structure, but the respondents did not prove that identified investors saw and relied on them. The evidence did not provide a coherent basis for the alleged estoppels.
6. The court concluded that the Loan Agreements operated accordingly and gave directions on that basis.