Astor Management AG & Anor v Atalaya Mining PLC & ors

A contractual cash-sweep provision must be construed in its contractual and commercial context. Where the agreement links the provision to deferred consideration payable after a mine reaches commercial production, “excess cash” means cash available after the specified permitted expenditure, rather than a year-end balance reduced by uncertain allowances for future expenditure. “Sustaining capital expenditure” covers expenditure needed to maintain the agreed production level. It does not include expansion expenditure beyond that level. Cash derived from intra-group funding may constitute excess cash. The court also held that tax could be treated as an operating expense and that in-production stripping costs could, in principle, qualify as sustaining capital expenditure.

Astor claimed contractual interest on deferred consideration payable under a Master Agreement concerning the Rio Tinto copper mine project. The principal consideration had been paid by Atalaya during the proceedings, but the parties disputed when sums should have been paid under the Excess Cash Clause and whether interest was due under clause 14.7.

Earlier proceedings before Leggatt J held that the contractual triggers for deferred consideration had not occurred because no Senior Debt Facility had been obtained, but that the Excess Cash Clause nevertheless required excess cash to be applied towards the consideration. The Court of Appeal upheld that decision. The present trial concerned the proper construction and application of the Excess Cash Clause, including the meaning of excess cash, permitted expenditure, the first assessment date, and the effect of contractual amendments.

1. Construction of excess cash. The Master Agreement was a professionally drafted contract between sophisticated commercial parties and was to be interpreted principally by textual analysis, read as a whole and against the factual background known when it was made. Later events and an autonomous accounting meaning of “excess cash” could not control the construction.
2. The Excess Cash Clause operated as security for the deferred consideration provisions in Schedule 2. Once the mine had reached the agreed restart level of continuous commercial production, excess cash meant cash available after payment of operating expenses, sustaining capital expenditure, Senior Debt Facility debt service and the agreed EMED Group Expenses allowance. The clause did not require a forward-looking allowance for uncertain future expenditure.
3. Sustaining capital expenditure. This meant capital expenditure required to maintain production at the agreed restart level of about 4.8 million tonnes per annum. It did not include expenditure to expand the mine beyond that level. Atalaya remained free to expand the mine, but could not deduct expansion costs when calculating excess cash payable to Astor.
4. The clause made no distinction between cash generated from mine revenues and cash obtained from intra-group funding. Any such cash remaining after the permitted expenditure was excess cash. Tax was capable of falling within operating expenses. In-production stripping costs could in principle be sustaining capital expenditure, whereas stripping costs associated with expansion could not.
5. The first assessment date was 31 December 2016. Commercial production was declared effective from 1 February 2016, and the annual calculation was to be made at the end of that financial year. Cash available in 2015 remained relevant if still held in 2016.
6. The 2009 amendments did not alter the construction. The parties had preserved the relevant provisions and the same understanding of restart applied. Contractual interest under clause 14.7 was payable from the dates on which consideration became due until payment, with monthly compounding. The parties were directed to draw up an order reflecting the resulting dates and quantum.

• High Court (Commercial Court): Leggatt J held that the Senior Debt Facility trigger had not occurred but that the Excess Cash Clause required excess cash to be applied towards deferred consideration: [2017] EWHC 425 (Comm).
• Court of Appeal: upheld Leggatt J’s decision: [2018] EWCA Civ 2407.
• High Court (Commercial Court): the present judgment determined the construction of the Excess Cash Clause and the contractual interest consequences.