Banco De Sabadell, S.A. v Cerberus Global NPL Associates, L.L.C. & Ors

Under Spanish law, commercial contracts are construed by ascertaining the parties’ evident intention from all available evidence. The literal wording remains important, particularly where sophisticated parties used professionally drafted terms, but extrinsic evidence may be considered without first establishing ambiguity. Contractual provisions must be read together, and an interpretation producing a highly unusual, rare and inexplicable result is unlikely to reflect the parties’ intention.

Where a deferred purchase price mechanism marks down the value of unregistered assets, the adjustment applies only to the amount referable to those assets. It does not expose the deferred price attributable to registered assets unless the contract clearly provides for that result.

Sabadell claimed against Cerberus under guarantees relating to three investment agreements with Promontoria. The agreements governed the transfer of Spanish real estate portfolios into joint ventures and were governed by Spanish law. The guarantees were governed by English law.

The dispute concerned the meaning of provisions dealing with deferred purchase price and the fair market value of real estate whose title remained unregistered. Cerberus argued that, where Sabadell extended payment beyond the maturity date, the whole deferred purchase price was subject to the fair market value adjustment. Sabadell argued that only the amount attributable to the then-unregistered assets was affected.

1. Construction under Spanish law. The court applied Articles 1281, 1285 and 57 of the Spanish Civil Code and Spanish Commercial Code. The task was to ascertain the parties’ evident intention from the contract and all available evidence. The ordinary meaning of the words remained important, but extrinsic evidence was admissible without proof that the wording was unclear or doubtful.
2. The agreements had to be read as coherent wholes. A proposed construction could be rejected where it produced a highly unusual, rare and inexplicable result, although the court could not revise an unwise bargain merely because it appeared commercially unattractive.
3. Reading the agreements together and considering the negotiations and subsequent conduct, the deferred purchase price subject to the fair market value mechanism was the aggregate allocated value of the outstanding unregistered assets, not the whole maturity-date deferred purchase price or that sum less earlier payments.
4. The fair market value mechanism adjusted the price by the difference between the allocated value of the unregistered assets and their fair market value. The balance of the price attributable to other contributed assets remained payable.
5. Sabadell was therefore entitled under the guarantees to judgment for principal sums of €309,213,327.62 under the Challenger agreement and €34,335,569.06 under the Rex agreement, together with specified further sums for assets registered during the final quarter, subject to correction. The total principal was understood to be €358,503,396.81. Cerberus’ counterclaim was dismissed. The parties were to assist on interest, declaratory relief and relief under the indemnity claim.

Not an appeal. The judgment records no earlier decision in the same proceedings.