BMA Special Opportunity Hub Fund Ltd. & Ors v African Minerals Finance Ltd

Lord Justice Aikens : The Facility and the Issue on appeal

1. This appeal raises a short point of construction of a loan facility agreement dated 4 February 2011 (“the Facility”) between various lenders, including the appellants (whom I will call “the Lenders”) and the respondent borrower (“the Borrower”). The Facility was for the loan of up to US$500 million to be used to finance the development of phase 1 of the Tonkolili iron ore project in Sierra Leone. Sums advanced under the Facility were to be repaid in 10 monthly instalments between 30 April 2012 and the final repayment date. The interest rate fixed by the terms of the Facility was 11.50%, which would have reflected the risk involved in the project. A letter dated 4 February 2011 (the “Fee Letter” – pursuant to clause 10.4 of the Facility terms) from the “Original Lenders” to the Borrower and its parent company (African Minerals Limited – “the Parent”) set out the fees payable for the Facility. It provided that the Borrower would make a 3% bonus payment to the Lenders if the Loan was still outstanding at the first anniversary of the Facility. Under clause 8 of the Facility terms, the loan could be prepaid in certain circumstances and had to be prepaid in others. I have set out the relevant terms of the Facility in the Appendix to this judgment. These terms are: various definitions in clause 1, parts of clause 7.1 (Repayment), clause 8 (Prepayment), clause 10 (Fees) and clause 19 (General Undertakings). The outcome of this appeal turns on the construction of clause 8, particularly sub-clauses 8.3, 8.5 and 8.8(d).

2. On 10 February 2011, the “Closing Date” under the Facility terms, the Original Lenders under the Facility advanced a total of US$417 million to the Borrower. The Original Lenders then assigned or novated their rights under the Facility to various other entities. The details do not matter, save to note that by the end of January 2012 the Lenders (ie. the appellants) were responsible for lending to the Borrower a total of just over US$291 million.

3. On 31 January 2012 the parent company of the Borrower announced that there would be a refinancing of the Facility through Standard Bank Group Limited. Then on 3 February 2012 the Borrower and the Parent entered into a facility agreement (“the Refinancing Facility”), in which Standard Chartered Bank of South Africa was identified as the mandated lead bank and lender. The amount of the Refinancing Facility was US$417,700,000. Also on 3 February 2012 the Borrower wrote to the Agent under the Facility, Wilmington Trust (London) Limited (“the Facility Agent”), and announced that the Borrower intended to repay the Facility in full on 8 February 2012, as it acknowledged it was obliged to do pursuant to clause 8.3 of the Facility terms. The Facility Agent replied to the Borrower, also on 3 February 2012, setting out the precise amount of principal and interest due, but noting that “ any other amounts that may be due under the Finance Documents are not included in this notice”.

4. On the same day, the solicitors for the Lenders wrote to the Borrower, stating that if any prepayment of the loan was made before 10 February 2012, ie. the first anniversary of the Closing Date, then the Borrower was required to pay a “prepayment fee” of 6%, pursuant to the terms of clause 8.8(d)(i) of the Facility terms. The letter said that if the Facility were to be prepaid by the Borrower on or before the first anniversary of the Closing Date without also paying the 6% prepayment fee, that would constitute a breach of contract by the Borrower.

5. On 8 February 2012 the Borrower prepaid the full amount of the loan. The Lenders were paid the US$291,100,000 owed to them, plus outstanding interest. But the Borrower did not pay any fee in addition. The Lenders began the current proceedings and claimed the prepayment fee, which (by reference to the amount of principal repaid to the Lenders) they said amounted to US$17.466 million. The Lenders sought summary judgment for that amount. The Borrower cross-applied for summary judgment to dismiss the claim.

6. The single issue on this appeal, as before Eder J below, is whether, as the Lenders contend, the prepayment of the loan was, in the circumstances, a voluntary prepayment of the loan pursuant to clause 8.5 of the Facility terms, in which case, because the prepayment was made before the first anniversary of the Closing Date, the 6% prepayment fee would be due pursuant to clause 8.8.(d)(i) of the Facility terms. The Borrower contends that the prepayment was one that the Borrower was obliged to make because the circumstances fell within clause 8.3(a) of the Facility terms and the provisions of clauses 8.3 and 8.5 are mutually exclusive. It was common ground that if the circumstances of the prepayment did not fall within clause 8.5 of the Facility terms then no prepayment fee was payable by the Borrower.

7. In a reserved judgment handed down on 31 July 2012 Eder J concluded that the circumstances of the prepayment fell within clause 8.3 and (inferentially) that the circumstances could not fall within clause 8.5 at the same time. Therefore no prepayment fee was due and so he dismissed the claim. He gave the Lenders permission to appeal. Some more details on the Facility terms

8. First, I should note that the parties to the Facility are commercial entities, who engaged experienced lawyers during the negotiations of the Facility terms. It seems that the negotiations of the terms took three months and the legal fees paid to the original lenders’ six different sets of lawyers totalled about US$1.9 million. The Facility terms themselves are very detailed indeed. The clauses plus the 13 schedules attached to them run to 146 pages. It looks as if the parties did not intend to leave anything to chance and intended the terms to be as precise as possible. On the hearing of the appeal, counsel for both parties urged us to approach the single issue of construction on the basis that the parties and their legal advisers knew what they were doing and that they intended to follow “commercial common sense” in drafting the terms of the Facility. I am certainly prepared to do so.

9. Next it is necessary to see how various definitions in clause 1 apply to the facts. The definition of “Obligor” includes the Borrower; that of “Group” includes the Parent. “Financial Indebtedness” means any indebtedness for or in respect of (amongst other things) “money borrowed”. The definition of “Financial Indebtedness” does not say so, but the expression is used in clauses which concern borrowing by the Borrower or the Group. “Finance Proceeds” means the cash proceeds of any “equity issuance received” or “Financial Indebtedness incurred” by any member of the Group, which thus includes the Borrower and the Parent. The phrase “cash proceeds” is not itself defined in the Facility terms. “Loan” is defined as the loan to be made under the Facility or the principal amount outstanding for the time being of that loan. Clause 1.2(b) provides that clause and schedule headings are for ease of reference only.

10. Thus, subject to an alternative argument advanced by the Lenders, which was contrary to a concession they were otherwise content to make, it seems to me clear that the Borrower and the Parent incurred a Financial Indebtedness at the latest on drawing down under the Refinancing Facility with Standard Bank of South Africa and the Borrower obtained “cash proceeds” within the meaning of the term “Finance Proceeds” upon obtaining the proceeds of the draw down on the Refinancing Facility on, or just after, 3 February 2012.

11. Thirdly, clause 19 of the Facility sets out a series of “General Undertakings” of the Obligors, which term includes the Borrower. Under clause 19.6(a)(i) no Obligor (thus including the Borrower) shall, without the written consent of the Facility Agent, incur or have outstanding any Financial Indebtedness to any other person. But clause 19.6(b)(ii) stipulates that clause 19.6(a) does not apply to any Financial Indebtedness owed by (or to) any member of the Group that is to be applied on the date on which such Financial Indebtedness is incurred (or immediately thereafter) in prepayment or repayment of the Facility in full. In other words, the Borrower can incur a Financial Indebtedness without seeking the written consent of the Facility Agent if it is to be applied immediately to repay the Facility in full.

12. Fourthly, clause 8, the “Prepayment” clause, sets out various circumstances in which prepayment of the Facility either can be made or must be made. For the present I need only refer specifically to clauses 8.3, 8.5 and 8.8.

13. Clause 8.3 is headed “Disposal Proceeds and Finance Proceeds.” Clause 8.3(a) stipulates that the Borrower shall repay the Loan in “the amount of…Finance Proceeds promptly upon receipt of any…Finance Proceeds by any member of the Group”. Thus, as was accepted in argument before us by Mr Boswood QC, counsel for the Lenders, (subject to his alternative submission), once the Borrower and the Parent had received the proceeds of the Refinancing Facility with Standard Bank and others, the Borrower was obliged by clause 8.3(a) to use those proceeds to repay the Loan. In this case, because the cash proceeds concerned amounted to the whole amount of the Loan advanced to the Borrower under the Facility, the Borrower was therefore obliged to repay the whole of the Loan and any outstanding interest.

14. Clause 8.5 is headed “Voluntary prepayment of the Loan”. It is easiest to quote the full wording: “The Borrower, if it gives the Facility Agent not less than five Business Days’ (or such shorter period as the Majority Lenders may agree) prior notice, may prepay the whole or any part of the Loan (but, if in part, being an amount that reduces the Loan by a minimum amount of $100,000,000).” Mr Boswood submitted that this clause, not clause 8.3, is the operative clause in this case, for reasons which I will explain below.

15. Clause 8.8 is headed “Conditions to repayment and prepayment”. Clause 8.8(a) provides that the Borrower may not exercise its right of voluntary prepayment in respect of a partial prepayment of the Facility under clause 8.5 (or under 8.7) prior to the Completion of the Project unless a pre-condition is fulfilled, the object of which is to satisfy the Lenders that the Borrower would have adequate funding to achieve the Project Completion even after a prepayment. It should be noted that this pre-condition concerns only partial repayment under clause 8.5 and does not apply to the prepayment of the whole of the Loan under clause 8.3.

16. Clause 8.8(c) stipulates that any prepayment is to be made with accrued interest plus (under clause 8.8 (c)(ii)) “…any prepayment fee required to be paid by the Borrower pursuant to this clause 8.8”. That requirement is further elaborated in clause 8.8(d). Again it is easiest to set out here the precise terms of the clause: “On prepayment of all or any part of the Loans pursuant to Clauses 8.5 (Voluntary prepayment of the Loan), the Borrower shall pay to the Facility Agent (for the account of each Lender) a prepayment fee on the date of such prepayment, in the following amount: (i) 6 per cent of the amount prepaid or repaid if the prepayment is made on or before the first anniversary of the Closing Date; and (ii) thereafter, no prepayment fee will be payable.” The judgment of Eder J

17. Eder J found the arguments on construction “finely balanced”; the wording of the Facility terms “far from clear” and the arguments in relation to “business common sense” not pointing clearly in one direction. He considered the last issue first, but maintained his opinion that the arguments on “business common sense” were not clear cut. In consequence the judge held that there was “considerable difficulty – and potential danger – in the court relying upon such arguments in reaching its conclusion”. [25] Thus the judge returned to the wording of the relevant clauses in the Facility. He concluded that the “refinancing” of the loan by the Borrower and the Parent, with the aid of Standard Bank, was a voluntary act, but because the proceeds of that refinancing came within the definition of “Finance Proceeds” therefore the Borrower came under an obligation to prepay the Loan by virtue of clause 8.3. [31] Effectively, although the judge did not say so expressly in his reasons, he concluded that clause 8.3 and clause 8.5 were mutually exclusive. Either a prepayment had to be made under the first or the Borrower decided voluntarily to make it under the second; it depended on the circumstances that existed at the time. But if, in the factual circumstances that existed, the characterisation of the repayment had to come within clause 8.3 then it could not come within clause 8.5 at the same time. [34]

18. The judge noted that he remained “very uncertain whether this conclusion accords with business common sense”. But because he found the arguments on “business common sense” difficult to apply and whatever such arguments might be, he decided that his construction was “more consistent with the language used in the Facility”. Therefore, as the prepayment had been made under clause 8.3 and not clause 8.5, the Lenders were not entitled to the prepayment fee of 6% pursuant to clause 8.8(d)(i) and he dismissed the Lenders’ application for summary judgment and upheld the Borrower’s counter-application. [35] As a consequence, Eder J’s order of 31 July 2012 dismissed the Lenders’ claim. [36] The arguments of the parties on the appeal

19. Mr Boswood QC, for the Lenders, emphasised the judge’s conclusion that the arguments on construction were finely balanced; thus there must be two possible interpretations of clause 8. In that circumstance, Mr Boswood submitted, the judge should have paid much more attention to the issue of which construction was more consistent with “business common sense”. Mr Boswood submitted that the purpose of the prepayment fee was to compensate the Lenders for the high rate of return on interest payments that would be lost if the loan were voluntarily prepaid in the first year of the Facility. He reminded us that, before the judge, the Borrower’s counsel had accepted that if the Borrower’s construction were correct, then the only circumstances in which a prepayment fee could be incurred would be when the Borrower itself prepaid US$100 million or more of the loan within the first year of the Facility, from its own funds [30] (my emphasis). Yet, on the Borrower’s construction of clause 8, the prepayment fee could easily be avoided by the Borrower arranging a refinancing of the loan rather than by using its own funds to make a prepayment. And if it did this before the first anniversary of the Facility it would not only avoid having to pay the 6% prepayment fee but also the 3% bonus fee provided for in the Fees Letter.

20. Mr Boswood characterised this as an “uncommercial” construction because, in his submission, when the Facility was concluded it was “inconceivable”, or “highly unlikely” or “at least unlikely” that the Borrower would be able to repay at least $100 million of the Loan within a year of drawing down on the Facility. Mr Boswood submitted that there was objective evidence before the judge, in the witness statement from Mr O’Neill which had been filed on behalf of the Borrower for the summary judgment hearing, from which the judge could and should have reached that factual conclusion. If he had done, it would have demonstrated how much more the Lenders’ proposed construction of clause 8 was consistent with “commercial common sense”.

21. Mr Boswood submitted that, against this background, it became clear that the judge’s analysis of the structure of clauses 19.6(a) and (b)(ii) and clauses 8.3 and 8.5 was flawed because it approached matters from the wrong starting point. Clause 19.6(a) prohibited the Borrower or Parent from incurring Financial Indebtedness to others without the prior written consent of the Facility Agent. The Borrower did not obtain that consent in this case, so when it obtained the Refinancing Facility, in the circumstances it must have done so with clause 19.6(b)(ii) in mind. In short, at the time that the Borrower (and its Parent) concluded the Refinancing Facility, it must have already decided voluntarily that it would prepay the Facility in full. Clause 8.3 was merely the contractual mechanism for ensuring that this was done once the Borrower had the “cash proceeds” in hand. But, at base, the Borrower’s decision to prepay (and so the decision to obtain the Refinancing Facility) was voluntary, in the sense of having been done with deliberate intent. Accordingly this made clause 8.5 the operative one and thus clause 8.8(d)(i) applied. It followed that clauses 8.3 and 8.5 were not mutually exclusive as the judge had implicitly held.

22. In his written arguments Mr Boswood made an alternative submission on the assumption that the judge was correct implicitly to find that clauses 8.3 and 8.5 were mutually exclusive. This was that the prepayment did not fall within clause 8.3 because the Borrower had not received any “Finance Proceeds” within the meaning of that clause. This was, he submitted, because for there to be “Finance Proceeds” there had to be “cash proceeds” (there was no “equity issuance” on the refinancing) and there would be no “cash proceeds” of indebtedness upon the refinancing within the meaning of “Finance Proceeds” because a refinancing necessarily involves paying the sums borrowed in satisfaction of the prior debt. Therefore the prepayment did not come within the terms of clause 8.3, so must have come within the terms of clause 8.5.

23. Mr Beltrami QC, for the Borrower, submitted, in his written and oral arguments, that the Lenders’ submission on “commercial common sense” confused that concept with what might be “good business sense” for a particular party, in this case, the Lenders. That was not a legitimate aid to construction of the Facility terms. He submitted that the judge was correct to conclude that the notion of “business common sense” did not assist in finding the correct construction of clause 8. Further, the judge was correct in his implicit conclusion that clauses 8.3 and 8.5 were mutually exclusive; that this accorded with the structure of clause 8 as a whole and the wording of clause 8.8(d) in particular. Moreover, if the test of whether a prepayment fee was payable was whether the prepayment was “voluntary” in the sense of being intentional, that led to uncertainty as to the circumstances in which clause 8.8(d)(i) applied and could produce anomalous results if applied, for instance, to clause 19.14(b)(i). Analysis

24. There was no dispute between the parties on the principles of construction that the court must use in interpreting this commercial document. There has been considerable judicial exposition of these principles by the House of Lords and the Supreme Court in recent years. There is no point in my going over the same ground again at any length. The court’s job is to discern the intention of the parties, objectively speaking, from the words used in the commercial document, in the relevant context and against the factual background in which the document was created. The starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties’ respective rights and obligations. If there are two possible constructions of the document a court is entitled to prefer the construction which is more consistent with “business common sense,” if that can be ascertained. However, I would agree with the statements of Briggs J, in See eg. Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 ; Re Sigma Finance Corp [2010] 1 All ER 571 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 . Jackson v Dear, [2012] EWHC 2060 at [40] first, that “commercial common sense” is not to be elevated to an overriding criterion of construction and, secondly, that the parties should not be subjected to “…the individual judge’s own notions of what might have been the sensible solution to the parties’ conundrum”. I would add, still less should the issue of construction be determined by what seems like “commercial common sense” from the point of view of one of the parties to the contract.

25. The relevant background here is that the parties to this contract were commercial entities who employed experienced commercial lawyers to negotiate the terms in very great detail over a period of three months. The contract terms are elaborate and clearly intended to be precise and cover as many eventualities as could be foreseen. The sum involved in the transaction which was governed by the Facility was very large. The project itself was a risky one. At the time the Facility was concluded no production had been started at the Tonkolili iron ore project site, although it was contemplated that production would be under way by November 2011. The Facility was a short term one of only 2 years. Repayments of principal and interest were to be made only in the second year after the Closing Date.

26. Clause 8 of the Facility terms sets out the circumstances in which there can be or must be a prepayment of part or all of the loan advanced pursuant to the Facility. In my view an examination of the structure of the clause overall and the wording of the individual sub-clauses 8.1, 8.2, 8.3, 8.5 and 8.7 indicates that the parties intended that each of sub-clauses should deal with specific factual circumstances in which prepayment might be made and the parties intended that those circumstances would be mutually exclusive. This view is reinforced by the wording of three other sub-clauses in clause 8. The first is clause 8.6 which provides that amounts standing to the credit of the Escrow Account may be applied by the Borrower to make any prepayment (in whole or part) of the loan “…pursuant to and in accordance with Clause 8.1 ( Illegality ), Clause 8.2 ( Change of control and Management Event ), Clause 8.3 ( Disposal Proceeds and Finance Proceeds ), and Clause 8.5 ( Voluntary prepayment of the Loan )…”. That wording indicates, to my mind, that the parties intended that each of those types of prepayment arose under different and distinct circumstances.

27. The second sub-clause is clause 8.8(a) which provides that “…the Borrower many not exercise its right of voluntary prepayment in respect of a partial prepayment of the Facility under Clauses 8.5 ( Voluntary prepayment of the Loan ) or 8.7 ( Right of repayment and cancellation in relation to a single Lender ) prior to Project Completion unless….”. There could be a partial prepayment under the terms of clause 8.3. But the fact that in clause 8.8(a) there is a reference to clause 8.5 but no reference to clause 8.3 suggests strongly that the parties intended that those two circumstances in which partial prepayments were made were to be mutually exclusive from one another.

28. Lastly, and most importantly, the wording of clause 8.8(d) itself refers only to prepayment pursuant to clause 8.5. There is no reference to a prepayment fee being payable in any of the other circumstances of prepayment dealt with in clauses 8.1, 8.2, 8.3 and 8.7. This wording is clear and unambiguous. This strongly suggests that the parties intended that the circumstances of prepayment set out in each specific sub-clause were to be regarded as separate and mutually exclusive. If they are, then the unambiguous wording of clause 8.8(d)(i) must mean that no prepayment fee is due unless the circumstances of the prepayment came within the terms of clause 8.5.

29. That leads on to a consideration of Mr Boswood’s elegant argument that clause 8.3 is to be regarded simply as a provision consequential upon clause 19.6(b)(ii), so that one must examine the circumstances in which the Borrower decided to obtain Finance Proceeds for the purpose of refinancing and the consequent prepayment of the whole of the loan to see if there was a “voluntary” prepayment of the loan within clause 8.5, even if the prepayment also had to be made because of the obligation under clause 8.3. (This assumes, contrary to Mr Boswood’s alternative argument, that he is correct to concede that the fact that the Borrower had obtained refinancing triggered the obligation to make a prepayment under clause 8.3). Despite the elegance with which it was advanced, I cannot accept this submission. To my mind, the starting point is clause 8.3. That clause creates an obligation on the Borrower when it receives proceeds as a result of a disposal or, alternatively, of amounts raised by borrowing (or otherwise within the definition of “Finance Proceeds”) to use that sum towards prepaying the Loan. Clause 19.6(b)(ii) identifies one of a number of circumstances when the Borrower does not need to apply to the Facility Agent to obtain its written consent to incur any Financial Indebtedness to any other person or to discharge other obligations set out in clause 19.6(a). But clause 19.6(b)(ii) and clause 8.3 are quite separate and clause 8.3 is not simply consequent upon clause 19.6(b)(ii), because clause 8.3 deals with other circumstances apart from one where the Borrower (or other member of the Group) incurs Financial Indebtedness in order to prepay or repay the Loan in full. For instance, clause 8.3 is triggered where the Borrower has received Disposal Proceeds or Finance Proceeds in an amount which would only discharge a part of the Loan.

30. Therefore, the judge was correct to conclude that the decision to obtain the Refinancing Facility and the requirement to use the proceeds of that to prepay the Loan in full are two separate matters. It does not follow from the fact that the first decision was “voluntary” in the sense of being intentional that the prepayment was therefore also “voluntary”. If, as I think must be done, the act of refinancing and prepayment are separated out, then the construction of clause 8 becomes much easier. It is obvious (and Mr Boswood always accepted, subject to his alternative argument) that once the Borrower had obtained the Finance Proceeds from the Refinancing Facility, it was contractually obliged to use that sum to prepay the Loan pursuant to clause 8.3. To characterise the prepayment as “voluntary” in the face of that contractual obligation is, in my view, an abuse of language. Further, given that I have concluded that the parties intended that the circumstances of prepayment dealt with in clauses 8.1, 8.2, 8.3 and 8.5 are to be mutually exclusive, if the prepayment had to be made pursuant to clause 8.3 as Mr Boswood accepts, then it must follow that the prepayment cannot fall also within clause 8.5 as well, however much the original decision to obtain refinancing was “voluntary”.

31. On Mr Boswood’s principal submission that leaves the “commercial common sense” argument to be considered. Mr Beltrami accepted that the only circumstances in which there could be a voluntary prepayment of the Loan under clause 8.5 which would incur the 6% prepayment fee would be when the Borrower used its own funds (not even those of another company within the Group) to prepay at least US$100 million of the Loan before the first anniversary of the Closing Date. At the time the Facility terms were drafted that may have been seen by the parties as a very unlikely possibility. But it is interesting to note that clause 8.8(a) makes a specific provision that the Borrower cannot exercise its right of voluntary prepayment in respect of a partial prepayment of the Facility under clause 8.5 (or under clause 8.7) prior to the “Project Completion” unless the Parent has delivered a certificate that confirms that its board of directors is satisfied that, after the proposed prepayment, the Borrower will have adequate funding to achieve Project Completion and to discharge other obligations under Project documents. This indicates to me that the parties fully appreciated that partial prepayment under clause 8.5 would indeed come from the Borrower’s own funds, hence the need to ensure that there would be adequate other sources of funding to continue to Project Completion. The fact that clause 8.8(a) refers only to partial prepayment under clause 8.5 also suggests that the parties appreciated that a total voluntary prepayment by the Borrower under clause 8.5 from its own funds would be out of the question.

32. The parties, assisted by their many lawyers no doubt, were aware that there were other circumstances in which part or all of the Loan could be prepaid before the first anniversary date, including the obvious one of a refinancing by the Borrower or its Parent. If the parties had wanted to provide for a prepayment fee of 6% (or any other percentage) when part or all of the Loan was prepaid as a result of a refinancing, all they had to do was add the words “Clause 8.3 or” before the words “Clauses 8.5” ( sic ) in clause 8.8(d) and make appropriate changes (if needed) to clause 8.8(d)(i) and (ii). But they did not do that. Perhaps it is significant that clause 8.8(d) refers to “Clauses 8.5” in the plural; perhaps the parties had contemplated something else in an earlier draft of the Facility terms and forgot to change it to the singular. But no point was taken by Mr Boswood on the misuse of the plural “Clauses 8.5”.

33. In my view there is no lack of “commercial common sense” in a decision by these commercial parties, doubtless after much negotiation, to provide for the payment of a prepayment fee of 6% in only limited factual circumstances. Doubtless the Borrower would not have wanted to pay such a fee (which would be US$ 30 million if the Facility had been fully drawn down) at all. Doubtless the Lenders would have wanted a fee to be paid for prepayment in as many circumstances as possible. Doubtless they settled on a compromise: a fee was payable if there was prepayment under clause 8.5. That ultimate position is the essence of “commercial common sense”.

34. Lastly, I should deal with Mr Boswood’s alternative argument, which entails withdrawing the concession that once the Borrower had obtained the Refinancing Facility funds, it was obliged to prepay the Loan under clause 8.3 and, instead, arguing that clause 8.3 does not apply to this prepayment so clause 8.5 must do so. Mr Boswood submitted that the money that the Borrower received upon drawing down on the Refinancing Facility could not be “cash proceeds” within the definition of “Finance Proceeds” in the Facility terms because the sum obtained from the refinancing had to be used immediately to satisfy the prior debt. Therefore, the sums received by the Borrower under the Refinancing Facility were not “cash proceeds” within the meaning of “Finance Proceeds” for the purposes of clause 8.3 and so the prepayment could not have been made under that clause.

35. I do not accept that argument. In any normal sense of the words, the sums the Borrower would obtain on drawing down the Refinancing Facility would be “cash proceeds”, a phrase which does not have any limited meaning under the terms of the Facility. The sums are the “proceeds” of the Refinancing Facility and the sums would be available as a credit in favour of the Borrower in a bank account, ie as “cash” as opposed to the credit being available in any other form of “proceeds” such as loan notes, bonds or IOUs. The fact that the Borrower was, under the terms of the Refinancing Facility, obliged to use the sums advanced to it by Standard Bank to pay off the Loan under the Facility does not stop that sum from being “cash proceeds” within the definition of “Finance Proceeds” in the Facility terms.

36. Mr Boswood’s concession that the prepayment did fall within clause 8.3 was correct. Conclusion and disposal

37. I would therefore reject all the arguments of the Lenders and would dismiss the appeal. Lord Justice McFarlane:

38. I agree. Lord Justice Sullivan:

39. I also agree.