A common-sense approach to ‘business common sense’

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In BMA Special Opportunity Hub Fund Ltd & ors v African Minerals Finance Ltd [2013] EWCA Civ 416, 23 April 2013, the Court of Appeal has confirmed that the ‘business common-sense’ approach to contractual interpretation expounded by the Supreme Court in Rainy Sky v Kookmin is neither an overriding principle of construction nor a licence for one party to say that a contract means what amounts to ‘good business sense’ to that party.

The borrower in this case entered into a $500m (£321m) loan facility with various lenders to finance iron ore development in Sierra Leone. Under clause 8 of the facility terms, the loan could be pre-paid in certain circumstances and had to be pre-paid in others. The outcome of this appeal turned on the construction of clause 8, particularly sub-clauses 8.3 (mandatory pre-payment), 8.5 (voluntary pre-payment) and 8.8(d) (the pre-payment fee).

Shortly before the first anniversary of the facility, the borrower announced there would be a refinancing. The borrower wrote to the facility agent saying that it intended to repay the loan in full as it was obliged to do under clause 8.3. The facility agent replied stating that if the pre-payment was before the anniversary of the closing date, a pre-payment fee of six per cent (equating to $17.466m) was due under clause 8.5 and clause 8.8(d). When the borrower did not pay this amount, the lenders started proceedings claiming the pre-payment fee. The borrower cross-applied for summary judgment to dismiss the claim on the basis that pre-payment was mandatory and determined by clause 8.3 rather than voluntary and determined by clause 8.5. The borrower argued that these two provisions were mutually exclusive…

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