Mrs Justice Moulder :
- This case arises out of a financing fee side letter entered into between the claimant and the defendant.
- The claimant is a company within the Vitol group of companies. Historically the claimant held a portfolio of proprietary exploration and production assets in West Africa. The defendant is an oil and gas company engaged in exploration, appraisal, development and production.
- In 2013 the claimant entered into an agreement with the defendant whereby the claimant's "non-core" assets in Cameroon and Nigeria were transferred into the defendant's African portfolio in consideration for a minority stake in the defendant and a seat on the defendant's board.
- The defendant indirectly owns a 25% share in the licence in respect of the offshore area of hydrocarbon reserves named Block Marine XII. In order to enable the defendant (through its subsidiaries) to meet capital commitments in respect of its participation in Block Marine XII, the defendant sought funding from the claimant.
- On 21 January 2015 the claimant, together with two other shareholders of the defendant, and the defendant entered into a US$50 million shareholder loan agreement (the "Bridge Loan Agreement") pursuant to which the claimant lent US$15 million (of the US$50 million) to the defendant. A facility agreement dated 4 February 2015 (the "Facility Agreement") was concluded between the claimant, the defendant and the two subsidiaries of the defendant through which Block Marine XII is held pursuant to which a loan facility of US$45 million (the "Facility") was made available.
- The Facility Agreement was a secured loan with a term of five years. The Facility Agreement contemplated that the defendant would enter into a further "reserves based" facility agreement defined as the "RBL Facility". Under clause 17.2 of the Facility Agreement the claimant agreed to negotiate with the lenders under the RBL Facility the terms of an intercreditor agreement (the "Intercreditor Agreement") and that such agreement between the claimant and the RBL lenders would be reached within 365 days of the date of the Facility Agreement, which period was extended to 455 days if a term sheet relating to a proposed RBL Facility was signed within 365 days (the "Intercreditor Negotiation Period"). With effect from the date of execution of the RBL Facility and in accordance with such an Intercreditor Agreement, the RBL lenders would then be the primary beneficiary of the security package granted by the defendant and the claimant would rank behind the RBL lenders.
- There was also a financing fee side letter also dated 4 February 2015 executed between the claimant and the defendant in connection with the Facility Agreement (the "Side Letter").
- Throughout the negotiations of the Facility Agreement the claimant and the defendant were represented by Herbert Smith Freehills LLP ("Herbert Smith") and Clyde & Co. LLP ("Clyde & Co"), respectively.
- It is common ground that pursuant to clause 3.1 of the Side Letter the defendant agreed to pay a financing fee (the "Financing Fee") of US$2 per BBL in respect of each of the first 22,500,000 barrels of crude oil lifted from the Block Marine XII asset following the date of the Facility Agreement and that the Financing Fee could be reduced to US$1 per BBL in certain circumstances.
- On 23 August 2016 the claimant invoiced the defendant's subsidiary in the sum of US$63,716 representing a Financing Fee of US$2 per BBL on 31,858 barrels of crude oil. The defendant disputed the invoice on the basis that the Financing Fee had been reduced to US$1 per BBL. The defendant subsequently remitted the sum of US$31,858 to the claimant. The claimant now seeks through these proceedings recovery of the difference of US$31,585 and a declaration that the Financing Fee payable by the defendant under the Side Letter is US$2 per BBL.
- I heard oral evidence from Mr Egan, for the claimant. Mr Egan was directly involved in the negotiation and execution of the Side Letter and the Facility Agreement.
- For the defendant I heard evidence from Mr Lowden, the chairman of the defendant and until June 2017 also the chief executive officer. Mr Lowden's evidence was that his primary focus was on the high level issues rather than on the detail of each draft. His evidence was that the defendant's CFO, Mark Akers and an employee of the defendant, Mr Stoopin, were involved in negotiating the documents on behalf of the defendant. Neither Mr Akers nor Mr Stoopin were called to give evidence.
- In summary the following issues are in dispute:
i) The construction of clause 3.1 of the Side Letter;
ii) Whether the defendant is estopped from advancing its contended construction of clause 3.1 of the Side Letter;
iii) If the true construction of clause 3.1 of the Side Letter is as the defendant contends, does this accurately reflect and give effect to the common understanding of the parties or has there been a mistake on the part of both parties? Should the court exercise its discretion to grant rectification?
iv) Alternatively, if the defendant did not share the understanding of the claimant, but intended clause 3.1 to have the construction for which it contends, did the claimant make a unilateral mistake of which the defendant was aware such that rectification of the Side Letter should be granted?
The construction of clause 3.1 of the Side Letter
- Clause 3.1 reads:
"The Parent shall pay, or procure the payment of, to [the claimant] an amount equal to US$2 per BBL in respect of each of the first 22,500,000 BBLs of Crude Oil won and saved from Block Marine XII following the date of the Facility Agreement, which OpCo is entitled to receive or in respect of which OpCo is entitled to the proceeds, within 10 Business Days of the due date for payment in respect of the relevant BBL of Crude Oil (the "Payment Due Date") (the "Financing Fee") provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL."
- "Final Discharge Date" is defined in the Facility Agreement as:
"the first date on which all Liabilities under the Finance Documents have been fully and finally discharged to the satisfaction of the Agent… and the Finance Parties are under no further obligation to provide financial accommodation to any Transaction Party under the Finance Documents."
- The question of construction arises in relation to the circumstances in which the reduction to US$1.00 per BBL will occur and therefore the construction of the proviso:
"provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL"
- The claimant's case in essence is that the fee is reduced if
i) no Intercreditor Agreement has been executed by the end of the Intercreditor Negotiation Period; and
ii) the Facility is prepaid out of the proceeds of the RBL Facility; but
iii) only if repayment (confirmed by the occurrence of the Final Discharge Date) has occurred within 10 business days of the expiry of the Intercreditor Negotiation Period.
- The defendant accepts that the fee is reduced:
i) if the Intercreditor Agreement had not been executed by the end of the Intercreditor Negotiation Period; and
ii) the Facility is prepaid out of the proceeds of the RBL Facility;
but asserts that the reduction in the fee occurs irrespective of when the Facility is repaid; such reduction taking effect within 10 business days following the expiry of the Intercreditor Negotiation Period.
- The dispute between the parties on the construction therefore centres on whether the phrase "within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL" means that once the Facility has been repaid, the reduction of the fee occurs at a point in time falling "within 10 Business Days following the expiry of the Intercreditor Negotiation Period" or whether the correct interpretation of the language is that the fee reduces only if prepayment of the Facility (and the Final Discharge Date) has occurred within 10 Business Days following the expiry of the Intercreditor Negotiation Period. On the claimant's interpretation, this involves the court finding that the punctuation has gone awry and the comma inserted before the phrase "within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL" is in the wrong place.
Relevant legal principles
- The most recent decision on construction relied upon by the parties is the Supreme Court decision in Wood v Capita Insurance Services Ltd  UKSC 24:
" The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds  1 WLR 1381 , 1383H–1385D and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen)  1 WLR 989 , 997, Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties' contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations…"
" Lord Clarke of Stone-cum-Ebony JSC elegantly summarised the approach to construction in the Rainy Sky case  1 WLR 2900, para 21f. In the Arnold case  AC 1619 all of the judgments confirmed the approach in the Rainy Sky case: Lord Neuberger of Abbotsbury PSC, paras 13–14; Lord Hodge JSC, para 76 and Lord Carnwath JSC, para 108. Interpretation is, as Lord Clarke JSC stated in the Rainy Sky case (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (the Rainy Sky case, para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2)  2 All ER (Comm) 299 , paras 13, 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: the Arnold case, paras 20, 77. Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms." [Emphasis added]
- Counsel for the claimant also relied on the following dictum in Arnold v Britton  UKSC 36 as particularly relevant in this case:
" First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook  AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision." [Emphasis added]
- Counsel for the defendant submitted that the defendant's interpretation:
i) is consistent with the natural and ordinary meaning of clause 3.1;
ii) supports the purpose of the reduction of the fee that is at the "heart" of clause 3.1; and
iii) has sensible commercial implications which do not lead to a result which is impracticable or unworkable.
- As was made clear by Lord Hodge in Wood:
"once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each."
- I propose to start with the language in dispute. Whilst I accept the submission of counsel for the defendant that one cannot ignore the punctuation and seek to construe the words with the comma removed, it is necessary to construe the clause as a whole, including the words, syntax and punctuation, to determine the objective meaning: Cooke J in Osmium Shipping Corp v Cargill International SA.  EWHC 571 (Comm):
" There is therefore nothing in Clause 56, nor in the Charterparty as a whole which could provide the contra-indications that the Owners suggest to what, to my mind, is the plain and obvious meaning of the words used in the clause, given the structure and syntax used. The Charterers' construction does not turn simply on a comma, 'a jot or a tittle', but upon the whole language of the clause, its grammatical form, and the usage of the word 'or' throughout it, in a purposeful manner. The comma is however significant and the Owner's construction seeks to ignore it, as well as these other factors to which I have referred."
- The problem with the interpretation for which the defendant contends is that if one seeks to read the operative provision as the defendant contends, it would read, in material part, as follows:
"…the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, …within 10 Business Days following the expiry of the Intercreditor Negotiation Period the Financing Fee shall be reduced to $1.00 per BBL"
It immediately strikes an objective reader as odd that on this interpretation, a fee is to be reduced "within" a period of 10 business days. The normal meaning of the word "within" does not connote a fixed date. Yet there is no apparent mechanism to determine the date on which the reduction in the fee is to occur. This appears to lead to an unworkable result and suggests therefore that this is not the natural meaning of the clause.
- In the Defence (paragraph 14) it is asserted that the fee is reduced with effect from the last day of the 10 business day period. However there is no justification on the language for choosing this particular day. Further there is no mechanism in the clause for either party to specify a particular day within the period or to resolve any dispute in relation to the date chosen.
- By contrast if the claimant's interpretation is adopted, the clause would read, in material part:
"…the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility and, … provided that the Final Discharge Date has occurred within 10 Business Days following the expiry of the Intercreditor Negotiation Period, the Financing Fee shall be reduced …"
This interpretation does mean that one would conclude that the comma was incorrectly placed and should be inserted before the phrase "the Financing Fee shall be reduced …".
- It was said in Arnold v Britton that:
"Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision"
However to my mind there is a difference between language and punctuation and whilst the punctuation should not be ignored, as noted by Lord Hodge in Wood at , there are no set rules for the use of commas. As counsel for the claimant submitted, punctuation may be misunderstood, erroneously used or overlooked. Counsel for the defendant submitted that it was impermissible to suggest removing the comma in order to interpret the clause and that it would not be permissible for example to insert the word "not" when no such word appears. It seems to me that there is a very great difference between inserting words which are not there, or removing words which are there, and concluding that punctuation has gone awry. In my view, notwithstanding the comma, the natural meaning of the provision read as a whole supports the claimant's interpretation and the alternative meaning of the clause giving force to the comma as currently placed, results in an interpretation which is contrary to the natural meaning of the provision and seems unworkable or even unenforceable given the absence of any mechanism to determine the date within the 10 business day period on which the reduction takes place.
- Counsel for the defendant objected that the submissions for the claimant that the defendant's case gave a "strained and unnatural reading to the language used" was not supported with any "immutable principle or linguistic axiom". However for the court to determine the objective meaning of the language there is no requirement that the interpretation should be supported by any immutable principle of grammar or syntax. That the natural meaning of the clause is as the claimant contends is reinforced by the fact that on the defendant's construction the words "within 10 Business Days following the expiry of the Intercreditor Negotiation Period" would appear to be superfluous in that on the defendant's construction the fee is reduced if there is no Intercreditor Agreement and the Intercreditor Negotiation Period expires. On the defendant's construction there is no need for the 10 business day period, rather one would expect the fee to reduce immediately following the expiry of the Intercreditor Negotiation Period.
- I also accept the submission of counsel for the claimant that, if the interpretation of the provision is as the defendant contends, the more usual or natural order of the words would be for the words "within 10 Business Days following the expiry of the Intercreditor Negotiation Period" to appear at the end of the phrase after the words "the Financing Fee shall be reduced to $1.00 per BBL" so that it would have read:
"provided that, if the Intercreditor Agreement is not executed by the relevant parties by the end of the Intercreditor Negotiation Period, the Borrower may elect to prepay the Facility … and provided that the Final Discharge Date has occurred, the Financing Fee shall be reduced to $1.00 per BBL within 10 Business Days following the expiry of the Intercreditor Negotiation Period".
- Further, whilst the language "shall be reduced" may be used other than as the future tense and therefore prospective, if it was intended to reflect a reduction in the fee which would operate with effect from a date in the past, one might have expected clear language to make that distinction explicit by use of a phrase such as "with effect from" such date.
- On the natural meaning of the language therefore, clause 3.1 cannot be said in my view to be unambiguous and only open to one interpretation. I therefore proceed to consider the rival interpretations in the wider context. As stated by Lord Hodge, the court must consider:
"the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning."
- Counsel for the claimant noted that no specific factual matrix has been pleaded and submitted that the court should therefore approach the issue essentially as a matter of language and "by an iterative process against which each suggested interpretation is checked against the provisions of the contract and its commercial consequences investigated" (Wood at ).
- Counsel for the defendant appeared to seek to rely on certain factual matters, namely the need for the defendant to raise a secured loan urgently and to repay the Bridge Loan by 23 July 2016. However it is not apparent that either of these matters have any particular bearing on the construction of clause 3.1, given that at the time of entering into the Side Letter, it was unknown whether the RBL Facility would in fact be put in place and whether an Intercreditor Agreement would be agreed between the lenders under such facility and the claimant.
Purpose of the clause
- Counsel for the defendant relied in particular on the words of Lord Neuberger in Arnold v Britton  UKSC 36:
" When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd  AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions..." [Emphasis added]
- Counsel for the defendant focused in particular on the consideration of the overall purpose of the clause. Counsel submitted that the purpose of the clause was to incentivise the claimant to enter into the Intercreditor Agreement and therefore it was consistent with that purpose that the fee reduction should occur once the Intercreditor Negotiation Period came to an end. Only on the expiry of the Intercreditor Negotiation Period would the defendant know whether the Facility was to continue and be subordinated and the RBL Facility could not be executed until it was known whether the Facility was to be repaid. Counsel for the defendant further submitted that the claimant had not identified any "purpose" for the "very narrow" prepayment window.
- The parties were agreed that the "purpose" of the reduction in the fee was as an incentive to the claimant to agree to the Facility being subordinated pursuant to an Intercreditor Agreement. The Intercreditor Negotiation Period was 365 days, extended in certain circumstances to 455 days. The "prepayment window" therefore has to be viewed in the context of the whole period and the extent to which repayment and drawdown, as a practical matter, could take place within that 10 business day period, has to be viewed against the entire period. In my view the 10 business day period was the mechanism in order to effect drawdown and repayment once the outcome of the negotiations was known: the 10 business day period was not itself the "incentive" for prepayment. Accordingly I reject the submission of counsel for the defendant that the 10 business day period "detracts" from the purpose of the reduction. If the claimant had complied with clause 17 of the Facility Agreement and sought to agree the Intercreditor Agreement but failed to do so notwithstanding the incentive, then the 10 business days is merely the mechanism to allow for the repayment once the process has failed and was not, as the defendant submitted, a "trap" for the defendant.
- Further the question has to be viewed in the wider commercial context of the Facility Agreement, not just clause 3.1. Counsel for the defendant submitted that the claimant's risk was the same on 19 May 2016 as on 18 May 2016 and therefore it made no commercial sense for the reduction in the fee to occur within the fixed period of 10 business days after the expiry of the Intercreditor Negotiation Period. However the fee was part of the overall return which the claimant received in return for lending the funds to the defendant. It would in my view, produce a surprising commercial result if the reduction in the fee occurred with effect from the end of the 10 business day window following the expiry of the Intercreditor Negotiation Period even where the loan was not repaid and the claimant continued to have a commercial exposure by reason of its loan to the defendant under the Facility Agreement. In these circumstances the claimant would be receiving a substantially lower fee even though the Facility had not been repaid and thus its exposure and risk to the defendant under the Facility continued unchanged.
- In relation to other commercial consequences, counsel for the defendant submitted that the claimant's interpretation produced an uncommercial result in that the 10 business day period was unworkable as a period within which to repay the Facility:
i) if it was only known right at the end of the Intercreditor Negotiation Period that no Intercreditor Agreement could be agreed, 10 business days would be insufficient time for the defendant to draw down the RBL Facility and repay the Facility; and
ii) the requirement that the "Final Discharge Date" had to occur within the 10 business day period also meant that it was unlikely that the 10 business days was the period within which repayment had to occur as the occurrence of the "Final Discharge Date" is a matter which was within the control of the claimant and there could be no certainty on the part of the defendant that this would occur within the period.
- Counsel for the claimant submitted that:
i) the 10 business day period would not be insufficient in the normal course where it was known in advance of the end of the Intercreditor Negotiation Period that no Intercreditor Agreement would be entered into and where clause 7.5.1 of the Facility Agreement requires the defendant to give 5 business days' notice to prepay the loan, the additional 5 business days provides a buffer; and
ii) the Final Discharge Date would easily be satisfied if the Facility was repaid in full.
- Counsel for the claimant further submitted that if it had been intended that the reduction to the fee would be retrospective, there would have needed to have been a mechanism for adjusting the fee which had already been paid and no such mechanism was included.
- In my view the objection taken by counsel for the defendant to the subjective nature of the Final Discharge Date is more apparent than real since once the liabilities are discharged, it is difficult to see why the Final Discharge Date would not follow immediately and there seems little scope for subjective disagreement to delay the process.
- Counsel for the defendant submitted that on the defendant's interpretation, any delay by the claimant in determining that the Final Discharge Date had occurred, was "of no practical effect" as the reduction in fee, on the defendant's case, would occur in any event within 10 business days. However this would have the result, which in my view would be uncommercial, that even if the liabilities had not been discharged (such that the Final Discharge Date had not occurred) and thus the claimant's exposure to the defendant under the Facility Agreement remained, the fee would nevertheless be reduced.
- As to whether the 10 business day period could itself be sufficient to allow for prepayment, there are clearly circumstances, namely when the outcome of the negotiations are not known until the very end of the Intercreditor Negotiation Period, in which the 10 business day period would not be sufficient. However as referred to above, the claimant undertook to negotiate the Intercreditor Agreement and "acting reasonably" to agree it within 365 days (or where relevant, 455 days). The overall period within which the negotiation of the Intercreditor Agreement and the new RBL Facility was to take place was much longer than 10 business days. Once the outcome of the negotiations was known, the defendant did not have to wait to execute the RBL Facility. Except where the outcome of the negotiations was only known right at the end of the Intercreditor Negotiation Period, the defendant could execute the RBL Facility as soon as the outcome of the negotiations was known and the defendant could take steps to prepare for the drawdown and prepayment. The defendant could therefore take the necessary steps for repayment and drawdown other than the actual drawdown and repayment which has to occur during the 10 business day period. It is inherent in the nature of a fixed period that at the end of that period something akin to a cliff edge results.
- I have referred above to the retrospective nature of the fee (as asserted by the defendant) not according with commercial common sense given the fact that the risk and exposure of the claimant would extend beyond the end of the Intercreditor Negotiation Period until repayment of the Facility occurred. Counsel for the claimant also pointed to the absence of a mechanism for the repayment of the fee which he submitted would be necessary if the fee reduction was retrospective. However in my view this particular issue is not of any great weight as it is always possible that parties overlook a matter even in a professionally drafted contract such as this.
Conclusion on construction
- It is clear on the authorities that interpretation is not a literalist exercise. On the natural reading of the language of the provision, the defendant's interpretation results in an interpretation which is at best described as odd or unnatural and at worst unworkable. The alternative interpretation, that for which the claimant contends, is in my view the natural meaning of the language albeit that it involves a conclusion that the comma is in the wrong place. For the reasons set out above it seems to me that the comma is not and cannot be conclusive. When the rival interpretations are tested against the commercial consequences including the commercial purpose, it seems to me that the claimant's interpretation viewed objectively is the natural meaning of the language of the provision and when checked against the commercial consequences, it is consistent with business common sense. The possibility of the scenario that the defendant might find itself unable to achieve the reduction in the fee where it does not know until the very end of the Intercreditor Negotiation Period whether or not an Intercreditor Agreement will be executed, does not in my view lead to a contrary conclusion. The task of the court is not to impose a commercial deal; as recognised by Lord Hodge:
"…negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement…"
The court strikes a balance between the indications given by the language and the implications of the competing constructions and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest.
- Weighing the indications given by the language and the implications of the competing constructions, for the reasons discussed above I conclude that the claimant's interpretation is the objective meaning of the language in clause 3.1 of the Side Letter.
- Given my findings on construction, it is not necessary to consider the claimant's case on rectification or estoppel. However, given that the evidence dealt with rectification in particular, I will deal briefly with the case on rectification for mutual mistake.
- The legal principles for rectification for mutual mistake were not in dispute. It was agreed that the elements are that:
i) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
ii) which existed at the time of execution of the instrument sought to be rectified;
iii) such common continuing intention is to be established objectively, that is to say by reference to what an objective observer would have thought the intention of the parties to be; and
iv) by mistake the instrument did not reflect the common intention
(per Etherton LJ in Daventry District Council v Daventry & District Housing Ltd  1 WLR 1333 (CA) at ).
- I also accept the requirement that although the standard is still that of the ordinary balance of probabilities (Swainland Builders Ltd v Freehold Properties Ltd  2 EGLR 71 at ), it is a jurisdiction which is to be exercised "only upon convincing proof that the concluded instrument does not represent the common intention of the parties" (Etherton LJ in Daventry).
- The question for the court is therefore whether, based on the parties' communications up to the conclusion of the Side Letter and objectively assessed, there was a continuing common intention that the Financing Fee would only be reduced to US$1 if the prepayment and final discharge took place within 10 business days of the expiry of the Intercreditor Negotiation Period.
- In my view the following are the material exchanges between the parties which are to be taken into account in determining whether it can be said objectively that there was a continuing common intention:
i) On 14 January 2015 the defendant approved the term sheet. The term sheet provided for a fixed period within which the Facility was required to be prepaid in order to give rise to the reduction in the Financing Fee.
ii) The draft of the Facility Agreement on 7 January 2015 provided for a reduction of the fee to US$0.25 provided that prepayment of the Facility occurred within six months of the execution date of the facility.
iii) On 16 January 2015 the first draft of the Side Letter provided for a fee of US$2 which was reduced to US$0.25 if
"(i) no Intercreditor Agreement is executed by all parties thereto and (ii) all outstanding amounts under the Facility Agreement have been irrevocably paid… in full out of the proceeds of the RBL Facility on or prior to the date falling 180 days from the date of the Facility Agreement, ..." [Emphasis added]
iv) By email of 17 January 2015 from Clyde & Co, the defendant sent a revised version of the Side Letter seeking to replace the six month period with a 24 month period.
v) On 17 January 2015 Mr Egan responded to Mr Akers stating that the extension of the six-month period to 24 months was not acceptable.
vi) On 20 January 2015 Clyde & Co sent an email to Herbert Smith at 19.34. The amended draft of the Side Letter provided for a reduction to US$1 per BBL and changed the proposed 24 months to read:
"provided that the Facility is prepaid in full within 10 business days following the expiry of the Intercreditor Negotiation Period".
vii) On 21 January 2015 at 19.28 Mr Egan email Mr Lowden. The material part of that email read:
"…we understand that you wish us to sign the bridge loan this evening for disbursement tomorrow. In order for us to secure internal approval to sign the bridge this evening, please could you confirm the position on the outstanding commercial points on the MXII facility… which we understand are… the only open points.…
Please can you provide your agreement to the points below:
Under the finance fee letter, references to the RBL are to extend to "the RBL or similar facility" or words to that effect in the context of the source of funds for prepayment of [the claimant] within the relevant time frame that would trigger a reduction of the finance fee to $1 per barrel.
Beyond the points above, we understand that there are no other material commercial or legal amendments that [the defendant] wishes to make to the documentation and the next set of docs to come from [the defendant's] counsel will reflect the above, together with drafting/typo changes only..." [Emphasis added]
Mr Lowden responded by email at 19.42 stating:
"…I can confirm that there are no other material commercial or legal amendments which [the defendant] wishes to make…"
viii) At 00.33 hours on 22 January 2015 Clyde & Co sent a revised version of the draft side letter "showing all changes to the draft circulated by HSF last night". Amongst other changes, the draft added in clause 3.1 the change referred to in the earlier email exchange that evening to the right to repay out of the RBL Facility "or a senior loan facility on materially similar terms to the RBL". The draft also removed the comma after the words "Intercreditor Negotiation Period" so that it read:
"… the Borrower may elect to prepay the Facility in full out of the proceeds of the RBL Facility or a senior loan facility on materially similar terms to the RBL and, following the date of prepayment in full and provided that the Final Discharge Date has occurred, within 10 Business Days following the expiry of the Intercreditor Negotiation Period, the Marketing Fee shall be reduced to $1.00 per BBL."
ix) Although there were changes to the draft side letter after that date, they did not relate to the period within which prepayment had to be made.
x) On 3 February 2015 Herbert Smith responded to an email from Clyde & Co. who were seeking to amend the "third party rights" provision in clause 4.3:
"you will recall that the 10 BD repayment period under the finance fee letter (relating to the reduction of the financing fee) was agreed in order to allow for the five BD period for prepayment under the facility agreement together with a further buffer"
xi) On 4 February 2015 the Side Letter was executed (without any other relevant changes having taken place).
- It is common ground that in determining whether the parties had a common continuing intention, the court is concerned with the objective meaning of "the exchanges crossing the line" (Daventry District Council at ). By 20 January the provision for a 10 business day period had been put forward and by the email exchanges on the evening of 21 January 2015 it is evident that the parties objectively had reached agreement on this point. The negotiations which continued after that date were not in relation to points which would affect the common understanding as to the period within which repayment had to occur; objectively the parties were agreed as to how the reduction would work and the basis and circumstances in which the fee would reduce.
- Counsel for the defendant submits that one cannot "predicate with certainty" a common accord that there was a requirement for prepayment to be made within 10 business days and that the tracked changes draft sent on 22 January 2015 is "incontrovertible evidence" indicating that objectively the parties may have had different points of view.
- I accept that the deletion of the comma was marked on the draft which was sent by the defendant's solicitors and therefore the claimant had notice of the change. However the drafts were sent out by the defendant's solicitors in the early hours of the same night (00.33) following the exchange between the principals during the evening. That exchange by the principals at 19.28 and 19.42 identified what, at that point in the evening, would appear to have been the only outstanding points. Further, the accompanying email from Clyde & Co did not explain or draw attention to any change. Whilst the draft showed tracked changes, the covering email expressly dealt with other matters and one would have expected a significant change at this stage to have been highlighted in the covering email.
- In my view against this background, an objective observer would conclude that the common intention was continuing and objectively there was no intention by this mere change in punctuation in the draft sent out on 22 January 2015, to effect a material change to the Financing Fee which had not been discussed or foreshadowed in any other exchanges and where such change in intention would have had to have occurred in the few hours following the exchange earlier the same evening when the principals had expressed themselves as otherwise in agreement. To conclude objectively that the defendant had changed its mind and intended to make a material change to the terms of the deal and in particular the fee, by the deletion of a comma is in my view not plausible viewed against the evidence of the exchanges passing between the parties.
- As to the period from 22 January 2015 to execution of the Side Letter, there were no relevant exchanges which objectively suggest that the common intention on this point did not continue. In particular, Clyde & Co did not raise objection to the description of the repayment window in Herbert Smith's email of 3 February 2015 (quoted above) immediately before execution of the Side Letter.
- Accordingly had it been necessary to decide the point, I would have held that an objective observer would have thought that the intention of the parties was that prepayment had to occur within 10 business days of the end of the Intercreditor Negotiation Period and should the matter not have been academic, the claimant would have been entitled to rectification on the grounds of mutual mistake.
Unilateral mistake / estoppel
- In the light of my conclusions, it is not necessary for me to consider unilateral mistake or estoppel and I do not propose to do so.
- However I will deal briefly with the issue of subjective intention. This is relevant in relation to rectification for mutual mistake because counsel for the defendant expressly reserved his position on this point should the matter go further. (Counsel for the claimant also submitted that it is relevant to the analysis for rectification for mutual mistake on an objective test if the court finds that the particular circumstances fell within the analysis of the first factual situation of Etherton LJ in Daventry but in the light of my conclusion above I do not need to deal with this in that context.)
- The relevant paragraphs in the Particulars of Claim are paragraphs 43 and 44 and in the Defence paragraph 52. The claimant averred in the Particulars of Claim that the insertion of the comma was not intended or understood by the defendant and/or Clyde & Co to alter the sense or meaning of clause 3.1 and that neither the claimant nor its solicitors understood this drafting change to have had had or to have been intended to have this effect. The relevant paragraph of the Defence stated:
"…It was the intention and understanding of New Age that the drafting change to clause 3.1 in the 22 January draft [that is the deletion of the comma] would alter the meaning of the clause…"
- In cross-examination Mr Lowden was asked about what happened in the period between his email at 19.42 to Mr Egan and Clyde & Co sending out the draft agreements including the Side Letter at 00.33 in the morning. It was put to Mr Lowden that he must have had input into the changes which Clyde & Co made. Mr Lowden responded that he would not have been involved in the drafting. When pressed on the point, he said that:
"Insofar as there was requirement for me to do so, insofar as the team came to me and asked me for points of clarification."
- He was then asked whether he was asked for clarification to which he replied that he did not recall being asked for any and he did not recall being involved in a drafting session later that day.
- Mr Lowden was asked about the individuals who were part of the defendant's "team" and he confirmed that the only other senior individuals at the defendant dealing with this matter apart from him were Mr Stoopin and Mr Akers.
- Mr Lowden was then asked whether he was aware of the comma in clause 3.1 being deleted. He was asked whether he gave direction as to the shape and size or the direction of travel in a way that would lead to that comma being deleted. Mr Lowden responded:
"No, I don't think I would have been involved in commas."
- He was then asked whether he would have been involved in any decision on his part, any instructions to Clyde & Co as to direction of travel or shape and size of the Facility Agreement that led to that change being made. Mr Lowden replied:
"Well, I probably wouldn't, no. As I said, my involvement was shape and size, commercial picture."
- Mr Lowden was asked specifically whether he had changed the shape or size of the deal or the direction of travel in relation to the reduction of the Financing Fee between 19.42 and 00.33. After what in my view was some prevarication and evasiveness, Mr Lowden eventually responded to the question whether he intended between 19.42 and 00.33 to change the direction of travel from where he was going before, which was that the defendant would have to prepay within ten business days or get a final discharge within ten business days, to a new direction of travel which is that the defendant could discharge and prepay when it liked. Mr Lowden said:
"I didn't change my mind from the time I replied to the note to Richard Egan on 21 January at 7.28 pm."
- Mr Lowden was then asked about the pleading in the Defence that the defendant intended and understood that the comma would change the meaning of clause 3.1. He was asked whether Mr Stoopin or Mr Akers had changed their intention. Mr Lowden said that he could not answer for them and that he could not recall whether they had said to him that their intention was changing.
- It was put to him that it was not the intention and understanding of the defendant by deleting the comma to completely change the system of prepayment within a fixed period. Mr Lowden replied:
"I think the clause represents what it's supposed to represent, so if that was intentional, then it was done intentionally."
- Mr Lowden was given an opportunity to clarify his explanation which he failed to do. He denied expressly that the pleading in paragraph 52 of the Defence was false.
- Mr Lowden was pressed on who at the defendant had had the change in intention and understanding. Mr Lowden said that he "assumed" it was either Mr Stoopin or Mr Akers and it may have been both of them as they were supervising the transaction.
- Counsel for the defendant referred me to the well-known extract from the judgment of Leggatt J in Gestmin v Credit Suisse (UK) Ltd  EW 3560 (Comm) concerning the recollection of witnesses. In my view the remarks of Leggatt J have no relevance to the assessment of the evidence of Mr Lowden who was being questioned not on a detail of recollection but on the central issue of the change in the defendant's intention as set out in its pleaded case. Whilst I accept the evidence of Mr Lowden that he was not involved in the drafting of the agreements which were sent out at 00.33 in the morning, it seems obvious that he must have conveyed the outcome of his exchange with Mr Egan either to Mr Stoopin and/or Mr Akers and/or to his solicitors in order for Clyde & Co to reflect the changes which had been agreed on the outstanding points, in the drafts which Clyde & Co sent out later that evening. His unwillingness to accept this is one of a number of instances where Mr Lowden appeared unwilling to answer questions which were straightforward and the response obvious.
- In his evidence, Mr Lowden accepted that he had not changed his understanding and intention in relation to the fee. His evidence concerning the possibility or likelihood that it was either Mr Stoopin or Mr Akers is implausible for several reasons:
i) The exchange which occurred in the evening on the outstanding material points was between Mr Lowden and Mr Egan. Mr Lowden did not give any account of any discussion which he had subsequently with Mr Stoopin or Mr Akers.
ii) Given that Mr Lowden accepted that (as might be expected of the chairman and CEO of the defendant) he retained control of the overall direction and commercial strategy, it is implausible that Mr Stoopin or Mr Akers would have changed the structure of the fee with such material consequences to the shape of the deal without discussing it with Mr Lowden.
iii) There are no contemporaneous emails (either internally or with the lawyers) which would support the evidence that Mr Stoopin or Mr Akers changed their intention and gave instructions to Clyde & Co accordingly.
iv) The pleading in the Defence does not identify the individual at the defendant and having pleaded expressly that the defendant's intention changed, it seems inconceivable that such a pleading would have been advanced without having considered the basis for such assertion and therefore the identity of the person whose intention and understanding changed in the course of that evening.
v) Mr Stoopin and Mr Akers were not called and no explanation was given for this; a surprising omission if in fact one or both of them was the key individual.
- For all these reasons I reject Mr Lowden's evidence that Mr Stoopin or Mr Akers were the individuals at the defendant whose intention and understanding changed in the course of that evening. I therefore find that on the evidence there was no subjective intention on the part of the defendant to change the meaning of clause 3.1 in relation to the Financing Fee by the insertion of the comma in the draft of 22 January 2015.