The High Court has granted summary judgment on a claim for payment under two loan agreements. In granting judgment, the court considered (but ultimately rejected) the Defendant's defences of equitable set-off and breach of the implied duty of cooperation. This decision is notable for the court's analysis of the operation of no set-off clauses, and its willingness to found judgment as a result of them on a summary basis.

Background

The claim arose out of a €21 million mezzanine facility granted by AMC III Purple B.V. (the Claimant) to the Defendant, Amethyst Radiotherapy Limited (the "Mezzanine Loan"). Further finance was provided under a supplemental loan agreement a year later in the sum of €4 million (the "Supplemental Loan"). The finance was provided in the context of the Defendant's desire to expand its radiotherapy centre business by entering into a long term partnership with an investor.

The Defendant claimed that in recent years there had been a number of substantial disputes, with the Claimant refusing to authorise expenditure resulting in an adverse effect on the business. The ongoing dispute resulted in an arbitration being commenced in Cyprus in May 2019.

Against this backdrop, the Defendant had failed to pay interest under the Mezzanine Loan when it fell due, and failed to repay the principal sum and interest under the Supplemental Loan. 

The Claimant applied for summary judgment as follows:

• In respect of the Mezzanine Loan, for a declaration that an Event of Default had arisen and that the Defendant pay the outstanding interest; and
• In respect of the Supplemental Loan, for a declaration that an Event of Default had arisen and that the Defendant pay the principal outstanding and interest.

Analysis

The court had no difficulty in finding that the Events of Default had arisen. Payment of interest had not been made by the relevant dates. Each non-payment clearly constituted an Event of Default, and there had been no waiver in writing by the Claimant. The court examined in more detail, however the three main defences raised by the Defendant, namely: 1) that it was entitled to make an equitable set-off in respect of the various claims it had against the Claimant; 2) that the Claimant had breached the implied duty of cooperation and effectively prevented the Defendant from performing its obligations; and 3) that the Supplemental Agreement was subordinated and postponed to the Mezzanine Agreement, with the effect that the Supplemental Agreement was only intended to be repayable once the Mezzanine Agreement had been repaid in full.

Equitable set-off

The relevant clause in the Mezzanine Loan agreement stated: "All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim". This exact wording (from the LMA Standard Form) has been considered in previous case law (Credit Suisse International v Ramot Plana and Cargill International Trading PTE Ltd v Uttam Galva Steels Ltd) and upheld as excluding both legal and equitable set-off. The court found that the particular reference in this wording to the "calculation", as well as the actual making of the payment, precluded any argument that it was only sums which are "due", against which there could be no set-off.

The Supplemental Agreement wording was less prescriptive: "Each payment to be made by the [Defendant] under this Agreement will be made in full, without any set-off or deduction." However, the court again found that it defeated the Defendant's attempt to set off its claims. Here, it construed the use of the word "any" as excluding both legal and equitable set-off.

Breach of the implied duty to cooperate

The Defendant's second line of defence was that the Claimant, by refusing to permit refinancing of the sums due under both agreements, effectively prevented the Defendant from complying with its obligations. Pursuant to the principles established in the 1881 case of Mackay v Dick, the Defendant argued that the Claimant could not now complain about its failure to fulfil its obligations. Again, the court gave this argument short shrift, holding that payment of interest was neither expressly nor impliedly dependent on cooperation by the lender to "the implementation of alternative financing possibilities for the borrower."

Subordination of the Supplemental Agreement

Finally, the Defendant argued that a clause in the Supplemental Agreement, providing that: "Notwithstanding an Event of Default… the Claimant shall only apply proceeds recovered from the [Defendant] in repayment of the Loan after all amounts outstanding under the …mezzanine facility…have been repaid in full", meant that the Supplemental Agreement was not repayable until the Mezzanine Agreement had been repaid in full.

The court, perhaps unsurprisingly, was unpersuaded by this argument. It held that whilst the precise intention of the clause might be debatable, it did not operate so as to prevent recovery under the Supplemental Agreement until the Mezzanine Agreement had been repaid.

Conclusion

The Claimant succeeded in obtaining summary judgment but not without a detailed analysis of precisely what the contractual wording in its loan agreements meant. While the judgment follows previous decisions in relation to no set-off clauses, it provides further guidance on the extent to which the courts will be willing to interpret the meaning of the clause even on a summary basis.  It also serves as a reminder that where multiple agreements between the same parties exist, careful provision for the interrelationship between documents is crucial.