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The Court of Appeal has upheld the enforceability of contractual provisions that purported to limit a party's ability to challenge enforcement action following default, in the context of a cross-border financing arrangement: UNIK Bond SA v Catbalogan Holdings SARL [2025] EWCA Civ 1594.
The decision will be of interest to financial institutions as it illustrates the courts' approach to contractual waivers of rights to challenge enforcement, particularly in agreements negotiated between sophisticated commercial parties. It reaffirms, that as per Federal Republic of Nigeria v JP Morgan Chase Bank NA [2019] EWHC 347(approved on appeal by the Court of Appeal – see our blog post), that parties do not normally give up valuable rights unless they use clear words to show that intention. It also reflects the guidance in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, which encourages the courts, so far as possible, to give effect to contractual terms that the parties have agreed, particularly in cases involving complex financial instruments.
We consider the decision in more detail below.
Background
The background to this case is more fully set out in our previous blog post, here.
In summary, following a bond issuer's payment default, the defendant (which provided security for the debt under the bonds) entered into various English-law governed agreements with the claimant bondholder. In these agreements the bondholder agreed not to demand repayment, bring any claim or take any enforcement action during a standstill period. This was to allow a limited period for the issuer to conclude a refinancing transaction and repay the bonds in full. However, after further repayment failures, the claimant instructed the security agent to take enforcement action. The defendant then brought proceedings in Paris to challenge that enforcement action.
High Court decision
The High Court's reasoning is discussed in our previous blog post, here.
In summary, the High Court found in favour of the claimant. It held that the defendant breached the contract by obstructing the security agent's enforcement action. Accordingly, the High Court granted a final injunction that required the defendant to withdraw the proceedings in Paris.
The defendant appealed.
Court of Appeal decision
The Court of Appeal found in favour of the claimant and dismissed the appeal. It held that the defendant agreed not to challenge enforcement.
The key aspects of the decision which will be of interest to financial institutions are set out below.
Approach to contractual interpretation where a party is giving up "valuable legal rights"
The defendant highlighted that the relevant clause in the additional agreement, which allegedly required them to give up the right to seek protection against illegality in any court or any tribunal in the world, concerned a fundamental right – access to the courts (as recognised in R (Unison) v Lord Chancellor [2017] UKSC 51). On that basis, the court should only interpret the additional agreement as removing that fundamental right if its wording is completely clear and cannot reasonably mean anything else. The defendant argued that the language in the additional agreement did not meet that standard.
The Court of Appeal rejected the defendant's argument. The Court of Appeal reaffirmed that any contractual interpretation exercise starts with the established principles summarised in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2. These principles emphasise the importance of ascertaining the contract's objective meaning and giving weight to textual analysis, especially given the professionally drafted documents in the case. The Court of Appeal also acknowledged the principle that there is a presumption that parties do not normally give up valuable rights unless they use clear words to show that intention (as per Federal Republic of Nigeria).
However, in finding for the claimant, the Court of Appeal distinguished Unison on the basis that the case concerned a unilateral action by the state to curtail employee's access to the employment tribunal. This could be contrasted with the present case, which was concerned with the true interpretation of a contract that the parties freely made. The Court of Appeal highlighted that the courts should, so far as possible, give effect to contractual terms that the parties have agreed particularly in cases involving complex financial instruments (as per Belmont). The Court of Appeal further noted that many contracts commonly curtail or even exclude what would otherwise be the parties' fundamental right of access to a court (e.g., through arbitration clauses, or exclusive jurisdiction clauses).
The Court of Appeal concluded that, considering the presumption that parties do not normally give up valuable legal rights without clear words showing that intention, it must determine the contract's true meaning by applying all linguistic, contextual and purposive tools. If, as a result, it found a clear answer, it should give effect to that interpretation, even if doing so may deprive a party of a right they might otherwise have had. Parties may choose to make an agreement which has that effect (as per Scottish Power UK Plc v BP Exploration Operating Company Ltd & Ors [2016] EWCA Civ 1043).
Did the defendant agree not to derogate from enforcement action?
The Court of Appeal then considered the key provisions in clause 5 of the additional agreement, where the defendant allegedly agreed not to derogate from enforcement action, as follows:
"Subject to the terms of the Standstill Agreement, the Company Parties [the Company, the Parent and the defendant]:
(a) undertake to co-operate fully with the Bondholder and the Agent in relation to any Enforcement Action they may wish to take at any time (including without limitation any preparatory steps they may wish to take while the Standstill Agreement is in force);
...
(d) agree and acknowledge that no Company Party shall contest, or seek to contest or otherwise prevent, the validity of, or exercise by the Agent of its rights under, any Finance Document, including any Security Document, including, without limitation, the approach to the appointment of the "Expert" under the Lux Share Pledge and/or the Lux Receivables Pledge set out in paragraph (c) above, and the Company Parties hereby irrevocably release any rights or claims they may have now or in the future in this regard."
The Court of Appeal underlined that it did not accept that the phrase "agree and acknowledge" in clause 5(d) automatically created a contractual estoppel. In its view, the substance of the agreement mattered. Here, the parties agreed that no Company Party "shall contest, or seek to contest or otherwise prevent" the security agent's exercise of rights under any finance document. The use of the word "shall" was imperative and referred to future conduct. It clearly constituted a promise about the future, not a statement about the situation at or before the making of the additional agreement. The Court of Appeal agreed with the High Court that clause 5(d) not only prevented the Company Parties from contesting in the future that rights were not validly executed but also imposed an obligation on the Company Parties not to interfere with enforcement. It therefore created a binding obligation that the Company Parties must perform.
The Court of Appeal went on to highlight that the obvious way to contest the validity of an action by the security agent was to contest that action in court. In the absence of some other agreed dispute resolution mechanism, the Court of Appeal found it impossible to give that phrase any other meaning. In the Paris proceedings, the defendant sought to contest the exercise of rights under the bonds and a French-law governed fiducie agreement. Yet that was exactly what the defendant had promised not to do. The defendant had promised not to contest action by the security agent, and also not to seek to challenge such action, whether before or after the action. The promise did not include any geographical limitation. Further, while clause 5(d) did not prevent challenges to fraudulent or dishonest conduct, those scenarios did not arise in the present case.
The Court of Appeal also agreed with the High Court that clause 5 aimed to prevent the Company Parties from challenging enforcement action after it occurs, whether on the ground of invalidity, breach of the Finance Documents, or unlawfulness. Further, to interpret clause 5 as requiring an enforcing party to prove the lawfulness of its actions, that interpretation would deprive the clause of much of its commercial effect. Although this meant that the Company Parties were giving up their rights of recourse to the court to adjudicate on the lawfulness of what an enforcing party might do, both the language and the circumstances were sufficiently clear that the parties had agreed to this as the price of giving the defendant the chance to refinance its subsidiaries' debts.
Finally, the Court of Appeal emphasised that if a party expressly agrees to co-operate fully in achieving result X, that party must not to do anything that would impede the achievement of result X. In its view, taking active steps to prevent or undo result X constituted the very reverse of full co-operation.
Accordingly, the Court of Appeal found in favour of the claimant and dismissed the appeal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
