The case was concerned with whether a clause in an intercreditor deed saying that "Neither lender should challenge or question...the validity of enforceability of any Security" prevented the second ranking creditor from issuing a claim challenging the prior ranking creditor's security documents.

The Applicant so far as relevant sought to argue that the reference in the intercreditor deed to validity is limited to formalities such as execution and registration and so the Applicant could question whether an obligation existed at all and if so whether it was secured by the terms of the security documents.  The Applicant argued that if the obligations of the borrower were outside the scope of what was covered by the security then the Applicant could not be said to be challenging the validity of the security documentation.

On the construction of the intercreditor deed the court concluded that the relevant clause covered the validity of the legal formalities of the security and the effectiveness of the security for the secured liabilities.  That construction of the clause did not prevent the Applicant arguing about the quantum of the secured liabilities.

On the construction of the debenture the court concluded that the definition of 'secured liabilities' also covered what the Applicant tried to contend were sums outside the security. The Applicant had alleged that the sums arose only by restitutionary obligation or implied contract, rather than under the finance documents.

Finally the court concluded that even if its analysis of the documents were wrong, then the Applicant was estopped from contending that the obligations were not secured obligations by the recitals in the intercreditor deed in which the Applicant had acknowledged the advances made by the prior ranking lender.  The recitals were statements of fact agreed by the parties from which neither of them could depart.

Re Arboretum Devon (RLH) Ltd [2021] EWHC 1047 (Ch)

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