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The Court of Appeal has provided helpful guidance on the circumstances in which the English courts will uphold waivers of valuable legal rights. The key is to ensure the contractual wording is sufficiently clear – and the more valuable the right, the clearer the wording must be.
Failure to pay under bonds
A bond issuer failed to make payments when due. Following the default, Unik Bond (which had provided security for the financing) entered into certain agreements with the bondholder, Catbalogan, to prevent enforcement. Those agreements provided that Catbalogan would not demand repayment, bring a claim, or take any enforcement action during a standstill period, during which the issuer would refinance.
The standstill period ultimately expired without the default being remedied. Catbalogan then issued a demand notice through its security agent and, when this was not met, instructed the agent to take enforcement action. Unik Bond sought to challenge enforcement by commencing proceedings in Paris.
Challenging enforcement
The English court granted Catbalogan an interim injunction directing Unik Bond to adjourn the Paris proceedings. Catbalogan then applied for a declaration that Unik Bond had acted in breach of the agreements by commencing those proceedings, and a final injunction requiring withdrawal of the proceedings. Unik Bond resisted the application, claiming the agreements did not prevent it from challenging enforcement of the security.
Catbalogan was successful at first instance, the English High Court holding that Unik Bond had acted in breach of contract. Unik Bond appealed. Applying the well-established rules of contractual interpretation, the Court of Appeal upheld the first instance decision, adopting the judge's reasoning in full – despite the focus of the parties' submissions having changed on appeal.
Giving up valuable rights
Unik Bond submitted that, for a contractual promise to be construed as giving up a party's right to sue, the language must "admit of no other meaning". The court found that this set the bar too high. Although parties do not normally give up valuable rights – such as a right of access to court – without making it clear that they intend to do so, the court will respect the parties' freedom to contract.
The court affirmed the principle that, the more valuable the right, the clearer the language will need to be. But the fact a clause may have two possible interpretations does not mean the court will automatically choose that which avoids a party giving up valuable rights – instead, the two possible interpretations are just the start of the court's enquiry.
Other points of interest
The judgment contains two other findings that may be of wider interest to practitioners:
- The phrase "agree and acknowledge", while often founding a contractual estoppel, is not limited to having such an effect. The meaning will depend on the substance of the clause: in this case, it also created a binding obligation that Unik Bond was required to perform.
- An express agreement to co-operate fully in achieving a certain result includes an obligation not to do anything that would impede the achievement of that result. Taking active steps to prevent or undo the result would be considered the opposite of full co-operation.
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.
