Astor Management AG v Atalaya Mining Plc & Ors

These are appeals against judgments and orders of Leggatt J (‘the Judge’) dated 6 March 2017, ‘the principal judgment’, [2017] EWHC 425 (Comm), and 31 March 2017 ‘the supplementary judgment’, [2017] EWHC 680 (Comm), in which he determined a number of questions relating to the proper construction of a contract between the parties dated 30 September 2008, which was subsequently restated and novated (‘the Master Agreement’). Under the terms of the Master Agreement, the respondents (whom it is convenient to refer to collectively as ‘EMED’) purchased the interests of the appellants (‘Astor’) in a copper mine, known as the Rio Tinto Project in southern Spain (‘the Project’). The mine was not being operated at the time but had extensive proven and provable reserves of copper.

Under the terms of the Master Agreement Astor sold its 49% interest in the Project to EMED and relinquished its claims to the remaining 51%. Astor received shares in the first respondent (‘Atalaya’) and was to be paid €43.8 million (subsequently increased by amendment to almost €59.8 million) on a deferred basis over six years (‘the Deferred Consideration’). The nature of the contractual trigger for the payment of the Deferred Consideration is one of the issues that arises on the present appeal.

In summary, the payment of Deferred Consideration under Schedule 2 paragraph (b) was triggered by two events. First, the grant of authorisation from the local authority (the Junta de Andalucia) to EMED to restart mining activities (‘permit approval’); and second, the securing by EMED of a ‘Senior Debt Facility’ in a sum sufficient to enable the restart of the mining operations (‘the senior debt facility’).

It was Astor’s case at trial that, since mining restarted in July 2015, EMED’s obligation to pay the Deferred Consideration had been triggered. EMED accepted that by July 2015 permit approval had been given by the Junta; but argued that no senior debt facility had been obtained. On the contrary the sums required to restart the mine had been procured by EMED by means of intra-group loans by which the necessary funds were made available to the second respondent (‘EMED Tartessus’), which owned the Rio Tinto Project. It was this injection of funds which enabled the mining operations to restart and not any senior debt facility. It followed that Astor was not entitled to the Deferred Consideration. The Judge accepted EMED’s argument and that conclusion is the subject of Astor’s appeal. Mr Smith QC submits that the Judge should have found that the obligation to pay the Deferred Consideration had been triggered and that in reaching the contrary conclusion he was in error.

Astor’s first ground of appeal is that the Judge should have found that, in circumstances where there was no need for a Senior Debt Facility, the operation of that particular contractual trigger was rendered unnecessary and the Deferred Consideration became due and payable. Astor characterised this basis of recovery as the proper interpretation of the relevant term of the Master Agreement and the application of the ‘principle of futility’. Its second ground of appeal is that the procuring of the necessary finance other than by means of a senior debt facility was never contemplated by the Master Agreement and that, in such circumstances, the intra-group injection of funds should be treated as the second trigger event. Astor’s third ground of appeal is that on proper analysis the intra-group loans constituted senior debt facilities.

As a matter of history, Astor had an alternative case which was that, if the obligation to pay the Deferred Consideration had not been triggered due to the fact that no senior debt facility had been obtained, this was due to EMED’s breach of its contractual obligation under clause 6(f) of the Master Agreement to use ‘all reasonable endeavours’ to obtain the senior debt facility and to procure the restart of mining activities in the Project on or before 31 December 2010. The Judge held that there was a contractual requirement to use best endeavours, but that EMED was not in breach of the obligation (principal judgment [59]-[96]). There is no challenge to that finding on this appeal. The argument before us focussed primarily on the proper construction of a number of the contractual provisions.

The Judge also held in favour of Astor that, on the correct construction of clause 6(g)(iv) of the Master Agreement and subject to certain exceptions, EMED Tartessus, which operates the mine, was not permitted to repay any monies to the third respondent (‘EMED Holdings’) in respect of its loan from the latter, nor to make any distributions until the Deferred Consideration had been paid. He also held that EMED Tartessus was required to apply any excess cash towards paying the Deferred Consideration to Astor; see paragraphs 100-110 of the principal judgment.

The first appellant is the parent company of the Astor group, a private investment group operating from Switzerland. The second appellant is a wholly-owned subsidiary of the appellant.

The first respondent, formerly known as EMED Mining Public Ltd, is a Cypriot company whose shares are listed on the Alternative Investment Market of the London Stock Exchange. It is the ultimate parent company of the other three respondents: EMED Tartessus, EMED Holdings and EMED Marketing. EMED Tartessus is a Spanish company which both owned and operated the Rio Tinto copper mine.

The Judge set out the background to the Master Agreement and its evolving terms at [5]-[33] of the principal judgment, and for present purposes, the position can be summarised as follows.

Astor first became involved in the project in 2004, when it lent money to the Spanish company which then owned the project, Mantenimiento en General del Sur, Mantesur Andevalo SL (‘MSA’). The copper mine was dormant at the time but potentially very valuable, with 123 million tonnes of proven and probable reserves. Astor made loans to MSA amounting in total to some €6.7 million for the purpose of restarting mining operations. The loans were secured by a pledge over the entirety of MSA's shares. The pledge was governed by Spanish law. Astor also entered into a contract known as the ‘life of mine contract’ with MSA's parent company, which gave Astor the right to purchase all the copper produced by the Project at a preferential price.

In 2006 Astor enforced its pledge. MSA disputed Astor's right to do so and there was litigation in the Spanish courts. While the litigation was continuing, MSA purported to transfer the project to EMED Tartessus in exchange for a 49% shareholding in EMED Tartessus, the remaining 51% of the shares in EMED Tartessus being held by EMED Holdings.

Ultimately, Astor was successful in the Spanish litigation and was declared to be the owner of all of MSA's shares. The transfer of the Project by MSA to EMED Tartessus was therefore open to challenge on the ground that it was made without authority.

It was against this background that Astor and the EMED companies entered into the Master Agreement dated 30 September 2008. The broad commercial effect of this was that Astor gave up its 49% stake in EMED Tartessus and its right to claim ownership of the Project in return for an agreement to receive consideration of up to €63.3 million, payment of most of which was deferred. This reflected the fact that the EMED companies did not have the resources available to pay a sum commensurate with the value of Astor's interest in the Project in cash and that, until mining restarted, no revenue would be generated from which payments could be made to Astor.

The Master Agreement was amended in March 2009 and again in November 2009. Following these amendments, the Deferred Consideration provisions in Master Agreement provided as follows:

Clause 6(b):

The Deferred Consideration shall be payable by EMED Tartessus in accordance with the terms and conditions set out in Schedule 2 in consideration of [Astor] providing the acceptances set out in Clause 3, the agreements set out in Clause 4 and the indemnities and undertakings set out in Clause 11 and in consideration for the agreement of [Astor Resources AG] not to pursue any potential litigation as set out in Clause 11.(l).

Schedule 2(a) provided for the Deferred Consideration to be paid in 18 instalments over 6 years, with the first instalment of €7,313,897.11 to be paid within 20 business days of the First Payment Date (see schedule 2(d). Schedule 2 also provided that the Deferred Consideration might be increased by ‘Up-tick Payments’ of €662,500 per instalment after the first two instalments (and up to €2,650,00 for each of the first two instalments), depending on the prevailing copper price (see schedule 2(c)). The relevant wording was:

In addition to each instalment of the Deferred Consideration, EMED TARTESSUS may also be required to pay to [Astor] an additional amount (an “Up-tick Payment’) as follows:

(i)

for instalments 1 and 2 of the Deferred Consideration EMED TARTESSUS shall be required to pay to [Astor] an Up-tick Payment of €662,500 for every 3-month period …if the Average Copper Price per Tonne for such 3 month period is equal to or exceeds €6,613.86,

Schedule 2 (b) defined the First Payment Date as:

… the date on which (i) the authorisations from the Junta de Andalucia to restart mining activities in the Project are granted to EMED or any member of the EMED Group (‘Permit Approval’) and (ii) EMED or any other member of the EMED Group secures senior debt finance and related guarantee facilities for a sum sufficient to restart mining operations at the Project (hereinafter the ‘Senior Debt Facility’) and the relevant member of the EMED Group is entitled to draw down funds pursuant to the Senior Debt Facility.

Clause 6(f) was in these terms:

Each of EMED, EMED Holdings and EMED Tartessus undertakes to use all reasonable endeavours to obtain the Senior Debt Facility with EMED Tartessus as borrower and to procure the restart of mining activities in the Project on or before 31 December 2010 …

Clause 6(g)(iv) provided:

In addition to the consideration payable to Astor, the Master Agreement also provided in clause 7 that the parties would enter into a separate Agency Agreement, by which EMED would pay ‘commissions’ to Astor on sales of copper totalling between €42.8 and €79.2 million, depending on prevailing copper prices.

Contrary to the parties’ expectations, Permit Approval by the Junta was repeatedly delayed and was not ultimately obtained until 16 July 2015. During the period of delay EMED incurred significant costs in attempting to obtain the permits and maintaining the Project, totalling more than €73 million. It met this cost from its own and its shareholders’ resources.

By the end of 2014, as a consequence of the costs of the delay, EMED was critically short of cash. It raised £13 million from two of its shareholders in August 2014 but this was only enough to last until December 2014.

In those circumstances, on 24 December 2014 EMED accepted a US$30 million three-month bridging loan from its three major shareholders: Hong Kong Xiangguang International Holdings (‘XGC’), Orion Resources Partners (USA) LP (‘Orion’) and Trafigura Beheer BV (‘Trafigura’). In March 2015 these lenders agreed to extend the repayment date to 30 June 2015.

On 28 May 2015, EMED agreed a £80 million share issue to XGC, Orion, Trafigura and an outside investor, Liberty Metals and Mining Holdings LLC. In addition to the US$80 million invested by XGC, Orion, Trafigura and Liberty Metals, a further US$15 million was raised from other investors. The total amount raised was therefore US$ 95 million. The funds raised were provided by Atalaya Mining to EMED Holdings and by EMED Holdings to EMED Tartessus pursuant to two intra-group loan agreements. This funding was sufficient to enable the restart of commercial production at the Project.

As the Judge noted, the first of the two triggering events in schedule 2 paragraph (b), Permit Approval, was satisfied. However, unless the finance secured in May/June 2015 were properly characterised as senior debt facility (an issue that arises under the third ground of appeal), the second condition had not been fulfilled, with the result that the First Payment Date had not occurred. Astor’s argument was that this made no commercial sense: both conditions were to be read as applicable only for as long as they remained necessary steps towards restarting the mining operations. If a senior debt facility was not required because sufficient sums to restart mining operations were raised in other ways, compliance with that condition would be pointless and unnecessary, and the only precondition to, or trigger for, payment of the Deferred Consideration would be the grant of Permit Approval.

Before the Judge and on this appeal, Astor relied in support of this contention on what it described as the ‘principle of futility’ in the construction of contracts: if the fulfilment of a precondition to the accrual of a contractual right becomes futile or unnecessary, the courts do not insist upon its performance.

The Judge reviewed the cases relied on by Astor. At [44] of the principal judgment he concluded that there was no such ‘principle of futility’ and that the cases relied on by Astor did not support the existence of such a principle which was, in his view, inconsistent with legal doctrine.

The starting point for the appellants’ argument is Barrett Bros (Taxis) Ltd v. Davies [1966] 1 WLR 1334 (CA). In that case an assured had failed to comply with a condition of a motor insurance policy requiring him to forward to the insurers any notice of prosecution arising from an accident. The policy provided that fulfilment of the policy conditions was a condition precedent to the liability of insurers. In the County Court, the judge held that the insurers were entitled to repudiate liability because the assured had not complied with the condition. The Court of Appeal disagreed. Lord Denning MR (with whom Danckwerts LJ agreed) gave three reasons for his decision. First, since the insurers had all the relevant information, the assured was absolved from doing more. Lord Denning put the matter as follows (at p.1339E-F):

Seeing that they had received the information from the police, it would be a futile thing to compel the [insured] to give them the self-same information. The law never compels a person to do that which is useless and unnecessary.

The second reason given by Lord Denning was that the insurers had by their subsequent conduct waived the right to rely on the assured's breach. On this point all three members of the court were in agreement. Apart from these two reasons, Lord Denning added (at p.1340A-B) that, as the condition had been inserted for the protection of insurers so that they should know in good time about the accident and any consequences, and since they had the information from another source so that they were not prejudiced by the failure of the assured to tell them, they could not rely on the condition to defeat the claim. This additional reason has been referred to as the ‘prejudice point’.

Salmon LJ disagreed with the first reason and implicitly with the third, but agreed with the majority that the insurers had waived compliance with the condition on the facts.

In Pioneer Concrete (UK) Ltd v. National Employers Mutual General Insurance Association Ltd [1985] 1 Lloyd’s Rep 274, Bingham J (as he then was) considered the decision of the Court of Appeal in the Barrett Bros case and the subsequent decisions in Farrell v. Federated Employers Insurance Association Ltd [1970] 1 WLR p.428 (McKenna J) and p.1400 (Court of Appeal: Lord Denning MR, Megaw LJ and Sir Frederick Sellers); and CVG Siderurgicia del Orinoco SA v. London Steamship Owners Mutual Insurance Association Ltd (The Vainqueur José) [1979] 1 Lloyd’s Rep 557 (Mocattta J). He concluded at p.281:

I find no support in any later authority for the requirement of prejudice and, as a matter of general contractual principle, it appears to me that this cannot be required of an insured before he relies on a breach of a condition precedent in the policy.

It is clear that Bingham J was dealing with the third reason referred to in Lord Denning’s judgment in the Barrett Bros case: prejudice.

At [46] of the principal judgment in the present case, the judge said of the passage in the judgment of Lord Denning MR set out above:

In so far as these remarks express a general principle of ‘futility’, however, they have been interpreted in later cases as obiter dicta which ought not to be followed. Where an insurance policy stipulates that complying with a requirement to provide notice of a claim or specified information to insurers is a condition precedent to their liability, there is no principle that the condition is only breached if the insurers have been prejudiced by the failure to comply.

In that passage the Judge may have conflated two of Lord Denning’s reasons: ‘the principle of futility’ and the prejudice point.

Mr Smith referred to two further authorities in support of the principle of futility. The first was an observation of Gloster J in Waterfront Shipping Co Ltd v. Trafigura (the Sabrewing) [2007] 2 CLC 763 at [34]:

That principle can be articulated as follows: if, for example, a particular contractual requirement was not fulfilled by the claimant, but in circumstances where the fulfilment of that requirement would have added nothing of value to either party, then the requirement would be futile, and the claim would not be barred.

The second was the observation of Christopher Clarke J in Mansel Oil v. Troon Storage Tankers [2008] 1 CLC 945 at [65], where he considered that the Barrett Bros case was:

… authority for the proposition that, in certain cases, compliance with a condition precedent to the exercise of rights is not required if it is futile, useless and unnecessary.

In that case the issue was whether a charterer was entitled to cancel a charterparty despite its failure to nominate a delivery port. Christopher Clarke J held that it would have been futile to have done so because the vessel was not and could not have been ready, if such a port had been nominated.

The passage from the judgment of Christopher Clarke J is referred to in §13.10 of Lewison, Interpretation of Contracts, 6th edition (2015) where the Barrett Bros case is considered in these terms:

Even if notice provisions are conditions of the contract, the condition need not be complied with where it would be futile, useless and unnecessary to do so.

In our view the issue is not so much whether the futility principle exists, but as to what it involves. If, in the present case, a Spanish statute had been passed after November 2009 which provided that Permit Approval by the Junta de Andalucia was no longer required, the first condition precedent to the payment of the Deferred Consideration would simply have fallen away and become inoperative; and it would have been no defence to say that the first condition had not been complied with. The expression ‘futility principle’ is perhaps misleading. In the present context it reflects an approach to construction which recognises that in certain circumstances (depending on the terms of the contract) a condition precedent may, as a matter of construction and in the light of subsequent events, no longer apply or may cease to have effect.

At [49], the Judge considered that the real argument was one of construction:

Whether a contractual obligation has arisen in any given case in principle depends on what the particular contract says, interpreted in accordance with the ordinary rules of contract interpretation. There is, in my opinion, no principle of law or even interpretive presumption which enables a contractual precondition to the accrual of a right or obligation to be disapplied just because complying with it is considered by the court to serve no useful purpose.

Subject to the qualification expressed in [33] above, we agree. We turn then to the second ground of appeal.

Mr Smith submitted that the parties to the Master Agreement never envisaged that the funds required to restart mining operations at the Project would be secured other than by a Senior Debt Facility. In circumstances where an event occurs that was neither intended nor contemplated by the parties to a contract, he argued that the court should give effect to their presumed common intention. In the present case, had they contemplated this possibility, the parties would plainly have accepted that the only precondition to payment of the Deferred Consideration would be the grant of Permit Approval. It makes no commercial sense and the parties would never have agreed that EMED should deprive Astor of the Deferred Consideration by securing an alternative source of funding. In such circumstances, the court should construe the terms of Schedule 2 paragraph (b) so that the Deferred Consideration be paid ‘once EMED have raised finance sufficient to re-start minding operations, whether or not that finance takes the form of a senior debt facility.’

As the Judge noted, the starting point for this proposition is a passage from the judgment of Lord Neuberger in Arnold v. Britton [2016] AC 1619 at [22]:

… in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention.

The case relied on in support of this proposition was Aberdeen City Council v. Stewart Milne [2011] UKSC 56. Although we were taken by Mr Smith to the opinion of the Lord Ordinary (Lord Glennie) [2009] CSOH 80; the opinion of the Inner House [2010] CSIJ 81 (Lords Clarke, Hardie and Drummond Young); and the judgment of the Supreme Court [2011] UKSC 56, it is clear from the judgment of Lord Hope DPSC in the Supreme Court at [1], that the issue was one of construction of the contract. That issue was identified shortly and conveniently in the judgment of Lord Hodge in Arnold v. Britton (above) at [71].

In Aberdeen City Council v. Stewart Milne Group Ltd 2012 SC (UKSC) 240 the internal context of the contract provided the answer. The sale contract provided for the payment to the vendor of a further sum on disposal of the land by the purchaser. Two of the methods of disposal required the parties to ascertain the market value of the property on disposal in calculating the additional payment and the other used the ‘gross sales proceeds’ in calculating that payment. The purchaser sold the site at an under-value to an associated company, a circumstance which on the face of the contract the parties had not contemplated. The courts at each level interpreted the provision, which used the gross sales proceeds in the calculation, as requiring a market valuation where there was a sale which was not at arm's length. They inferred the intention of the parties at the time of the agreement from the contract as a whole and in particular from the fact that the other two methods of disposal required such a valuation. While this line of reasoning was criticised by Professor Martin Hogg ‘Fundamental Issues for Reform of the Law of Contractual Interpretation’ (2011) 15 Edin LR 406 on the ground that it protected a party from its commercial fecklessness, it seems to me to be the correct approach in that case as the internal context of the contract pointed towards the commercially sensible interpretation.

Although not cited in either Arnold v. Britton or Aberdeen City Council v. Stewart Milne, the principle set out by Lord Neuberger had been articulated by Chadwick LJ in Bromarin AB v. IMD Investments Ltd [1999] STC 301 at 310F-J, upon which Mr Smith relied:

… it is commonplace that problems of construction, in relation to commercial contracts, do arise where the circumstances which actually arise are not circumstances which the parties foresaw at the time when they made the agreement. If the parties have foreseen the circumstances which actually arise, they will normally, if properly advised, have included some provision which caters for them. What that provision may be will be a matter of negotiation in the light of an appreciation of the circumstances for which provision has to be made.

It is not, to my mind, an appropriate approach to construction to hold that, where the parties contemplated event ‘A’, and they did not contemplate event ‘B’, their agreement must be taken as applying only in event ‘A’ and cannot apply in event ‘B’. The task of the court is to decide, in the light of the agreement that the parties made, what they must have been taken to have intended in relation to the event, event ‘B’, which they did not contemplate. That is, of course, an artificial exercise, because it requires there to be attributed to the parties an intention which they did not have (as a matter of fact) because they did not appreciate the problem which needed to be addressed. But it is an exercise which the courts have been willing to undertake for as long as commercial contracts have come before them for construction. It is an exercise which requires the court to look at the whole agreement which the parties made, the words which they used and the circumstances in which they used them; and to ask what should reasonable parties be taken to have intended by the use of those words in that agreement, made in those circumstances, in relation to this event which they did not in fact foresee.

We would accept the approach to construction set out in the last sentence, subject to the qualification in the judgment of Lord Neuberger in Arnold v Britton (above) at [22]. First, the court must be satisfied that the subsequent event (here the alternative source of funding) was neither intended nor contemplated; and second, the court must also be clear as to what the parties would have intended. It is only if those points are kept in mind that the court avoids being drawn into construing a contract with a view to achieving a broadly sensible commercial bargain or in the telling words of Professor Hogg referred to in Lord Hodge’s judgment in Arnold v. Britton, protecting a party ‘from its commercial fecklessness’.

So far as the first part of the two-stage test is concerned, the Judge at [51] rejected the argument that the possibility of restarting the mining other than by senior debt finance was not within the contemplation of the parties when they made their contract (as could be said of the possibility that Spanish law might change so as to remove the need for authorisations from the Junta). The Master Agreement had all the hallmarks of a professionally drafted contract made by sophisticated commercial parties. Such parties would know and have well in mind that senior debt finance was not the only way of funding a project of this kind. Other forms of finance which were in fact used by EMED at various times included issuing new shares and convertible loan notes, entering into off-take agreements and obtaining unsecured loans from shareholders. If the intention had been that the Deferred Consideration would become payable once finance of any kind in a sum sufficient to restart mining operations was secured, then the agreement would have said so. Instead, the language specifically made payment conditional on securing a particular type of finance in the form of a senior debt facility. That was plainly a deliberate choice.

In our view, the Judge’s conclusion was fully justified. We would add that the possibility that the financing might not be by senior debt is reinforced by the obligation to use best endeavours to ensure that it was, pursuant to clause 6(f) of the Master Agreement. There must plainly have existed a possibility that despite best endeavours this was not possible to achieve and that financing would have to come from another source.

The Judge then went on to consider the argument that confining the trigger for the payment of Deferred Consideration to the provision of a Senior Debt Facility alone was unreasonable and nonsensical. He rejected the argument. To the contrary, he found that there was a clear commercial logic to it. Part of the consideration payable under the Master Agreement took the form of shares allotted to Astor. If more shares were subsequently issued to other investors in order to finance the Project, the value of Astor's shares would be diluted. This is in fact what happened. Astor's shareholding in EMED was reduced from 16% to less than 1% as a result of the equity fundraising that took place. It was therefore advantageous from Astor's point of view to require senior debt finance to be used. The agreement was structured to seek to achieve this and to give Astor a veto over other options. As noted above, the agreement included a contractual obligation by the EMED companies to use all reasonable endeavours to obtain the Senior Debt Facility; it prevented EMED Tartessus from granting any encumbrance over the Project assets without Astor's consent other than as required by the provider of the Senior Debt Facility; and (in the original version before the agreement was amended in November 2009) it prohibited EMED Tartessus from borrowing any amount other than pursuant to the Senior Debt Facility without Astor's consent. These factors all pointed to the agreement being carefully constructed so as to ensure that, unless Astor agreed otherwise, the only way in which the finance needed to restart mining operations could be raised was by securing a Senior Debt Facility which would trigger the payment to Astor of the Deferred Consideration.

However, as the Judge further noted, the Master Agreement had been amended in November 2009 to allow EMED Tartessus to borrow from other members of the EMED Group without requiring Astor's consent. Such borrowing was necessary since without it EMED Tartessus had no means of paying the ongoing costs of the Project. Moreover, as the Project was the only significant asset of the EMED Group, Astor must have recognised that it had few means of raising money to lend to EMED Tartessus and that one option, and probably the only realistic option unless or until senior debt finance could be obtained, was to issue further shares. There was always a possibility therefore that the EMED Group, without being able to obtain a senior debt facility, might nevertheless be able to raise enough money to finance the restart of mining by issuing further shares in EMED and lending the proceeds to EMED Tartessus through an EMED Group loan. This was a possibility that existed by reason of the structure of the agreement to which Astor was a party. It is not a reason to re-write the agreement by dispensing with a specific requirement (the securing of a Senior Debt Facility) which was an express precondition of Astor's right to receive the first payment of the Deferred Consideration. In our view, the Judge was right to reject Astor's argument that the ‘First Payment Date’ had arisen despite there being no senior debt finance. That argument was inconsistent with the express language and clear intention of the Master Agreement.

This answer to the first part of the two-stage test, we described in [40] above, effectively provides the answer to the second part: whether the court could be clear that the parties would have intended the Deferred Consideration to be triggered if the restart of the mine had been financed by an inter-group loan. However, Mr Moriarty QC made further persuasive points as to why the court could not be clear as to what the parties would have agreed. His over-arching point was that the nature of financing by way of equity on the one hand and senior debt on the other are so different in commercial terms that it would have made no commercial sense for the parties to agree that the same consideration be paid in each case. The two means of raising finance were very different in terms of risk, potential cost and appropriate reward.

So far as Astor was concerned, if money were raised by senior debt, clause 6(g)(iv)(B) required that the senior debt had to be serviced before any excess cash could be deployed in paying Astor. If the financing were obtained by equity, the excess cash could be paid sooner since there would be no debt to be serviced. Furthermore, Astor’s financial risk would be reduced if the funds were raised by equity, since a bank lender under a Senior Debt Facility would have priority in case of insolvency, whereas if the financing were raised by means of equity the shareholders would stand equally.

So far as EMED was concerned, the converse applied; but in addition, there would be advantages in raising funds by means of a Senior Debt Facility since it would give the borrower the opportunity to invest the borrowed money with a consequent benefit to shareholders. On the other hand, if more shares were issued existing shareholders would benefit less from any increase in the company’s value.

The strength or otherwise of these arguments can be debated; but this is not in our view a case in which the court can be confident as to what the parties would have intended if they had envisaged what in fact occurred.

For these reasons we reject Astor’s second ground.

Astor’s argument is that the EMED Group loans by which money from the equity fundraising was made available to EMED Tartessus are to be regarded as, or equivalent to, a Senior Debt Facility for the purposes of Schedule 2, so that the procuring of finance in this way operated the second precondition triggering payment of the Deferred Consideration.

The first difficulty with this argument is that it ignores the qualifying adjective ‘senior’. As the Judge put it at [56] of the principal judgment:

The essence of a senior debt facility – what makes it ‘senior’ – is that it ranks in priority in terms of repayment over other payment obligations of the borrower in the event of insolvency. An unsecured loan from another group company does not have such priority.

The Judge addressed an argument advanced by Mr Smith, that there was a Participative Loan Agreement between EMED Tartessus and EMED Holdings which contained provisions requiring the borrower, when requested, to grant security to the lender so as to guarantee repayment of the loan. However, as the Judge noted, no such security was requested or provided; and the indebtedness of EMED Tartessus to EMED Holdings was subordinated to the pledge in favour of Astor over the shares of EMED Tartessus as security for the performance of EMED’s obligations under the Master Agreement and Loan Agreement under clause 9 and schedule 1 of the Master Agreement.

Finally, the Judge concluded that the term ‘senior debt facility’, as contemplated by the Master Agreement, was a facility provided by one or more lenders outside the EMED Group and not an intra-group loan. This was reflected in the language of the reasonable endeavours obligation in clause 6(f) and also the language of clause 6(g)(iv)(A) as amended, which expressly distinguishes between the ‘senior debt facility’ and ‘EMED Group Loans’. We entirely agree with this analysis.

Accordingly, we reject Astor’s third ground of appeal.

Astor's fall-back position at trial was that, even if the Deferred Consideration had not become payable and the defendants were not thereby in breach of contract, the requirement to pay the Deferred Consideration had not disappeared. Astor relied, in particular, on clause 6(g)(iv) of the Master Agreement.

The Judge held, in the principal judgment, that there was nothing to prevent EMED Tartessus, if it had the cash available, from paying the Deferred Consideration even though the Deferred Consideration had not become due for payment in accordance with Schedule 2. He held that clause (6)(g)(iv)(B) specifically required EMED Tartessus to apply any excess cash for this purpose. He concluded that, on the natural and ordinary meaning of the language used in the Master Agreement, clause 6(g)(iv) had the effect contended for by Astor; accordingly, EMED Tartessus (a) could not make any distribution or any repayment of the money it had borrowed from EMED Holdings (except for up to US$10m a year for group expenses not related to the project) until the Deferred Consideration had been paid in full; and (b) must apply any excess cash (as defined) to pay the Deferred Consideration early. His view was that this conclusion was reinforced when account was taken of the consequences of EMED’s proposed interpretation. It was one thing to say that the EMED companies were entitled to fund the Project by making a loan to EMED Tartessus without triggering payment of the Deferred Consideration where it was not possible or not reasonable to obtain a Senior Debt Facility; it was quite another to say that, when this happened, the outstanding amounts owed to Astor could be written off so that they never needed be paid even when excess cash became available from which such payments could be made.

So that this judgment is self-contained, it is worth citing the relevant paragraphs of the Judge’s judgment on this issue. At paragraphs 100-106, he said:

The Judge rejected EMED’s further argument that clause 6(g)(iv)(A) payments by EMED Tartessus were permitted if Astor consented to them and that such consent was ‘not to be unreasonably withheld or delayed’. He held it was clear from the wording and punctuation of that provision that the permission to act with Astor’s consent was limited to the borrowing of any amount other than pursuant to the Senior Debt Facility or EMED group loans. That provision did not apply to the prohibition against making any distribution or any repayment in respect of any EMED group loan - which was an unqualified prohibition.

The Judge dealt with various issues consequential to the principal judgment in the supplemental judgment.

The first issue was the appropriate form of the declarations which should be made to give effect to the conclusion summarised at paragraph 110(iii) of the judgment. The judge considered that, save for making it clear that the reference to the ‘Consideration’ in clause 6(g)(iv) of the Master Agreement included the Deferred Consideration, the declarations should reflect the language of the clause, and should read as follows:

1.

On a true construction of clause 6(g)(iv)(A) of the Master Agreement, until such time as the Consideration (including the Deferred Consideration) has been paid to the Claimants in full, the Second Defendant must not make, declare or pay any dividend or distribution or make any repayment or other payment in respect of loans from members of the EMED Group ("EMED Group Loans") (other than as required for up to US$10 million per annum in aggregate for EMED Group expenses (excluding dividends or any other distributions to the shareholders of the First Defendant) related to matters other than the project ("EMED Group Expenses")), nor borrow or agree to borrow any amount other than pursuant to the Senior Debt Facility or EMED Group Loans without the prior written consent of the Claimants (not to be unreasonably withheld or delayed).

2.

On a true construction of clause 6(g)(iv)(B) of the Master Agreement, the Second Defendant must apply any excess cash (after payment of operating expenses and sustaining capital expenditure for the Project, debt service requirements under the Senior Debt Facility and US$10 million per annum for EMED Group Expenses (without double counting EMED Group Expenses taken into account under clause 6(g)(iv)(A) of the Master Agreement)) to pay any outstanding amounts of the Consideration due to the Claimants (including the Deferred Consideration and amounts payable under the Loan Assignment) early.”

In the supplemental judgment, the Judge rejected Astor’s submission that the Deferred Consideration should be defined so as to include the Up-tick Payments totalling €15.9m as well as the basic amount of €43.8m, which would result in the restrictions in clause 6(g)(iv) continuing to apply until Astor had received payment not only of the €43.8 million which was the basic amount of the Deferred Consideration but also the contingent Up-tick Payments provided for in Schedule 2. He held that the fundamental distinction between the two types of payment was that the basic amount of the Deferred Consideration was an outstanding amount owed to Astor, payment of which had been deferred until the dates specified in Schedule 2, whereas the Up-tick Payments were not amounts owed to Astor. The latter were merely amounts which EMED Tartessus would also be required to pay to Astor if (and only if), the dates specified in Schedule 2 arrived and the condition stipulated in paragraph (c) was met. He considered that there was an underlying difference between the two payments: in his view the Deferred Consideration was delayed payment for benefits which the defendants have already received under the Master Agreement, whereas the Up-tick Payments were an additional profit-share arrangement which was only applicable in the event that EMED derived a benefit from the price of copper reaching a particular level at a particular time.

Again, it is worth quoting the relevant paragraphs of the supplemental judgment on this issue:

4.

Counsel for Astor submitted that the "Deferred Consideration" should be defined in the order so as to include the Up-Tick Payments totalling €15.9m as well as the basic amount of €43.8m. I do not accept this. I am recording my reasons for rejecting that submission as, although the point is not at present of practical significance, it may become so in the future.

5.

As set out in Schedule 2 of the Master Agreement, the basic amount of the Deferred Consideration is payable in instalments. Schedule 2 also provides in paragraph (c) that, in addition to each instalment of the Deferred Consideration, EMED Tartessus will also be required to pay an additional amount described as an "Up-Tick Payment" if, for the period of three months commencing on the due date for the relevant instalment of the Deferred Consideration, the average copper price is equal to or exceeds $6,613.86 per tonne.

6.

The wording of the contract is ambiguous as to whether the Up-Tick Payments are part of the "Deferred Consideration". The wording of clause 6 suggests that they are, but the wording of Schedule 2 treats the Up-Tick Payments as separate from and additional to the Deferred Consideration. The better view seems to me to be that the reference in clause 6 to the Deferred Consideration is to be read as a shorthand for "the Deferred Consideration and any applicable Up-Tick Payments". But whichever view is taken, the fundamental distinction between the two types of payment, as I see it, is that the basic amount of the Deferred Consideration is an outstanding amount owed to Astor, payment of which has been deferred until the dates specified in Schedule 2, whereas the Up-Tick Payments are not amounts owed to Astor. They are merely amounts which EMED Tartessus will also be required to pay to Astor if (and only if), when the dates specified in Schedule 2 arrive, the condition stipulated in paragraph (c) is met.

7.

The underlying difference is that the Deferred Consideration is delayed payment for benefits which the defendants have already received under the Master Agreement, whereas the Up-Tick Payments are an additional profit-share arrangement which is only applicable if the defendants derive a benefit from the price of copper reaching a particular level at a particular time.

8.

Clause 6(g)(iv)(B), reflected in the second declaration set out above, requires EMED Tartessus to apply any excess cash "to pay any outstanding amounts of the Consideration due to [Astor]…early". If the phrase "due to" Astor were interpreted as meaning "presently payable", the clause would be nonsensical. That is because, if the obligation to pay any outstanding amount pursuant to this clause only arose when an amount is presently payable, there could be no obligation to pay the amount early. I therefore consider that, to make sense of the clause, the words "due to" must be read simply as designating the party to whom the outstanding amount of the Deferred Consideration is owed and not as requiring that the payment date specified in Schedule 2 has arrived.

9.

There is a further question whether the clause still operates if it can be said with confidence that the first payment date is never going to arrive.

10.

At paragraph 104 of the judgment I expressed the view that the clause does operate in those circumstances. Counsel for Astor have sought to rely on that conclusion to argue that the clause applies as much to the Up-Tick Payments as to the basic Deferred Consideration. They point out that the Up-Tick Payments are triggered on the same timetable as the instalments of the Deferred Consideration. They submit that, by parity of reasoning, even if the stipulated date for payment of any of the Up-Tick Payments is a date which is never going to arrive, payment of the relevant amount can still be made early.

11.

The flaw in that submission, in my view, is that the question whether the Up-Tick Payments are required to be made is not simply a matter of timing. They are in a different category from the outstanding amounts of Deferred Consideration which are undoubtedly owed and in relation to which the only question is when the payment obligation accrues. As I have indicated, the Up-Tick Payments are conditional in a different and more fundamental way in that they are not outstanding amounts payment of which has been deferred: they are amounts which are not owed and never will be owed unless the price of copper is at or above the specified level at the specified time. Thus, unless and until the specified time arrives, no Up-Tick Payment is applicable and there is therefore no possibility of making any such payment early.

12.

I also agree with counsel for the defendants that Astor's argument can be tested by considering the hypothetical situation where the Deferred Consideration was payable in accordance with Schedule 2 and the copper price was below the level required to trigger Up-Tick Payments. If Astor's interpretation were correct, the requirements of clause 6(g)(iv) would nevertheless continue to apply until EMED Tartessus had made the Up-Tick Payments. That makes no sense and is obviously not what the parties intended.

13.

I therefore consider that the reference in the declarations to the Deferred Consideration should not be defined as including the "Up-Tick Payments". For the avoidance of doubt I would add that, as matters now stand, the only situation, in my view, in which the Up-Tick Payments could ever become payable is in the unlikely scenario referred to at paragraph 104 of the judgment in which mining stops at some point in the future and a Senior Debt Facility is then secured for a sum sufficient to restart mining operations.

The issues which arise on the appeals of EMED and Astor may be summarised as follows:

In relation to issue (1), Mr Moriarty QC, on behalf of EMED, submitted that the Deferred Consideration was not payable under clause 6(g)(iv)(B) because it had not been triggered under Schedule 2 and, therefore, it would never be payable and the Judge was wrong to find otherwise. In summary, he submitted that:

For similar reasons he submitted that, in relation to issue (2) above (ground 2 of EMED’s appeal) the Judge was likewise wrong to hold that clause 6(g)(iv)(A) had the effect of preventing EMED from making any payments or distributions until the Deferred Consideration had been paid in full, in circumstances where payment of the Deferred Consideration had not been triggered in accordance with Schedule 2.

As to issue (3) above (Astor’s cross-appeal), Mr Moriarty submitted that, on the assumption that the Judge’s conclusions in relation to clause 6(g)(iv) were correct, he had rightly rejected Astor’s argument that the restrictions in that clause should continue to apply until it has received ‘early’ payment of not only the €43.8 million which was the ‘basic’ amount of the Deferred Consideration but also an additional €15.9 million to reflect the contingent Up-tick payments provided for in Schedule 2 for the reasons given in his supplemental judgment at [5]-[13]. It would be absurdly unfair and uncommercial if, in circumstances where the Up-tick payments were not triggered (and might not be triggered for a long time, if ever), EMED was nevertheless required to pay Astor €15.9 million simply in order to buy its way out of the restriction on spending imposed by clause 6(g)(iv)(A).

Mr Smith QC, on behalf of Astor, supported the Judge’s conclusions in relation to issues (1) and (2) on EMED’s appeal for the reasons which he had given. Whether or not clause 6(g)(iv)(B) was accurately described as a “cash sweep”, its purpose was to ensure that the sums due to Astor were paid when there was money available to do so. That obligation was to be independent of any other payment obligations in Schedule 2, which was why those payments were to be made ‘early’ – i.e., before the fulfilment of any other pre-conditions for payment found elsewhere in the Master Agreement.

The clause should be read as a whole. The clause identified (i) the amount payable (the Consideration), (ii) the party to whom it is payable (Astor) and (iii) when it is payable (early). Read as a whole and in the context of the Master Agreement, it was intended to create an obligation to make payments to Astor from excess cash before any date for payment arrived, and even if it could not be said with certainty that the date ever would arrive.

As to issue (3), which arose on Astor’s cross-appeal, Mr Smith contended that the Judge had been wrong to make a declaration in relation to clause 6(g)(iv)(A) in which the Deferred Consideration was defined as not including the Up-tick Payments. The fact that his interpretation of the Master Agreement did not easily accommodate the Up-tick Payments was not a justification for the Judge to re-write the Master Agreement so as to strip out Astor’s rights under clause 6(g)(iv)(A) in relation to those payments. He had held in the principal judgment that clauses 6(g)(iv)(A) and (B) of the Master Agreement remained effective despite the re-start of mining operations. His conclusion on the Up-tick Payments was inconsistent with that. Clause 6(g)(iv)(A) was plainly intended to protect Astor’s right to receive payment of the Consideration in circumstances in which it has not yet become payable. The Judge’s interpretation of the agreement stripped away those protections in relation to the Up-tick Payments. It made no sense to construe the agreement in this way. On a proper and consistent interpretation of the Master Agreement, the effect of EMED’s failure to trigger the payment regime in Schedule 2 is that it remains obliged to pay the Deferred Consideration under clauses 6(g)(iv)(B).

We reject the arguments presented by Mr Moriarty on behalf of EMED in relation to both grounds of its appeal in respect of clauses 6(g)(iv)(A) and (B), largely for the reasons given by the Judge in paragraphs 103-106 of the principal judgment and paragraph 8 of the supplemental judgment. On a consistent and commercial interpretation of the Master Agreement as amended, the Deferred Consideration (which, as the judge pointed out, was delayed payment for benefits which EMED had already received under the Master Agreement) became due and owing by EMED on the date the agreement was signed. EMED’s liability, or debt obligation, for that amount was not contingent on the happening of any future event; the Deferred Consideration was clearly stated in clause 6 and accrued due on the date of the Master Agreement, notwithstanding that the date when each instalment of the Deferred Consideration became payable depended on the definition of ‘the First Payment Date’ in schedule 2, from which date the dates for payment of subsequent instalments ran. The ascertainment of the First Payment Date in turn depended on the happening of the contingencies stated in paragraph (b) of schedule 2. But, in our judgment, those provisions were machinery for the timing of payments and did not undermine the fact that EMED had an existing underlying debt obligation which it could become liable to pay in the event that other provisions of the agreement required it do so. As the Judge pointed out, it would make a nonsense of the requirement to pay ‘early’ if there was no subsisting debt obligation to pay the Deferred Consideration at all if the payment contingencies had not occurred.

It is against that analysis that clauses 6(g)(iv)(A) and (B) fall to be construed. Like the Judge, we have no doubt that that the cash sweep clause imposes an obligation on EMED to pay the Deferred Consideration (to the extent there is available cash) ‘early’ – i.e. before the instalment dates prescribed by the payment schedule in schedule 2. That in turn justifies, as a matter of construction, the restriction on payments or distributions by EMED Tartessus in the meantime pursuant to clause 6(g)(iv)(A). Indeed, Mr Moriarty accepted that the same consequence followed in relation to each clause.

We also agree with the Judge’s conclusion in relation to the Up-tick Payments and accordingly reject Astor’s cross appeal in this respect. As he pointed out in [11] of the supplemental judgment, they are in a different category from the outstanding amounts of Deferred Consideration which are undoubtedly owed and in relation to which the only question is when the payment obligation accrues. Thus, the Up-tick Payments:

are not outstanding amounts payment of which has been deferred: they are amounts which are not owed and never will be owed unless the price of copper is at or above the specified level at the specified time. Thus, unless and until the specified time arrives, no Up-Tick Payment is applicable and there is therefore no possibility of making any such payment early.

Accordingly, we would dismiss EMED’s and Astor’s appeal.

I agree.