Commercial Contracts and Loan Agreements: a matter of construction

Commercial Contracts and Loan Agreements: a matter of construction

The construction of commercial contracts is an issue consistently before the courts, reflecting its critical important to businesses. The experienced commercial litigation lawyers at Bahamas law firm ParrisWhittaker advise commercial organisations on their business contracts and are adept at drafting clear, watertight clauses to protect their clients’ interests.

At the Court of Appeal in London1, a recent ruling followed the court’s consideration of how a payment waterfall clause in a loan agreement was to be interpreted, particularly in instances where there is a shortfall of money paid or recovered. 

The legal system in The Bahamas is based on English common law (supplemented by local laws) and the decisions of the higher English courts are persuasive in terms of how the domestic courts in The Bahamas interpret the law.

What is the background to this case?

This case concerned the financing of construction of a 'gherkin' building in London, and a dispute over a payment waterfall clause in a syndicated facility agreement which governed the distribution of monies in circumstances where the amount paid by or recovered from the borrowers is less than that due.  The dispute centred on the interpretation of the clause.

The facts of the case are complex.  Essentially, the same corporate entity, Bayerische Landesbank (London Branch) acted in its capacity as Facility Agent and Hedging Lender, Arranger, Security Agent and Lender.  The dispute concerned whether, where there was a shortfall in the amount paid/recovered, the costs and expenses incurred by one entity (a hedging lender) in relation to its market hedging arrangements should be paid in priority to amounts owed to other lenders; or instead in the final (and 5th) application pro rata with the other lenders. 

The court held that, on the true construction of the agreement, the claimants' interpretation was to be preferred.  Where the same entity enters into a document in more than one capacity, reference to it in one capacity in a particular clause is not shorthand for reference to the same entity in any other capacity.  The judgment illustrates that, in questions of interpretation of contractual clauses, what constitutes ‘commercial sense’ often depends upon the reader’s perspective.

Notably the court said “… whilst the court will strain against a construction the effect of which is to render an entire clause meaningless or to render an obligation no more than a statement of intent, this is not such a case.”

What does this mean?

Following this ruling, it’s clear that the parties’ commercial intention must be clearly reflected in the contract documentation; and each entity’s capacity expressly defined to avoid ambiguity. If the same entity enters into a document in more than one capacity, the document must clearly distinguish between the various capacities in which it is acting, for instance, each being a separate party to the document in respect of each capacity in which it is acting.

The case also illustrates that the starting point for construction may be the literal approach, ie what did the parties mean?

How can we help?

We can assist with the drafting of your commercial contracts, however complex.  The expert commercial lawyers at ParrisWhittaker have years of experience in advising and representing clients on their commercial clients.  Contact us now at


1Landesbank Hessen-Thuringen Girozentrale and others v Bayerische Landesbank, London Branch and another [2014] EWHC 1404 (Comm)