The recent case of Urban Ventures Limited v The Black Ant Company Limited (in Administration) and Ors [2016] EWCA Civ 30 considered the question of whether new facility letters constituted further advances or whether they were simply restatements, with minor variations, of the original facility.

In a brief but clear judgment, Lord Justice David Richards (with whom Lindblom LJ and Beatson LJ both agreed) confirmed that there was no new advance. So far as relevant for the purpose of the instant case, an advance constitutes a payment of money on terms that it will be repaid (in other words a loan) and it was common ground between the parties that no monies were repaid and nor did the parties agree that the new facility letters should be treated as having repaid the existing loan.

Accordingly, the new facility letters amounted to restatements, with relatively minor variations, of the original facility, rather than its complete extinction and replacement with a new contract. This was significant because, had the new facility letters been treated as a "further advance", the lender would not have been entitled under the relevant statutory provisions to "tack" that advance to its first legal charge over the borrower's property, thus forfeiting priority to another lender with a subsequent charge over the same property.

1. Background

By a facility letter dated 28 September 2006 (the "2006 Facility Letter"), Dunbar Assets plc ("Dunbar") agreed to provide a loan facility in the sum of £2.47 million to The Black Ant Company Limited ("TBAC"). The loan facility was known as "Loan Facility – No.13 Account" and secured by a first legal charge over various properties owned by TBAC. Details of the borrowings secured on each of the properties differed, but the case proceeded by reference to one property, known as The Former Balham Bowling Club.

The facility was to remain available until 30 June 2007 after which date Dunbar would "consider renewing the [f]acility for a further period, on terms to be negotiated." In accordance with this provision, the facility was extended in time by a series of letters in 2007/2008.

During the same period, another lender, Urban Ventures Limited ("Urban"), agreed to provide two further loan facilities to TBAC, secured respectively by a second and third charge over The Former Balham Bowling Club.

On 26 March 2009, Dunbar provided a further facility letter to TBAC (the "2009 Facility Letter"). This was headed "Loan Facility – No.13 Account" and was in almost identical terms to the 2006 Facility Letter, except that:

  • the amount of borrowing was increased to £2,593,400 (to reflect the current balance on the facility, including unpaid interest);
  • the purpose of the facility was expressed to be "to continue to fund your existing borrowings"; and
  • renewal fees were payable.

The 2009 Facility Letter provided that the facility would remain available until 30 June 2009. In accordance with this provision, the facility was extended in time by further letters from the date of expiry onwards.

Subsequently, TBAC became insolvent and the property was sold. Distributions were made to Dunbar from the proceeds of sale but there remained a shortfall owing to Dunbar. There were no funds available to meet any part of Urban's outstanding advances. 

2. High Court decision

Urban claimed that the effect of the 2009 Facility Letter (and each subsequent extension) was to make a "further advance" to TBAC in place of the previous advance (including the 2006 Facility Letter). This was significant because, if Urban's construction was correct, Dunbar was not entitled under the Land Registration Act 2002 to "tack" such "further advance" to its first legal charge so as to gain priority over Urban's second and third charge.

Urban submitted that its interpretation was confirmed by the "clear" and "natural" meaning of a clause in the 2009 Facility Letter, which provided that:

"This offer is in substitution of and not in addition to all our previous [f]acility letters to you and which shall be deemed cancelled".

At first instance, Mr Nicholas Strauss QC focussed upon Urban's submission that the effect of the 2009 Facility Letter was to replace the contract contained in the 2006 Facility Letter with a new contract set out in the 2009 Facility Letter. In particular, the judge considered the content and terms of the 2009 Facility Letter, such as the heading (the same as the 2006 Facility Letter), the amount (again the same, plus unpaid interest) and the stated purpose (to continue existing borrowings), finding that these were inconsistent with Urban's proposed interpretation. The judge determined that Dunbar had simply required TBAC to sign up-to-date versions of its standard terms and added unpaid interest and fees in respect of the original advances. Urban appealed.

3. Court of Appeal decision

The Court of Appeal dismissed the appeal. Endorsing the approach of the trial judge, the Court of Appeal confirmed that there was no directly relevant authority on the meaning of "further advances" and the Court must therefore start with the language and purpose of the relevant provisions. With that in mind, the Court of Appeal found as follows:

  • It was irrelevant as to whether the 2009 Facility Letter took effect as a variation of the 2006 Facility Letter or as a replacement; a new contract would not automatically mean that there was a new advance.
  • So far as relevant for the purpose of the instant case, an advance was "a payment of money on terms that it would be repaid, in other words a loan".
  • It was common ground that no further monies were repaid to Dunbar, no monies were advanced by Dunbar pursuant to the 2009 Facility Letter, nor did the parties agree that TBAC should be treated as repaying the existing loan with Dunbar immediately re-lending that amount. There was nothing in the 2009 Facility Letter or indeed any agreement between the relevant parties to that effect. Continuing or leaving outstanding an existing loan is not the making of a new or further advance.

The Court of Appeal therefore held that the 2009 Facility Letter and subsequent extensions were restatements, with relatively minor variations, of the 2006 Facility Letter, rather than the complete extinction of the 2006 Facility Letter and its replacement with a new contract. Accordingly, Dunbar retained its priority as first chargee in respect of the advance made in October 2006.

4. Comment

There continues to be a steady stream of Court of Appeal judgments dealing with contractual interpretation. Interestingly, this is a decision in which the Court of Appeal agreed with the decision and approach of the trial judge. That said, the Court of Appeal gave more emphasis than the trial judge to the practical realities in this case, i.e. that no money changed hands under the 2009 Facility Letter, as well as considering the contractual provisions of the 2009 Facility Letter, in order to determine that there was no "further advance". This is another example of how contractual interpretation cases are not clear cut and can lead to resort to the appellate courts, even if the judiciary was ultimately in agreement as to the end result.