The principles governing contractual interpretation under English law are reasonably well-established. The difficulty comes in applying them to particular factual situations as was the case in Napier Park v Harbourmaster[1].

The dispute arose from a number of notes issued by Harbourmaster in 2006, which were secured on the proceeds of a CLO. In the usual way there were various classes of notes and payments arising from the notes were made in a waterfall, with first payments made to senior noteholders and any remainder being made to mezzanine and junior noteholders.

The question was whether certain sums were available to be distributed to investors or should be re-invested. The junior noteholders argued that the sums should be re-invested. The senior noteholders, on the other hand, would have benefited from a distribution and argued that the monies should have been distributed. The junior noteholders brought the claim and were not successful at first instance but succeeded on appeal. On appeal the junior noteholders argued that the court had taken too narrow and too literal an approach to the words in the investment criteria and did not have regard to the commercial purpose of the agreement. The Court of Appeal agreed. The full article, including the facts of the case and commentary, can be found by clicking here.