On 22 October 2010, in HHY Luxembourg v Barclays Bank Plc [2010] EWCA Civ 1248 the Court of Appeal held that where a clause had two potential meanings the court should adopt the “more, rather than the less, commercial construction”. The case is of particular interest to refinancing leveraged buy outs, but also of general importance because it indicates the courts’ willingness to adopt a commercial approach when considering the effects of disposal and release clauses of inter-creditor agreements.

This case concerned the restructuring of European Directories’ leveraged acquisition debt. As part of a restructuring it was proposing to sell the shares of a company, free of security and guarantees which had been granted by that company and its operating subsidiaries. However the junior lenders in this case challenged the security trustees’ authority to release the guarantees and security of subsidiary companies, arguing that the drafting of the inter-creditor agreement allowed only the release of security and guarantees in respect of the company whose shares were being sold.

The court took a commercial approach and, reversing the decision of the High Court, found that the security trustee was allowed to release guarantees and security of subsidiary companies in addition to the guarantees and security in respect of the company whose shares were being sold. In arriving at its decision, the court considered the approaches to interpretation that could be taken, in particular noting earlier case law which considered that the meaning of a disputed clause is the meaning which is conveyed to a reasonable person.