On 27 June 2012, the Court of Appeal handed down judgment on an issue of contractual construction in Patrick McKillen v Maybourne Finance Limited and National Asset Loan Management Limited[[2012] EWCA Civ 864.  

The judgment is part of the high profile claim brought by Irish property entrepreneur Patrick McKillen against the Irish National Asset Management Agency ("NAMA") and the Barclay Brothers, among others. Hogan Lovells acted for the successful appellant, NAMA.  


Mr McKillen had challenged NAMA's transfer in September 2011 of the debts of Coroin Limited ("Coroin"), the holding company of the Maybourne Hotel Group, to a company owned by Sir David and Sir Frederick Barclay, Maybourne Finance Limited ("MFL"). Mr McKillen is a minority shareholder in Coroin, which owns three London hotels, Claridge's, the Connaught and the Berkeley.  

Mr McKillen alleged that the debt transfer from NAMA to MFL was invalid, arguing that NAMA had failed to comply with a contractual requirement to consult with Coroin before transferring the loans. He also alleged that MFL was not a suitable transferee of the loans.  

The underlying loan agreement between Coroin and NAMA was governed by Irish law, but for the purposes of the Court of Appeal's decision the parties agreed that principles of contractual construction are the same in Ireland as in England.  

What was the Court of Appeal's decision?

The Court of Appeal delivered a unanimous judgment in favour of NAMA, holding that NAMA was free to transfer the loans without restriction, and overturning the first instance decision of Mr Justice David Richards in Mr McKillen's favour (Patrick McKillen v Sir David Rowat Barclay & Others[[2012] EWHC 129 (Ch)).  

What was the issue at stake?

Market standard loan agreements often contain transfer provisions requiring the lender to consult with the borrower prior to transferring or assigning the loan to a third party. In addition, there is often a permitted transferee provision limiting the type of entity that can take on the loan. This is reflected in the wording of the Loan Market Association ("LMA") standard form leveraged loan documentation.

In the present case, the loan agreement contained a requirement for consultation, and included permitted transferee provisions. However, it also contained a specially drafted override clause that, NAMA argued, allowed it to transfer the loan to any party without needing to consult with the borrower beforehand or to have regard to the restricted classes of permitted transferee.  

Is it possible to override contractual restrictions on transfer?

The Court of Appeal's judgment, in favour of NAMA, held that the bespoke override clause operated to trump the consultation obligation and permitted transferee restrictions. In construing the clause in question, the Court of Appeal preferred NAMA's commercial construction as to the rationale and effect of the override clause to Mr McKillen's more literal approach to the provision in question.  

It is clear from the Court of Appeal's decision that obligations and restrictions imposed on lenders by the consultation and permitted transferee provisions can be overridden by carefully drafted provisions that amend the standard form loan agreement.  

This may be particularly useful where, rather than simply omitting the restrictions altogether, the current lender wishes to be free of the restrictions when it transfers the loan onwards, but the borrower requires any future lender to be bound by the restrictions.  

What was the Court of Appeal's approach to the background context?

In this case, section 139 of the NAMA Act 2009 (the "NAMA Act"), which sets out NAMA's statutory powers and obligations, contained a carve-out stating that NAMA is permitted to transfer loans to "any person" despite any contractual, statutory, legal or equitable restrictions (which might include consultation or consent requirements, or permitted transferee restrictions).  

Before the Court of Appeal, NAMA referred to the NAMA Act as an aid to the interpretation of the override clause. While the Court of Appeal had the NAMA Act in mind in their judgment, Lord Neuberger MR, delivering the leading judgment, was careful to clarify that the admissible statutory background in the form of the NAMA Act, while useful, was not determinative of the appeal. As such, the decision does not apply solely to loans drafted in the context of the NAMA Act (or any other similar piece of legislation).  


This Court of Appeal decision reflects the courts' recent trend of advocating a practical and commercial approach to the interpretation of complex financial and commercial documentation, and demonstrates the advantages that can be derived from bespoke contractual drafting.