Vol 19 (2022) - Issue 5

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Lombard North Central Plc v European Skyjets Ltd [2022] EWHC 728 (QB)

Synopsis
This case deals with a common distressed scenario where a borrower repeatedly falls behind on loan repayments, and the lender informally forbears from taking enforcement action as the parties explore a turnaround solution. This case presented the Court with an opportunity to consider the law on waiver of defaults, the operation of a 'no waiver' clause and 'reservation of rights' wording, and what happens when a lender serves a notice to terminate relying on an invalid ground in the notice.
The lender in this case, as a gesture of goodwill, had offered the borrower additional time to clear outstanding arrears. Having looked at all the circumstances, the Court considered that in doing so, the lender had conditionally waived its rights to terminate based on the borrower's past delays in repayment. This was despite the lender's offer having been made expressly on a without prejudice basis, and the fact that the facility agreement contained a customary 'no waiver' clause.
The borrower's previous late payments, having been waived by the lender's conduct, no longer provided a valid justification for terminating the facility. The Court held that neither the 'no waiver' clause in the facility agreement nor the lender's 'ritual incantation' of reservation of rights language prevented the lender's conduct from amounting to such a waiver. The effectiveness of such language is always a question of substance over form, and to be viewed in the context of the parties' conduct.
The Court then had to consider whether the lender's notice of termination, which had incorrectly relied on the (now waived) past delays in repayment as the ground to terminate, was nevertheless effective by virtue of other existing events of default which had not been referred to in the notice. The Court decided the notice was indeed still valid, because the facility agreement did not require the relevant event of default to be identified in the termination notice at all, and that the borrower was not worse off by reason of the inclusion of an invalid ground than if nothing had been said at all.