Examining discretionary decisions under commercial agreements (BHL v Leumi ABL Ltd)

Examining discretionary decisions under commercial agreements (BHL v Leumi ABL Ltd)

Simon Mills of Five Paper examines BHL v Leumi ABL and suggests the case serves as an important example of the extent to which courts appear willing to scrutinise the exercise of discretionary powers in a commercial context.

Original news

BHL v Leumi ABL Ltd [2017] EWHC 1871 (QB), [2017] All ER (D) 04 (Aug)

The Mercantile Court allowed BHL’s claim that, on the true construction of a receivables finance agreement (RFA) between the defendant company, Leumi ABL Ltd (Leumi) and Cobra Beer Ltd (Cobra), which subsequently went into administration, Leumi had not been entitled to charge a collection fee of 15% on receivables on Cobra Beer’s sales ledger, in circumstances where BHL had agreed to indemnify the defendant in respect of sums due under the RFA, and had paid the defendant £950,000 in response to its demands for outstanding collect-out fees.

What was the background to the case?

The claim concerned the collection charges of Leumi claimed under a RFA entered into with Cobra. On 29 May 2009 Cobra was restructured and, as part of the restructuring, BHL agreed to indemnify Leumi in respect of any sums due under the RFA.

On 3 June 2009 Leumi commenced a collect-out of the Cobra receivables, which were then worth about £10.5m. Leumi eventually collected about £8.1m. The collect-out was relatively swift and by late January 2010 Leumi had concluded that it had already conducted a reasonable collection process and it turned its attention to BHL for payment under the indemnity.

In order to effect the collections, Leumi had hired two of Cobra’s principal credit controllers, and it engaged the services of a third-party collection company and those of its solicitors, Hammonds (now Squire Patton Boggs (UK) Ltd). All the costs and fees incurred in engaging these third parties were charged to Cobra’s current account. Leumi also increased the discount charge by 2% to cover its anticipated operating expenses in administering and collecting the receivables. Notwithstanding

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