April saw two important judgments in the Titan and Windermere Class X cases. Those decisions have implications for both “CMBS 1.0” structures that include Class X notes in them, and for the wider financial markets in terms of how the courts are approaching disputes over the interpretation of finance agreements.

The significance and inconsistency of the Class X judgments made them ripe for challenge. Now the Court of Appeal has given the Titan Class X noteholder permission to appeal, with a hearing due to take place in Q4, 2016. In doing so the Court of Appeal hinted it is concerned with the approach taken by Sir Terence Etherton in the Titan judgment, which contrasts with the Windermere decision in taking much more interest in the commercial consequences of the Class X noteholder’s arguments than the words used in the agreements. As the Court of Appeal judge put it:

“…it seems to me that the Chancellor arguably gave too much weight to what he regarded as the commerciality of the respondents’ construction of the definition [of Net Mortgage Rate] in allowing it to displace the more obvious meaning of the words used. It is not easy to see why in a carefully worded commercial contract the draftsman did not expressly exclude default interest if the words “interest rate” were not intended to include what the Chancellor accepted was “interest”.”

This criticism is not surprising, given the direction of travel of the courts in interpreting commercial contracts generally, following last year’s Supreme Court decision in Arnold v Britton, towards a more literal reading of the words of contracts rather than a focus on their commercial intent.  It was concerning to see a lack of consistency in the approach of two eminent Financial List judges in two very similar cases heard weeks apart. It now looks like the Court of Appeal may act to resolve the uncertainty in favour of the more literal approach taken by Mr Justice Snowden in the Windermere case.

It is also notable that the Titan appeal has been listed early, and some time before the scheduled appeal hearing of the Windermere appeal in March 2017. That may be seen as the courts taking prompt action to enhance confidence in their approach sooner rather than later, as the Financial List looks to gain traction in its first year of operation.