Word of the Week in Law: Hell or High Water Clause

Word of the Week

This is not the first time our WOW is four words instead of one. Like last time, this one was just too interesting to pass up. If, like me, you work in a Spanish speaking Civil Law country with Common Law contracts, you may come across Hell or High Water as a clause, provision, obligation, contract, or covenant. For the purposes of this post, we’ll focus on Hell or High Water Clauses.

What is a Hell or High Water Clause?

Hell and High Water clauses are commonly found in leasing agreements and basically contain an independent and absolute contractual obligation of a party that is non-cancellable, unconditional and not subject to any right of set-off, rescission, counterclaim, off-set, reduction or recoupment during the non-cancellable term of the agreement.

For example, in an equipment lease, it may require the lessee to continue making rent payments to the lessor even if there are defects in the leased equipment. In leveraged lease transactions, it may obligate the lessee to make all rental payments with respect to the leased property, regardless of any potential defenses the lessee may have against the lessor. In merger and acquisition agreements, it may basically commit a buyer to undertake any necessary obligations (including divestitures or litigation) for obtaining federal antitrust or other regulatory approval.

What does a Hell or High Water Clause look like?

Here’s an example from an Aircraft Leasing Agreement:

This Lease is a net lease, and, except as may otherwise be expressly provided herein or in the other Operative Documents, it is intended that Lessee shall pay or cause to be paid all costs, charges, fees, assessments, expenses, withholdings and Taxes (other than Excluded Taxes) of every character whether foreseen or unforeseen, ordinary or extraordinary, incurred in connection with or arising out of the use, operation, maintenance, repair, modification, alteration, replacement and leasing of the Aircraft during the related Term, including the costs, expenses and taxes and similar levies set forth in the Note Purchase Agreement. Lessee’s obligation to pay all Rent and to perform all other obligations hereunder is absolute and unconditional and shall not be affected or reduced by any circumstances or for any reason, including (i) any setoff, counterclaim, recoupment, defense or other right which Lessee may have against Lessor, the Purchasers, the Security Trustee, the Manufacturer, the Engine Manufacturer or any Person providing services with respect to the Aircraft, or any other Person, for any reason whatsoever (whether in connection with the transactions contemplated hereby or otherwise), including any breach by Lessor of its warranties contained herein or in the other Operative Documents; (ii) any defect in the title, airworthiness, eligibility of registration under any applicable law, condition, design, operation, or fitness for use of, or any damage to or loss or destruction of, the Aircraft or any portion thereof (subject to the provisions of Section 9 hereof), any interruption or cessation in the use of or possession thereof by or availability to Lessee for any reason whatsoever, whether arising out of or related to an act or omission of Lessor, the Purchasers, the Security Trustee, the Manufacturer, the Engine Manufacturer or any other Person; (iii) any Lien with respect to the Aircraft or any portion thereof; (iv) the invalidity or unenforceability or lack of due authorization or other infirmity of this Lease or any absence of right, power or authority of any Person to enter into any Operative Document; (v) any change, waiver, extension, indulgence or liability or other act or omission in respect of any liability or obligation of Lessor, the Security Trustee or the Purchasers; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Lessee, Lessor or any Secured Party or any disaffirmance, rejection or other action taken with respect to this Lease, any other Operative Document, by Lessor, the Purchasers, the Security Trustee or any other Person, or by any court, in any such proceeding; (vii) Lessee at any time having immunity from suit, prejudgment attachment, attachment in aid of execution or execution on the grounds of sovereignty or otherwise, which immunity, if any, Lessee hereby expressly waives; (viii) any restrictions applicable to Lessee on the transfer or conversion of currency; or (ix) any other circumstances or happening of any nature whatsoever, whether or not similar to any of the foregoing; it being the express intention of Lessor and Lessee that all Rent payable hereunder shall be payable in all events, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Lease or the other Operative Documents.

Loan Agreement:

All rights of the Lenders and all Obligations of the Borrower hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of the Loan Documents, or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Loan Documents, or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (d) any action by the Lenders or a Collateral Agent on behalf of the Lenders to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to the Borrower, or a discharge of all or any part of the Security Interest granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Lenders shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy.

Pledge and Security Agreement:

Pledgor expressly agrees that until the Discharge of Obligations shall have occurred, or unless otherwise expressly agreed in writing between Pledgor and Secured Party, Pledgor shall not be released of its obligations, waivers and agreements set forth herein nor shall the validity, enforceability or priority of the liens and encumbrances against the Collateral in favor of Secured Party be affected in any manner by or because of:

(a) Any act or event which might otherwise discharge, reduce, limit or modify Pledgor’s obligations hereunder or Buyer’s obligations under the Crude Supply Agreement or the liens and encumbrances against the Collateral in favor of Secured Party;

b) Any waiver, extension, modification, forbearance, delay or other act or omission of Secured Party or any failure to proceed promptly or otherwise as against HEP, Pledgor, Buyer or any other Person or entity or any collateral or other security;

(c) Any action, omission or circumstance which might increase the likelihood that Secured Party might enforce the rights granted under this Pledge Agreement or under the Crude Supply Agreement or which might affect the rights or remedies of Pledgor as against HEP;

(d) Any dealings occurring at any time between HEP, Buyer or Pledgor and Secured Party, whether relating to the Secured Obligations or otherwise; or

(e) Any right of offset held by Pledgor under the Net Settlement Agreement, dated as of October 1, 2004 (the “Netting Agreement”), between Buyer and Secured Party other than a reduction of the Secured Obligations to the extent permitted under the Crude Supply.

The Linguistic Problem (and a possible solution)

There is no such concept as Hell or High Water Clauses in Civil Law countries. Civil Law countries are codified and have specific provisions under their laws of obligation in contract and/or tort that apply to scenarios in which Common Law lawyers would resort to Hell or High Water Clauses. Thus, any literal word-for-word rendering in translation will make absolutely no sense to a Civil Law lawyer and will simply be read as a bad and meaningless translation by legal practitioners.

However, in Common Law countries, Hell or High Water clauses are also known as Absolute Obligations clauses; and absolute obligation is a concept that Civil Law Lawyers will easily understand, regardless of whether or not such obligations are enforceable in their countries (which is a subject for an entirely different post).

  2 comments for “Word of the Week in Law: Hell or High Water Clause

  1. February 19, 2018 at 11:49 am

    I have a question about the loan agreement excerpt. What do they mean by running? How can you run a statute? “Until the Obligations shall have been paid and performed in full, the rights of the Lenders shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy.”

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    • February 19, 2018 at 5:20 pm

      That’s an excellent question, Reed! Black’s Law defines the running of a statute of limitations as: “A metaphorical expression, by which is meant that the time mentioned in the statute of limitations is considered as passing.” So, we’re looking at a “vencimiento del plazo de prescripción.”

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