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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Concord Trust v The Law Debenture Trust Corporation Plc [2004] EWHC 1216 (Ch) (28 May 2004) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2004/1216.html Cite as: [2004] EWHC 1216 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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CONCORD TRUST |
Part 8 Claimant |
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- and - |
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THE LAW DEBENTURE TRUST CORPORATION PLC |
Part 8 Defendant |
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Mr. Robert Miles QC and Mr. Andrew Clutterbuck (instructed by Messrs Simmons & Simmons ) for the Part 8 Defendant
Hearing dates : 19th and 20th May 2004
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Crown Copyright ©
The Vice-Chancellor :
"The..Trustee at its discretion may, and if so requested by the holders of at least 30 per cent in principal amount outstanding of the Bonds or if so directed by an Extraordinary Resolution of the Bondholders shall (subject in each case to being indemnified to its satisfaction), give notice to the Issuer and [Elektrim] that the Bonds are, and they shall accordingly immediately become due and repayable at their relevant redemption value, together with the accrued Interest Amount as provided in the Bond Trust Deed, upon the occurrence of any of the following events ("Events of Default").."
One of such events is a failure by the Issuer or Elektrim to perform or observe any of its obligations under the Bonds or the Trust Deed if the Trustee shall have certified that such event is materially prejudicial to the interests of the bondholders.
"The conditions of the Bonds make clear that prior to making such a declaration in respect of the Bonds, the Trustee may require that it be indemnified to its satisfaction. The Trustee hereby gives notice that it does require such an indemnity prior to making such a declaration."
Correspondence, to which I shall refer in greater detail later, on the subject of an indemnity between the solicitors for the Trustee and the solicitors for Concord, representing an ad hoc committee of bondholders holding about 45% of the bonds in issue, ensued.
"is obliged forthwith to give notice to [the Issuer and Elektrim] that the Bonds as defined in [the Trust Deed] are accelerated in accordance with Condition 12 of the Trust Deed."
In summary the Trustee contends that as the indemnity proffered by Concord was not satisfactory to the Trustee the Trustee is under no obligation to give notice to the Issuer or Elektrim to the effect that the bonds are immediately due and repayable. Concord maintains that the conclusion of the Trustee that the indemnity proffered is not satisfactory is, in all the circumstances, so unreasonable and irrational that it should be ignored.
"if DT can prove that Elektrim has become 'economically impaired' it may exercise a right to purchase Elektrim's shares in PTC from Elektrim at a price close to book value".
This belief is confirmed by a letter dated 2nd April 2004 from solicitors for Elektrim in which they state that a claim by DT of economic impairment of Elektrim will give rise to a contractual remedy entitling DT to buy Elektrim's shares in PTC for book value.
"Event of Default means any of the conditions, events or acts provided in condition 12 to be events on the happening of which the Bonds would, subject only to notice by the Trustee as therein provided become immediately due and repayable"
"Liability means any loss, damage, cost, charge, claim, demand, expense, judgment, action, proceeding or other liability whatsoever (including without limitation in respect of taxes, duties, levies, imposts and other charges) and including any value added tax or similar tax chargeable in respect thereof and legal fees properly incurred on a full indemnity basis"
"These presents means this Trust Deed and the Schedules and any Trust Deed supplemental hereto and the Schedules (if any) thereto and the bonds and the conditions all as from time to time modified in accordance with the provisions herein or therein contained"
"9.3 In case of an Event of Default, the Trustee may, and shall if requested to do so in writing by holders of at least thirty per cent in principal amount outstanding of the Bonds or if so directed by an Extraordinary Resolution of the holders of the Bonds and, in either case, subject to it being secured and/or indemnified to its satisfaction, direct the Security Agent to enforce the Security Documents in favour of the Bondholders, subject to the terms of the Security Administration Agreement and subject, in the case of the Submissions to Execution, to clauses 9.4 and 9.5 below."
"10.1 The Trustee shall not be bound to take any proceedings mentioned in Clause 9 or any other action in relation to these presents unless respectively directed or requested to do so (i) by an Extraordinary Resolution of the holders of the Bonds or (ii) in writing by the holders of at least thirty per cent in principal amount outstanding of the Bonds and in either (i) or (ii) then only if it shall be indemnified to its satisfaction against all Liabilities to which it may thereby render itself liable or which it may incur by so doing."
"16.5 The Issuer shall also pay or discharge all Liabilities properly incurred by the Trustee in relation to the preparation and execution of the exercise of its powers and the performance of its duties under, and in any other manner in relation to, these presents and the Security Documents (including all Liabilities properly incurred by the Trustee in relation to the preparation and execution of any supplemental deeds, including but not limited to legal and travelling expenses and any stamp, issue, registration, documentary and other taxes or duties paid or payable by the Trustee in connection with any action taken or contemplated by or on behalf of the Trustee for enforcing, or resolving any doubt concerning or for any other purpose in relation to, these presents. The Issuer and the Guarantor confirm that all amounts payable by the Trustee to the Security Agent under the Security Documents shall be Liabilities."
"17.1 The Trustee shall have all the powers conferred upon Trustees by the Trustee Act 1925 of England and Wales and by way of supplement thereto it is expressly declared as follows:
(A) The Trustee may in relation to these presents and the Security Documents act on the advice or opinion of or any information obtained from any lawyer, valuer, accountant, surveyor, banker, broker, auctioneer or other expert considered by the Trustee to be of due repute whether obtained by the Issuer, the Guarantor, the Trustee or otherwise and shall not be responsible for any loss occasioned by so acting. The Trustee may rely, without liability to the Bondholders, on any certificate or report prepared by the Auditors pursuant to these presents or the Security Documents whether or not addressed to the Trustee.
(B) Any such advice, opinion or information may be sent or obtained by letter, telex, telegram, facsimile or cable and the Trustee shall not be liable for acting on any advice, opinion or information purporting to be conveyed by any such letter, telex, telegram, facsimile transmission or cable although the same shall contain some error or shall not be authentic.
.....
(G) Save as expressly otherwise provided in these presents, the Trustee shall have absolute and uncontrolled discretion as to the exercise of its trusts, powers, authorities and discretions under these presents and the Security Documents (the exercise of which as between the Trustee and the Bondholders shall be conclusive and binding on the Bondholders) and shall not be responsible for any Liability which may result from their exercise or non-exercise.
.....
(J) Without prejudice to the right of indemnity by law given to trustees, the Issuer and the Guarantor shall indemnify the Trustee and every Appointee (including the Security Agent) and keep it or him indemnified against all Liabilities to which it or he may be or become subject or which may be incurred by it or by him in the execution or purported execution of any of its or his trusts, powers, authorities and discretions under these presents or its or his functions under any such appointment or in respect of any other matter or thing done or omitted in any way relating to these presents.
.....
(N) The Trustee as between itself and the Bondholders may determine all questions and doubts arising in relation to any of the provisions of these presents and the Security Documents. Every such determination, whether or not relating in whole or in part to the acts or proceedings of the Trustee, shall be conclusive and shall bind the Trustee and the Bondholders."
"20.1 The Trustee may without prejudice to its rights in respect of any subsequent breach, Event of Default or Potential Event of Default from time to time and at any time but only if and in so far as in its opinion the interests of the Bondholders shall not be materially prejudiced thereby waive or authorise any breach or proposed breach by the Issuer or the Guarantor of any of the covenants or provisions contained in these presents or the Security Documents or determine that any Event of Default or Potential Event of Default shall not be treated as such for the purposes of these presents PROVIDED ALWAYS THAT the Trustee shall not exercise any powers conferred on it by this Clause in contravention of any express direction given by Extraordinary Resolution or by a request under Condition 12 but so that no such direction or request shall affect any waiver, authorisation or determination previously given or made. Any such waiver, authorisation or determination may be given or made on such terms and subject to such conditions (if any) as the Trustee may determine, shall be binding on the Bondholders and, unless the Trustee agrees otherwise, shall be notified by the Issuer to the Bondholders in accordance with Condition 16 as soon as practicable thereafter."
"56....In my opinion the purported suspension of Mr. Rymaszewski, which is a total repudiation of this fundamental provision, is not only a material breach, it is also self-evidently materially prejudicial to the interests of the bondholders. I do not see it requires an investigation as to the transactions that have taken place. Even if the transactions objectively examined conferred benefits on the Bondholders or did not affect their interests in economic terms that does not address the fundamental issue which is that they were entitled to be heard and block (if they thought appropriate) any transaction whether it was beneficial or not. That right has been taken away by the breach and is clearly materially prejudicial. They have lost these rights and continue to be deprived of the right to issue them.
57. Accordingly, I would answer the question by determining that the suspension of Mr. Rymaszewski in breach of Condition 10(d) is a breach of Condition 12(ii) which is materially prejudicial to the interests of the Bondholders and that the Trustee can certify to that effect without the need for any further investigation."
As I have already recorded the Trustee certified the event of default on 17th February 2004.
"Any such claim (and clearly any such outcome) would severely damage the value of the PTC shares owned by ET with direct consequences on the value of security pledged to secure the bonds and on the prospects for full repayment on or before the maturity of the bonds....This risk is a part of the overall consideration the Trustee should give to any acceleration request (as well as to its own indemnity arrangements). Based on what we understand of the facts today – this risk remains a compelling factor against acceleration of the bonds."
Later with regard to the proceedings before Peter Smith J, to which Elektrim had not been a party, they added
"This is not the time and place to vent these issues in detail but you should be aware that our client has raised with us its serious concerns regarding the proceedings, facts and underlying Polish legal assumptions which appear to underpin that decision."
"Unfortunately, in these circumstances Law Debenture are not able to reach the conclusion that the indemnity proffered is satisfactory.
The magnitude of the liabilities which may be incurred by acceleration are such that unfortunately the Trustee requires greater comfort than Elliott has to date provided. The Trustee still has a number of concerns including the uncertainty surrounding the level and composition of Elliott's assets from time to time and, in particular, the fact that these may be affected by matters such as the possibility that capital can be withdrawn and that Elliott may not be ready to liquidate assets to meet any demand. This uncertainty is not acceptable to the Trustee. As a result, the Trustee has reached the conclusion that in order to accelerate without delay a guarantee or an indemnity from a body such as a major clearing bank is required.
This is in no way a comment on Elliott's standing. It is simply that in these circumstances in particular given the comments made by Hunter Baker in his letter to you and to us of 2 April 2004, it is possible to see that post any acceleration, the Trustee could be in receipt of a claim for many hundreds of millions of Euro."
The solicitors for Concord replied the same day indicating their view that the indemnity "should be more than satisfactory to the Trustee" and that "any reasonable trustee would accept it". It described the Trustee's request for a guarantee from a major clearing bank as "wholly unreasonable". They concluded by stating that they would be instituting proceedings in the Chancery Division the next day seeking declaratory relief.
"2. Elektrim has one valuable asset, namely its shares in ET and Carcom, which in turn hold shares in PTC, the very substantial Polish Telecommunications company. Elektrim is aware that it is contrary to the terms and conditions of the Bonds (see Condition 12(vii)) for Elektrim to sell this asset without Bondholder consent. Elektrim has nonetheless been openly negotiating for the sale of this asset.
3. The Committee of Bondholders is extremely concerned that the proceeds of any sale of the PTC shares (in breach of Condition 12(vii) of the Bonds) would be dissipated by ET and Carcom or otherwise used for purposes other than the redemption of the Bonds."
"For the avoidance of doubt, we should make clear that given the possible scale of liabilities and the duration of the risk an unsupported indemnity from Elliott Associates LP will not satisfy [the Trustee]."
They confirmed that as at that date 71.88% of the bondholders had requested acceleration.
"[Counsel for the plaintiff, Mr Gallop] based his argument on the word "unreasonable" which he treated as an independent ground for attacking the decision of the authority; but once it is conceded, as it must be conceded in this case, that the particular subject-matter dealt with by this condition was one which it was competent for the authority to consider, there, in my opinion is an end of the case. Once that is granted, Mr. Gallop is bound to say that the decision of the authority is wrong because it is unreasonable, and in saying that he is really saying that the ultimate arbiter of what is and is not reasonable is the court and not the local authority. It is just there, it seems to me, that the argument breaks down. It is clear that the local authority are entrusted by Parliament with the decision on a matter which the knowledge and experience of that authority can best be trusted to deal with. The subject matter with which the condition deals is one relevant for its consideration. They have considered it and come to a decision on it. It is true to say that, if a decision on a competent matter is so unreasonable that no reasonable authority could ever have come to it, then the courts can interfere. That, I think is quite right; but to prove a case of that kind would require something overwhelming, and in this case, the facts do not come anywhere near anything of that kind. I think Mr. Gallop in the end agreed that his proposition that the decision of the local authority can be upset if it is proved to be unreasonable, really meant that it must be proved to be unreasonable in the sense that the court considers it to be a decision that no reasonable body could have come to. It is not what the court considers unreasonable, a different thing altogether."
"I am satisfied that these words show that the testator did not intend that there should be anything in the nature of an appeal from the decision of his trustees. But, by making his trustees the sole judges of a question a testator does not entirely exclude recourse to the court by persons aggrieved by the trustees' decision. If it can be shown that the trustees considered the wrong question, or that, although they purported to consider the right question they did not apply their minds to it or perversely shut their eyes to the facts or that they did not act honestly or in good faith, then there was no true decision and the court will intervene, but nothing of that kind is alleged in this case. The appellants' case here is that although the respondents acted with deliberation and in good faith, their decision was unreasonable in the sense that no reasonable man could have failed to be satisfied that the infirmary had not been placed under the control of the State before the testator's death. In this case, the respondents have not objected to that being taken as a proper test and I shall consider the facts on that view, but I wish to reserve my opinion whether that is the proper test in cases of this kind."
"It is well established that the circumstances in which a court will interfere with the exercise by a party to a contract of a contractual discretion given to it by another party are extremely limited. We were referred to Weinberger v Inglis [1919] AC 606; Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896, Docker v Hyams [1969] 1 Lloyd's Rep 487, and Abu Dhabi National TankerCompany v Product Star Shipping Company Limited [1993] 1 Lloyd's Rep 397 ("The Product Star"). These cases show that provided that the discretion is exercised honestly and in good faith for the purposes for which it was conferred, and provided also that it was a true exercise of discretion in the sense that it was not capricious or arbitrary or so outrageous in its defiance of reason that it can properly be categorised as perverse, the courts will not intervene."
(1) there is no reason to think or evidence to support the belief that if the Trustee accelerates the bonds it may be successfully sued by Elektrim or Vivendi for €1bn.
(2) there is no reason to think or evidence to support the belief that the exclusion clauses contained in the Trust Deed, in particular clauses 16.5, 17.1(G) and (J) and 20.1, will be ineffective to protect the Trustee from such an action.
(3) the right to an indemnity conferred by condition 12 does not entitle the Trustee to require it to be secured.
(1) It is not possible to formulate, and the Trustee has not sought to do so, any claim which could be advanced by either Elektrim or Vivendi against the Trustee arising from a wrongful acceleration of the bonds.
(2) Vivendi can have no direct claim against the Trustee.
(3) In the case of a claim against the Trustee by Elektrim:
(i) although Elektrim is not bound by the judgment of Peter Smith J there is no likelihood that it could establish that there has been no event of default so that an acceleration of the bonds was unjustified,
(ii) such acceleration could not cause loss to Elektrim,
(iii) even if such a loss could be established it could not amount to €1bn., or any sum approximating to that amount, nor could it subsist for a period as long as 12 years.
"There is no doubt that abundant content for the clause can be found in third party liabilities without having recourse to liabilities between the contracting parties themselves."
"all losses, liabilities, claims, demands, judgments, actions, costs, charges and expenses which the Trustee may incur or which may be made against it from and after the date of Acceleration in connection with or as a result of any Acceleration or Enforcement Proceedings or Litigation.."
The liability of Concord was guaranteed by Elliott Associates LP.
a) the liability under the guarantee was not joint and several as between Concord, Elliott Associates and Acciona, a substantial bondholder,
b) the financial information in relation to Elliott Associates was insufficient to demonstrate that it could discharge the liability of Concord if called on to do so.