B e f o r e :
MR JUSTICE HAMBLEN
||SERGIO BARREIROS AZEVEDO & VERA CINTIA ALVAREZ
||- and -
||(1) IMCOPA IMPORTACAO, EXPORTAACAO E INDUSTRIA DE OLEOS LTDA
||(2) IMCOPA INTERNATIONAL SA
||(3) IMCOPA INTERNATIONAL CAYMAN LIMITED
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MR S GOLDBLATT QC and MS K GOUGH (instructed by R A Rosen & Co) appeared on behalf of the Claimants
MR B VALENTIN (instructed by Shearman & Sterling (London) LLP) appeared on behalf of the Defendants
HTML VERSION OF JUDGMENT
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MR JUSTICE HAMBLEN:
- This is a case in which cross-applications for summary judgment are made by the claimants and the defendants, pursuant to CPR part 24. In addition, the defendants apply for orders that some or all of the claimants' claim be struck out pursuant to CPR part 3.4.
- The Imcopa Group of companies ("the Imcopa Group"), which has headquarters in Araucárias, Brazil, is the largest Brazilian-owned soybean processor by volume processed. Brazil is the second-largest soybean producer in the world. The first defendant, Imcopa Importacao, Exportaacao E Industria De Oleos Ltda ("Imcopa B"), incorporated under the laws of Brazil, is the Imcopa Group's parent company. The second defendant, Imcopa International Sa ("Imcopa U"), incorporated under the laws of Uruguay, is a wholly-owned subsidiary of Imcopa B. The third defendant, Imcopa International Cayman Limited "(Imcopa C"), a Cayman-incorporated company, is a subsidiary of Imcopa B.
- In 2006, the Imcopa Group completed a refinancing of its business by means of an issue of US$100 million 10.375 per cent guaranteed notes, with a maturity date in 2009 ("the notes"). The issue of the notes was authorised by a resolution of the general shareholders' meeting of Imcopa U as issuer, and the guarantee of the notes was authorised by a resolution of the board of the directors of Imcopa B as guarantor. The notes were constituted by and had the benefit of a trust deed dated 27 November 2006, as subsequently amended or supplemented from time to time ("the trust deed") between the issuer, the guarantor and the Bank of New York, now the Bank of New York Mellon, as trustee. The notes were initially represented by a global certificate in the principal amount of US$100 million, exchangeable to certificates as set out in the global certificate. The notes were issued in registered form without interest coupons attached in minimum denominations of US$100,000 and integral amounts of US$1,000 in excess thereof. Title to the notes passed by registration in a register kept by the Bank of New York as registrar. In addition to the detailed provisions of the trust deed, the notes were issued subject to terms and conditions as set out in schedule 1 to the trust deed.
- The claimants are two individual investors who jointly invested in the notes to a value of US$1.2 million.
- The trust deed, so far as presently relevant:
(1) made provision for the amount and form of the notes (clauses 2 and 3) which were to be represented by global certificate and certificates in the form set out in schedules 1 and 2 to the trust deed;
(2) provided that Imcopa B would unconditionally and irrevocably guarantee the issuer's payment obligations in respect of the notes (clause 5);
(3) provided by clause 6:
"Application of Moneys Received by the Trustee:
All moneys received by the Trustee in respect of the Notes or amounts payable under the Trust Deed will ... be held by the Trustee on trust to apply them ... in payment of any amounts owing in respect of the Notes pari passu and rateably [clause 6.1.2]."
(4) made provision for enforcement in terms which made clear that only the trustee was entitled to enforce a revision of the notes or the trust deed and that no noteholder was entitled to proceed directly against the issuer or the guarantor unless the trust had become bound to proceed against them by reason of extraordinary resolution passed by one-fifth of noteholders, but had failed to do so (clause 9.1);
(5) made provision for substitution of the issuer and for the release of the issuer on being substituted from all its obligations under the trust deed and notes (clause 14.2);
(6) was governed by English law with jurisdiction confirmed on the English court (clauses 19.1 and 19.2); and
(7) included a schedule, schedule 3, which made specific provision for meetings of noteholders.
- Paragraph 22 of the schedule stated:
"An Extraordinary Resolution shall be binding on all the Noteholders, whether or not present at the meeting, and each of them shall be bound to give effect to it accordingly. The passing of such a resolution shall be conclusive evidence that the circumstances justify its being passed. The issuer shall give notice of the passing of an Extraordinary Resolution to Noteholders within 14 days but failure to do so shall not invalidate the resolution."
- The terms and conditions of the notes were set out in schedules 1 and 2 to the trust deed and were so far as presently relevant:
(1) condition 3(b) provided:
"Status: The Notes constitute (subject to Condition 4) direct, unconditional, unsecured and unsubordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4, at all times rank at least equally with all their respective other present and future unsecured and unsubordinated obligations."
(2) condition 5 provided that the notes were interest-bearing from 27 November 2006, with the interest payable semi-annually in arrears on 27 May and 27 November of each year commencing on 27 May 2007;
(3) condition 6(a) provided for the final redemption for notes on 27 November 2009;
(4) condition 12 made reference to the provisions of the trust deed, whereby the trust deed could be modified by extraordinary resolution with defined quorum and voting majorities. Condition 12 stated in its final sentence:
"Any Extraordinary Resolution duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolution was passed)."
(5) condition 13 restated the enforcement provision contained in clause 9.1 of the trust deed;
(6) condition 18 provided that the notes were governed by English law with the jurisdiction in favour of the English court.
- Following the original notes issue, in December 2007 Imcopa C was substituted for Imcopa U as issuer, pursuant to clause 14.2 of the trust deed. This substitution was recorded in the first supplemental trust deed. There is an issue as to the effect of this substitution. In June 2008, certain amendments, mostly referring to the financial covenants applicable to the Imcopa Group, were made to the trust deed and conditions of the notes, as referred to in a second supplemental trust deed dated 2 June 2008. The amendments were made pursuant to the extraordinary resolution procedure in schedule to the trust deed.
- In late 2008, the Imcopa Group appointed Deloitte Touche Tohmatsu to prepare a restructuring plan aimed at obtaining sufficient resources to service its existing debt obligations and develop its business. The restructuring plan was formulated and implemented in the period leading up to May 2011, when a formal reorganisation plan received judicial confirmation from the Brazilian court.
- During 2009 and 2010, the process of implementing this restructuring gave rise to four separate proposals to the Group's noteholders, including the claimants, in the form of consent solicitations, all of which were approved by extraordinary resolution pursuant to the extraordinary resolution procedure in schedule 3 to the trust deed. On each occasion, the consent solicitation involved:
(1) the distribution to noteholders of a consent solicitation statement setting out in detail the proposed modifications and reason for them;
(2) the distribution to noteholders of a notice of meeting of extraordinary resolution;
(3) a press release announcing the consent solicitation and the proposed meeting of noteholders;
(4) a meeting of noteholders at which minutes were taken;
(5) a vote recorded on each occasion in a voting record.
- Thus in May 2009, Imcopa Group made a detailed proposal to all existing noteholders ("the May 2009 consent solicitation") which was duly approved by extraordinary resolution passed at a meeting of noteholders on 17 June 2009.
- In October 2009, a further detailed proposal was made to existing noteholders ("the October 2009 consent solicitation") which was duly approved by extraordinary resolution passed at a meeting of noteholders on 10 November 2009. On 10 November 2009, a third supplemental trust deed was executed to give effect to the modifications approved by extraordinary resolution. In May 2010, a further detailed proposal was made to existing noteholders ("the May 2010 consent solicitation") which was duly approved by extraordinary resolution passed at a meeting of noteholders on 1 June 2010. In October 2010, a final detailed proposal was made to existing noteholders ("the October 2010 consent solicitation") which was duly approved by extraordinary resolution passed at a meeting of noteholders on 26 October 2010. On the same date, a fourth supplemental trust deed was executed to give effect to the modifications approved by extraordinary resolution.
- In conjunction with three of these consent solicitations, in October 2009, May 2010 and October 2010, it was openly proposed in documentation sent to all noteholders that a "consent payment" would be made to all those noteholders voting in favour of the extraordinary resolution. The proposal to make consent payments to those voting in favour was also referred to in the press release issued before the relevant noteholder meeting. On each occasion, as was also explained in the documentation, the consent solicitation involved, among other elements, the postponement of a semi-annual interest payment which otherwise had been payable in respect of the notes. Each of the extraordinary resolutions approving the consent solicitations was passed by an overwhelming majority of noteholders, both by reference to votes cast and to principal amount outstanding.
- The defendants contend that the high level of support reflected the fact that it was obviously in the interests of all noteholders that the Imcopa Group's financial restructuring was completed successfully. It is to be noted that the claimants themselves voted in favour of the first, second and third of the consent solicitations and duly received consent payments in the amounts of $56,276 and $31,512 paid to approving noteholders in respect of the October 2009 and May 2010 consent solicitation. The claimants did not vote in favour of the October 2010 consent solicitation, and accordingly did not receive a consent payment in respect thereof.
- Following the October 2010 consent solicitation, on 16 May 2011, the Brazilian court granted confirmation of the reorganisation plan, which thereby became binding as a matter of Brazilian law on all secured and unsecured financial creditors of Imcopa, including the noteholders. The final step in the restructuring was announced to the public by press release dated 4 August 2011.
- The claimants issued proceedings on 17 November 2011. They seek:
(1) a declaration that the extraordinary resolutions passed in respect of the last of the three consent solicitations were illegal, invalid and ineffective in English law;
(2) a declaration that the contract between the parties, as represented by the claimants' investment in the notes, has been terminated by repudiation;
(3) a declaration that each of the defendants is liable to refund to the claimants the purchase price of US$1.2 million;
(4) orders made on various bases for the payment of US$1.2 million to the claimants;
(5) orders against Imcopa C and Imcopa B for the payment of damages for breach of contract in the amount of US$31,128, being the amount represented by the consent payment, which was not received by the claimants as a result of the October 2010 consent solicitation; and
(6) an inquiry and interest.
- The essential allegations at the heart of the claim, as set out in the Particulars of Claim, are that:
(1) The consent payments:
"... contravened the contract and the law and initiated a repudiatory breach of contract o each occasion." (para. 19)
(2) It was:
"... unlawful to offer or pay to one or some of the Noteholders, to the exclusion of others of the same class, benefits which did not form part of the scheme to be voted for." (para. 20)
(3) The consent payments:
"... were in the nature of a bribe, and in themselves rendered unlawful each scheme the subject of the resolution. The payments were made in fraud of those Noteholders from whom equivalent benefits were withheld." (para. 21)
(4) Each three of the last three extraordinary resolutions was made, "illegally" with the effect the resolutions themselves were void and in no effect in English law. (para. 26)
- The claimants apply for summary judgment in respect of these claims.
- The defendants make cross-applications to strike out or to obtain summary judgment in respect of the claimants' claims. These applications are made on three distinct grounds:
(1) the claim against Imcopa U should be struck out as disclosing no reasonable cause of action and/or being bound to fail, because as the claimants themselves have pleaded at paragraph 11 of the Particulars of Claim, Imcopa U was released from any and all obligations under the trust deed and the notes when it was substituted as issuer on 28 December 2007. Further, since there is no pleaded claim that Imcopa U was involved in any way with the matters said to give rise to the claim, which relates exclusively to the three consent solicitations from October 2009 onwards, it should not be a party to the proceedings;
(2) the claim against Imcopa C and Imcopa B, and to the extent it has not been released, Imcopa U, is brought in breach of the express prohibition on the claimants bringing proceedings directly against the issuer or the guarantor contained in clause 9.1 of the trust deed and/or condition 13 of the terms and conditions of the notes, and on this basis, the claim against each of them should be struck out;
(3) in any event, the claimants have no real prospects of succeeding on the claim, either on the basis of the alleged liability arising from the consent payments or on any basis, and summary judgment should therefore be granted in favour of the defendants and the claimants' application for summary judgment should be dismissed.
The relevant principles
- CPR part 25 provides as follows:
"24.2. The court may give summary judgment against the claimant or defendant on the whole of a claim or on a particular issue if -
(a) it considers that –
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial."
- CPR rule 3.4 provides:
"Power to strike out a statement of case
3.4 (1) In this rule and rule 3.5, reference to a statement of case includes reference to part of a statement of case.
(2) The court may strike out a statement of case if it appears to the court
(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim…."
- In considering applications under CPR 3.4(2)(a) and CPR 24, the burden is on the applicant to prove either that the statement of case discloses no reasonable grounds for bringing or defending the claim (CPR 3.4(2)(a)), or that there is no real prospect of succeeding on the claim or issue (CPR 24). CPR 3.4(2)(a) gives rise to examination of the pleadings on the assumption that the pleaded facts will be established. CPR 24 allows for a wider inquiry, but does not always do so in practice.
- In the present case, it was common ground between the parties that the court has before it all the evidence in needs for a proper determination of the legal issues raised. In those circumstances, both parties submitted that I should decide the points in issue. In this connection, I was referred to the case of ICI Chemicals & Polymers Limited v TT Training Limited  EWCA Civil 725. In that case, Moore-Bick LJ, when giving the judgment of the court, stated as follows at paragraph 12:
"It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better."
- Further, as Lord Woolf MR stated in Swain v Hillman  1 All ER 91 at pages 94 to 95:
"It is important that a judge in appropriate cases should make use of the powers contained in Pt 24. In doing so he or she gives effect to the overriding objectives contained in Pt 1. It saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in a claimant's interest to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible."
The claim against Imcopa U
- At paragraph 10 of the Particulars of Claim, it is pleaded that:
"On 28 December 2007, pursuant to powers reserved in the terms and conditions, the Trust Deed and the Agency Agreement, Imcopa C was substituted for Imcopa U as the Issuer."
- In paragraph 13.7 of the Defence, it is admitted and averred that this substitution took place pursuant to the provisions of the November 2006 trust deed. The substitution was duly effected by means of the first supplemental trust deed dated 28 December 2007. Paragraph 10 of the Particulars of Claim further alleges:
"The substitution took place without reference to or consent of the Noteholders."
- In fact, as the defendants submit, noteholder consent was not required for the substitution, because clause 14.2.1 of the trust deed provided:
"The Trustee may, without the consent of the Noteholders, agree to the substitution of the Issuer's successor in business or any Subsidiary of the Issuer or the Guarantor or its successor in business ... in place of the Issuer ... as a principal debtor under this Trust Deed and the Notes."
- In paragraph 11 of the Particulars of Claim, the claimants allege that at the point of substitution, its effect was that:
"... Imcopa C became contractually responsible to the Noteholders for compliance with the obligations of the Issuer but Imcopa U was not itself discharged from its own responsibility up to the date of substitution."
- The defendants submit, however, that this contention is irreconcilable with the terms of clause 14.2.2 of the trust deed, which provided that:
"Release of Substituted Issuer or Substituted Guarantor: An agreement by the Trustee pursuant to Clause 13.2 will, if so expressed, release the Issuer or the Guarantor (or a previous substitute of either of them) from any or all of its obligations under this Trust Deed and the Notes. Notice of the substitution will be given to the Noteholders within 14 days of the execution of such documents and compliance with such requirements."
- In relation to clause 14.2.1 of the trust deed, the claimants point out that it has a number of conditions to be met concerning the status of the substituted party before a valid substitution can be made, and they do not admit that they were in fact met. However, that is not their pleaded case; there is no evidence to suggest that the conditions were not met; the fact of the issue of and the terms of the first supplemental trust deed indicate that they were met, and I am not satisfied on the evidence before the court that there is any prospect of the contrary being established.
- The claimants also stress that clause 14.2 refers to the release being "so expressed" and they contend that there is no evidence that there was any such express release. However, the first supplemental trust deed itself expresses the trustee's agreement to the release. It states that the trustee's agreement to substitute was being made pursuant to clause 14.2 of the trust deed, and that its effect was to release Imcopa U, "from any and all of its obligations under the Trust Deed and the Notes".
- I accordingly agree with the defendants that the assertion that Imcopa U "was not itself discharged from its own responsibility up to the date of substitution" is not made out. Further, even if Imcopa U remained responsible following substitution in respect of any liability arising before 28 December 2007, the claimants have effectively conceded in paragraph 11 of the Particulars of Claim that Imcopa U had no responsibility after that date. This is significant, since the cause of action alleged in the Particulars of Claim arises only from the consent solicitations entered into from October 2009 onwards, and there is no allegation that Imcopa U was in any way involved or responsible in that or any subsequent consent solicitation. There is therefore no pleaded basis on which Imcopa U could properly be held liable to the claimants.
- In the above circumstances, I find that the claim against Imcopa U has no real prospect of success and should be dismissed. In those circumstances, it is not necessary to decide whether there were no reasonable grounds of bringing the claim and that it should therefore be struck out.
The claim against Imcopa B and Imcopa C
The no action clause
- The final sentence of clause 9.1 of the trust deed provides:
"Only the Trustee may enforce the provisions of the Notes or this Trust Deed and no Noteholder shall be entitled to proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing."
- Under the trust deed, the only circumstance in which the trustee might become "bound" to proceed against the issuer or the guarantor are those set out in the first sentence of clause 9.1, namely where, after the notes have become due and payable:
"(a) It shall have been so directed by an Extraordinary Resolution or so requested in writing by the holders of at least one-fifth in the principal amount of the outstanding Notes and
(b) it shall have been indemnified and/or secured to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith."
- A provision to similar effect is made in the final sentence of condition 13 of the terms and conditions of the notes. Further, condition 17 of the notes also provided:
"No person shall have any right to enforce any term or condition of the Notes under Contracts (Rights of Third Parties) Act 1999."
- The Particulars of Claim contain no allegation that the trustee was bound to proceed against either Imcopa C (as issuer) or Imcopa B (as guarantor) in respect of any of the matters raised by the present claim. The defendants contend that it follows that the claimants are not entitled to bring and are precluded from bringing the present claim against both Imcopa B and Imcopa C by the provisions of clause 9.1 of the trust deed and/or condition 13 of the terms and conditions of the notes.
- The claimants contend that the no action clause cannot be relied upon where there has been an accepted repudiation of the contract. The defendants did not dispute that this was at least arguably correct. The grounds upon which the claimants contend that they are entitled to bring this claim, notwithstanding the no action clause, are therefore bound up with claims on the merits, which I shall now address.
The merits of the claims
- In order to make good their pleaded case, the claimants would have to establish that the consent payments made in connection with the restructuring were either: (1) in the nature of illegal bribes made toward any noteholder to whom they were not paid; and/or (2) gave rise to repudiation and breach of contract which the claimants were entitled to accept and have accepted.
- The defendants submit there is no real prospect of the claimants establishing any of the essential elements of their claim.
- In support of their case, the claimants advance two main points. First, they contend that the offer of a consent payment to the noteholders if they voted in a particular way was a bribe, was illegal and invalidated the vote taken. Secondly, they contend that the different treatment of consenting and non-consenting noteholders violated the fundamental requirement that the noteholders as a class should be treated pari passu in all respects, without any preference between the notes or amongst themselves.
- In support of their contention that the consent payments were a bribe and illegal, the claimants rely principally on two authorities.
- First, they rely on Goodfellow v Nelson Line Liverpool Limited  2 Ch 324. In that case, the company had issued debentures to the amount of £200,000 bearing interest at 4.5 per cent, and guaranteed as to £150,000 by the Law Guarantee Society, which then went into voluntary liquidation, and as to the remaining £50,000 by the BS Investment Trust, £47,000 of these debentures being taken up by the Trust itself.
- The Society and Trust were joint trustees of a trust deed securing the debentures and providing for remuneration and certain payments to the Society and Trust in consideration of their respective guarantees and giving to a majority of the debenture holders the usual powers to bind a minority. The Society's liquidators offered to retire from the trusteeship and to forgo any further payments under the trust deed in consideration of being released from its guarantee. The company desired to accept this offer and submitted a scheme to the debenture holders, providing that they should accept non-guaranteed debentures bearing interest at 5 per cent in lieu of the guaranteed debentures, bearing interest at 4.5 per cent, and also providing in effect that all payments failing to be made by the company to the Trust under the trust deed should remain unaffected, except that the Trust should give credit for the additional 10 shillings interest on the debentures formally guaranteed by them. Without this provision, the Trust would not have supported the scheme. A resolution in favour of the scheme was passed by the requisite majority debenture holders, the Trust, without whose vote it would not have been carried, voting in favour of the resolution. The plaintiff, the holder of a debenture guaranteed by the Society, impeached the resolution on the grounds that the payments to be made to the Trust were in the nature of a bribe to induce the Trust to vote in favour of the scheme. The plaintiff's claim was rejected by Parker J, who held that the separate treatment of the Trust openly provided for by the scheme was not in the nature of a bribe and that the Trust was not thereby incapacitated from voting on the scheme.
- In his judgment Parker J stated that:
"It is further observable that the special provisions to be made in favour of the Trust were prominently referred to in the notice convening the meeting and were part of the scheme submitted to the meeting. At the meeting the scheme was, in fact, approved by the requisite majority. But the Trust, in respect of its holding of £47,500, and also the holders of the further £2,500 guaranteed by the Trust, voted in favour of the scheme, and it is clear that but for the fact that the Trust voted in favour of the scheme the resolution adopting it would not have been carried by the requisite majority. Under these circumstances the plaintiff contends that the resolution is not binding on her, notwithstanding the provisions of the trust deed, because, she says, the company procured it to be passed by bribing the Trust.
It appears to me that the term 'bribery' cannot be used appropriately in connection with this case. The powers conferred by the trust deed on a majority of the debenture-holders must, of course, be exercised bona fide, and the Court can no doubt interfere to prevent unfairness or oppression, but, subject to this, each debenture-holder may vote with regard to his individual interests, though these interests may be peculiar to himself and not shared by other debenture-holders ...
A secret bargain by one debenture-holder for special treatment might be considered as corrupt and in the nature of bribery, but, in my opinion, there can be no question of bribery where a scheme openly provides for the separate treatment of persons with special interests. The only question is whether these persons are incapacitated from voting on the scheme, and I can see no grounds in equity for so holding."
- The claimants contend that this case shows that if the consent payments are properly to be characterised as a bribe that it would invalidate any vote taken in the light thereof. However, it does not provide any support for their case that the consent payments are to be so characterised. On the contrary, it shows that where a scheme openly provides for a particular payment and it is not in any way "secret" then it is unlikely to be characterised.
- Secondly, they rely on British American Nickel Corporation Limited v M J O'Brien  AC 369. In that case a company, incorporated in Canada, issued mortgage bonds secured by a trust deed, which gave power to a majority of the bondholders to sanction any modification of the rights of the bondholders. A scheme for the reconstruction of the company provided for the mortgage bonds being exchanged for income bonds subject to an issue of first income bonds. The scheme was sanctioned by the majority of the bondholders requisite under the trust deed. The required majority would not have been obtained but for the vote of a holder of a large number of bonds (a Mr John Booth) whose support of the scheme was obtained by the promise of a large block of ordinary stock, an arrangement which was not mentioned in the scheme. It was held by the Privy Council that the resolution was invalid because the bondholder in voting had not treated the interests of the whole class of bondholders as the dominant consideration.
- In giving the judgment of the Privy Council, Viscount Haldane considered the case of Goodfellow, as to which he said as follows:
"It was there held that while the power conferred by a trust deed to a majority of debenture holders to bind a minority must be exercised bona fide, and while the Court has power to prevent some sorts at least of unfairness or oppression, a debenture holder may, subject to this, vote in accordance with his individual interests, though these may be peculiar to himself and not shared by other members of the class. It was true that a secret bargain to secure his vote by special treatment might be treated as bribery, but were the scheme to be voted upon itself provides, as it did in that case, openly the special treatment of a debenture holder with a special interest, he may vote inasmuch as the other members of the class had themselves known from the first of the scheme. Their Lordships think that Parker J accurately applied his judgment on the law on this point."
- In relation to the facts, Viscount Haldane stated as follows:
"Mr John R Booth's vote was necessary in order to gain the required majority of bondholders and it was secured by a promise to give him $2,000,000 of the ordinary stock of the Nickel Corporation. This stock was at the time of little value, but it was evidenced that if the price of nickel rose it might become of value. The promise to Mr. Booth was made seven months before the new scheme was submitted to the bondholders,
... at the trial in the Supreme Court of Ontario, Kelly J. held that what was really done was that the majority at the meeting did not act in the bona fide exercise of their rights which the majority might exercise, but in consideration of what would benefit Nickel Corporation and the personal interests of those votes were to be secured. The vote had been influenced by special negotiations in advance of the meeting."
- Viscount Haldane concluded as follows:
"The Lordships are of the opinion that judgment was rightly given to the respondents in this appeal. In the first place, it is plain, even from his own letters, that before Mr J. R. Booth would agree to the scheme of 1921, his vote had to be secured by the promise of $2,000,000 ordinary stock of Nickel Corporation. No doubt he was entitled in giving his vote to consider his own interests. But as that vote had come to him as a member of a class, he was bound to exercise it with the interests of the class itself kept in view as dominant. It may be that, as Ferguson J.A. thought, he and those with whom he was negotiating considered the scheme the best way out of the difficulties with which the Corporation was beset, but they had something else to consider in the first place. Their duty was to look at the difficulties of the bondholders as a class, and not to give any one of these bondholders a special personal advantage, not forming part of the scheme to be voted for in order to induce him to assent."
- The claimants rely in particular on the passage that their duty was to look to the difficulties of the bondholders as a class and not "to give any one of these bondholders a special personal advantage not forming part of the scheme to be voted for in order to induce him to assent". They submit that in this case, the consenting noteholders were being given a "special personal advantage" in order to induce them to assent and that that is properly to be characterised as a bribe. However, as the defendants point out, the "special personal advantage" in the British American Nickel case was a secret agreement which was the result of special negotiations in advance, and which was not disclosed as part of the scheme to be voted upon. Further, Viscount Haldane approved the decision in Goodfellow to the effect that:
"... where the scheme to be voted upon itself provides, as it did in that case, openly for special treatment of a debenture holder with a special interest, he may vote, inasmuch as the other members of the class had themselves known from the first of the scheme."
- I do not consider that the authorities relied upon by the claimants bear out the case which they seek to make, and I reject their case on a number of grounds.
- First, the authorities show that payments offered in exchange for votes do not constitute bribery where the relevant scheme has openly provided for the separate treatment of persons with a different interest, and such persons were not incapacitated from voting on the scheme. The fact this is the correct interpretation of the Goodfellow and the British American Nickel cases is borne out by Palmer's Company Law paragraph 12.068, which states as follows when referring to those cases:
"If the holder of a substantial block of the class concerned is offered an inducement to support the scheme, this may well make the purported approval void, unless it is disclosed to the other members. If full disclosure is made, the court will, in appropriate circumstances, approve the scheme and even allow the votes of the person concerned." (emphasis added)
- Secondly, the consent payments offered in this case had the following characteristics, which are inconsistent with any case of bribery, fraud or illegality: (1) they were openly and repeatedly disclosed and explained in documents made available to all noteholders before the relevant noteholder meeting and vote took place; (2) the consent payments were payable on an equal basis to all those noteholders voting in favour of the relevant consent solicitation; (3) each noteholder was entitled and free to vote in favour of or against the consent solicitation as it saw fit.
- Thirdly, although there appears to be no English case in which the validity of the modern variant of payments to bondholders, known as consent payments, has been considered, the issue has arisen in a number of cases in the leading US corporation jurisdiction of Delaware, where consent solicitation and consent payments appear to have been a commonly used means of debt restructuring since at least the 1980s. The Delaware court has held that such payments within certain limits are permissible. One example of this is Kass v Eastern Airlines Inc  WL 13008 (Del Ch), which was concerned with proposed amendments to an airline's bond indentures. Faced with the contention by the claimant bondholder that vote buying was wrong in law, Allen C held at page 4:
"The fact that the offer in this case is one made publicly to all voters on the same terms that each bondholder is free to accept or reject it precludes, in my opinion, a conclusion that it disenfranchises any voter or group of voters (although the same could not perhaps be said were the offer of consideration in exchange for a bondholder's vote not made to all bondholders on the same terms)."
- In relation to his suggested qualification, he stated further, as follows at page 5:
"For example, had Eastern not made its offer to all bondholders on the same terms, but had it privately paid money to sufficient holders to carry the election, one would no doubt more feel some confidence in concluding provisionally at least, that such conduct was so inconsistent with the concept of voting implied by the amendment provision that it constituted a violation of what must have been the reasonable expectation on the contracting parties."
- That such payments have been a commonplace feature of debt refinancing in the United States is borne out by an article on the topic published in 1991 entitled, "Legal Aspects of Public Debt Restructurings: Exchange Offers, Consent Solicitations and Tender Offers", 4 De Paul Business Law Journal 49. In that article, the authors noted at page 59 that:
"A consent solicitation is a debt restructuring mechanism pursuant to which the issuer solicits consents from its bondholders to the adoption of amendments to the indenture governing the issuer's debt securities. This is often done in exchange for the issuer's payment to consenting bondholders of a consent fee or other form of consideration."
- It then gives in the footnote examples of various recent consent solicitations. The authors continue further on at page 70:
"Consent solicitations typically involve the payment of cash or other forms of consideration by the issuer to its bondholders in exchange for their consent to proposed amendments to the governing indenture. Although such consent payments have been challenged as a form of 'vote-buying,' violative of public policy and in breach of an implied duty of good faith and fair dealing, it is well established that such payments, within certain limits, are permissible."
- As to the limits here referred to, the authors point out by reference to the Kass case that:
"In response to the allegations of "vote buying" and a breach of an implied duty of good faith and fair dealing, the court in Kass emphasized that had Eastern not made a solicitation offer to all bondholders on the same terms, but rather had paid privately paid money to a sufficient number of holders to ensure adoption of the proposed amendments, a different result would likely have been reached. The validity of consents obtained as a result of offering disparate amounts or a form of consideration to bondholders or consideration offered to some but not all bondholders is therefore subject to question."
- The emphasis on the significance of a private rather than open offer being made and on the offer being made on the same terms to all is consistent with the approach in the English law authorities, as set out above.
- For all these reasons, I conclude that there was nothing fraudulent or illegal about the open consent payments offered alike to all noteholders, that they were not a bribe and that the vote was not invalidated thereby.
- As to the claimants' contention that noteholders were not being treated pari passu, I agree with the defendants that the consent payments were not inconsistent with the pari passu status of the note.
- First, each of the consent solicitations where consent payments were offered involved postponing the date on which interest would become payable to all noteholders. On approval of the relevant extraordinary resolution, therefore none of the noteholders would have received the interest payment which would otherwise have been due at that time. This quantification of the terms of the notes, once approved by resolution, was binding on all noteholders equally. The consent payments did not therefore represent the payment of interest to some but not all noteholders.
- Secondly, the consent payments did not involve the conferral of benefits on some but not all noteholders, but the payment of consideration to those voting in favour in return for their agreement to the consent solicitation.
- Thirdly, the offer of consent payments was made openly to each and every noteholder and was not paid pursuant to any obligation owed to all noteholders contained in the notes.
- Fourthly, the consent payments did not involve payments being made by the trustee under the trust deed. The payment was to be made by the solicitation agent in return for acceptance of the offer being made. It therefore does not fall within clause 6 of the trust deed, being the pari passu contractual provision relied upon by the claimants. Further, there is nothing in the trust deed or the notes which prevents the payment of consent payments in conjunction with the consent solicitations.
- As to the claimants' arguments on repudiation, these depend on showing that the voting on the extraordinary resolution was invalid and that the consequent purported but unlawful variation to the contractual documentation was repudiatory. However, since I have found that there are no grounds for impugning the vote taken, the repudiation argument must fail.
- Finally, although it is not contended that the consent solicitation was unfair or oppressive, it should be noted in this context that: (1) in voting on two occasions on consent solicitations involving consent payments and personally receiving such payments, the claimants effectively acknowledged that at least those consent payments were lawful and waived any right to contend otherwise; (2) all three consent solicitations were passed by an overwhelming vote by majority of noteholders and are therefore binding on all noteholders pursuant to the terms of the trust deed and the notes; and (3) each of the consent solicitations forms part of the reorganisation plan which has now been formally confirmed by the Brazilian court on a basis which makes it binding as a matter of Brazilian law on all noteholders.
- For all these reasons, I accept the defendants' case that the claimants' substantive claims have no real prospect of success and should be dismissed. In those circumstances, it further follows no grounds have been made out for going behind the no action clause, and for that reason also the claims must be dismissed.
- The claimants' application for summary judgment is accordingly dismissed and the defendants' cross-application for summary judgment is granted.
Ruling on permission to appeal and costs
- In relation to permission to appeal, I am not going to grant permission. I will give my reasons in writing, but I am not satisfied the appeal would have a real prospect of success, and although Mr Goldblatt has submitted that there are in this case other compelling reasons why there should be an appeal because of the potential importance of some of the issues of law raised, I consider that that should more appropriately be considered by the Court of Appeal and I am not persuaded that I should grant permission on that basis, but I will set out brief reasons in writing in the usual way.
- Various issues have arisen in relation to costs. The first is whether costs of the action should be paid on an indemnity basis. The defendants submit they should, and they have referred me to the relevant rule in CPR and also to the judgment of Sir Anthony Colman in National Westminster Bank Plc v Rabobank Nederland  3 Costs LR 396, in particular paragraphs 26 and 29. Paragraph 26 sets out a citation from the judgment of Tomlinson J in the caser of Three Rivers District Council v Governor and Company of the Bank of England  EWHC 816 (Comm) and I refer in particular to paragraphs 1 to 6 of that judgment.
- The main reasons advanced for indemnity costs were firstly it was said the claim was speculative and thin. Although I have granted summary judgment to the defendants, I accept the claimants had an arguable case and I would not characterise it as being speculative.
- Secondly, it is said the case involved allegations of fraud, illegality and bribery. It is true that was the nature of the characterisation of the vote-buying case but it was not a case which involved allegations of dishonesty. The allegations of fraud were essentially of a technical nature based on the authorities and the alleged wider and superior principle of turning one's face against any form of vote buying. So I would not regard this as a case where there have been serious allegations of dishonesty made or like allegations which have been found to be unfounded.
- Thirdly, it is said this is a case where there was a no action clause and I was referred to another judgment of Colman J in the National Westminster Bank case where he made the point that in relation to cases which involve proceedings brought in breach of an arbitration clause or exclusive jurisdiction clause, indemnity costs may be awarded, not least to reflect the fact that the winning party may well have a right to damages in an equivalent amount in any event. Those cases do not apply directly here in relation to the no action clause which was part of the trust deed. Further, the claimants had an arguable case on this, even if the real prospect of success threshold was not met. If they had an arguable case for the purpose of making the application in relation to the merits, then they had an arguable case on repudiation, and therefore on displacing the no action clause, as the defendants accepted during the case of argument.
- Fourthly, it was said there were unsatisfactory features of the claimants' conduct of litigation and I was referred to various procedural defaults which they say the claimants were guilty of, but I do not regard any of those as being sufficient as taking this case out of the norm or in showing unreasonable conduct such as to justify an order for indemnity costs. So looking at all the various points made by the defendants, I am not satisfied this is one of those cases that justifies, in the exercise of my discretion, an indemnity costs' order.
- The next issue relates to what costs should be ordered. It is not in dispute that the defendants should have their costs of the action. What is in dispute is whether those costs should include the costs of their security for costs application. This application was initially issued in respect of costs of the action. It was then refined when the point was taken that in the light of the Nasser v United Bank of Kuwait decision, the relevant costs of security, if there was to be any, should relate to costs of enforcement. It was then changed to relate to costs of enforcement.
- The obvious intention was that the application should come on before the summary judgment application because they were seeking security for costs up to the stage of summary judgment. Unfortunately, the date originally fixed for the hearing was stood out. The claimants' estimate was that the hearing would take up to a day, whereas the defence estimate was 45 minutes. It seems to me once the claimants' position became one that it was going to take up to a day, it was inevitable, regardless of the reasonableness of the defendants' estimate, that the matter was to be stood out and despite attempts to relist it before the summary judgment application, it was not so relisted but was relisted to come on together with the summary judgment application. That meant it could not be dealt with before the summary judgment application and if (as indeed occurred) the claim was dismissed, then there would be no point to the application anyway.
- It was in those circumstances that the defendants did not press any application at the relisted hearing, although the claimants did put in a detailed skeleton argument relating to the issues of security for costs. It is unfortunate the parties did not correspond to see whether they could agree what should happen in relation to the security for costs application, but it seems to be fairly obvious that it could not properly be dealt with or there was no point in dealing with it prior to the determination of the summary judgment application once it had been listed to come on at the same time.
- The claimants also say there was never any basis for seeking security because they could have obtained security through withholding interest payments that would otherwise be due or entering into some agreement to hold those interest payments in lieu of security. I am not satisfied it has been shown there was any clear alternative to seeking an order. There was no clear offer of a payment into court or something equivalent to it, so I do not accept it was unreasonable to pursue the application for security for costs.
- I do accept there is some force in the point that the original application was made on too wide a basis, as was acknowledged when the application was then limited to enforcement costs. In those circumstances, I consider there should be some discount to the costs to be awarded, but a case such as this where proceedings have been brought but the claim has been dismissed, a claimant must recognise there is always a chance of security for costs' application being made and security for costs becoming part of the costs of the action. That risk materialised here, and I think in principle the claimants should pay the security for costs as part of the costs of the action, but I propose to discount the costs that would otherwise be awarded to the defendants in respect of that application by 25 per cent to reflect the reformulation of the way in which the application was being put forward.
- I then turn to the further issue of whether these costs should be summarily assessed or subject to detailed assessment. Both sides have put in schedules in a fairly similar format. The defendants' schedule in relation to costs of the action, apart from security for costs, is £80,000, which is similarly contrasted with the claimants' figure of some £110,000. The defendants' figure in relation to security for costs is some £45,000, being contrasted with the claimants' figure of some £72,000. Although points have been made in relation to some of the detail such as work on documents, when one looks at the matter broadly and by comparison to the claimants' own costs, it does not appear that the costs being claimed here are unreasonable and although it is said there is not sufficient detail to deal with summary assessment, both parties have put forward a summary assessment form, both have put forward costs on a similar basis and on a form which is quite usual in relation to summary assessment. So I do not accept that I cannot or should not summarily assess the costs. However, in doing so, I shall take into account the 25 per cent that should be taken off for costs in relation to security for costs' application and I also take into account that on detailed assessment, each shows it is likely that cost appeals will be taxed down to a certain extent. In all circumstances, I consider the appropriate figure for summary assessment of the total costs is a figure of £100,000.