Concord Trust v The Law Debenture Trust Corporation Plc

Under a contractual acceleration clause, an obligation to repay immediately arises only when the specified conditions, including an Event of Default, exist. A notice purporting to accelerate when no Event of Default has occurred is ineffective and has no contractual effect. It is not a wrongful acceleration. The clause does not imply a separate obligation not to give an ineffective notice. Absent bad faith, the notice alone does not ordinarily create a tort claim. The supposed risk of substantial damages from such a notice was therefore misconceived. A trustee may still require satisfactory indemnity for the costs of urgently resolving whether an Event of Default occurred. The court should not compel acceleration until that issue is established.

The appeal concerned a €510 million bond issue secured by assets held through Elektrim SA. More than 70 per cent of the bondholders required the respondent trustee to accelerate repayment under condition 12, relying on an alleged Event of Default arising from the suspension of a bondholders’ nominee to Elektrim’s management board.

Concord commenced proceedings under Part 8 of the Civil Procedure Rules seeking a declaration that the trustee was obliged to accelerate. The Vice-Chancellor held that an ineffective acceleration would constitute a breach of contract capable of producing damages of approximately €876 million, found the indemnity offered by Concord unsatisfactory, and dismissed the application on 28 May 2004. The central questions on appeal were the contractual effect of an ineffective notice, any resulting causes of action or recoverable damages, and the appropriate relief while the existence of an Event of Default remained disputed.

Jonathan Parker LJ delivered the leading judgment, with Peter Gibson LJ and Laddie J agreeing. The appeal was allowed and the Vice-Chancellor’s order was set aside.

1. Contractual effect. Condition 12 permits acceleration only when its prescribed conditions exist, including an Event of Default. A notice purporting to accelerate when no Event of Default has occurred is ineffective and has no contractual effect. Applying the reasoning in Borealis AB v Stargas Ltd [2002] AC 205, it is devoid of legal significance as an acceleration notice. It is therefore not a wrongful or unjustified acceleration.
2. Breach and tort. The Trust Deed contains no express term prohibiting an ineffective notice. The prescribed circumstances for acceleration do not imply a separate obligation not to make an erroneous assertion of the repayment obligation. Absent bad faith, the mere service of such a notice disclosed no viable tort claim; a substantial defamation claim was fanciful.
3. Damages. The question of damages did not arise. Even assuming, contrary to the court’s conclusion, that the notice constituted a breach, the court could not identify any substantial loss caused to Elektrim, as opposed to nominal damage. The alternative damages analysis was expressly non-dispositive.
4. Indemnity and relief. The trustee had fundamentally misconceived the scale of the risk by seeking indemnity approaching €1 billion for damages arising from an ineffective notice. The real risk was the costs of proceedings determining whether an Event of Default had occurred. The court declined to grant Concord’s declaration because that issue remained live. The trustee should urgently commence proceedings joining Elektrim and Concord. It was, on the face of it, entitled to satisfactory indemnity for its own costs and any costs order.

The formal order provided for no order as to costs in either court, repayment with interest of the sum paid on account, and refusal of permission to appeal to the House of Lords.

1. Court of Appeal (Civil Division) — [2004] EWCA Civ 1001: appeal allowed and the Vice-Chancellor’s order set aside. The declaration sought by Concord was not granted pending determination of whether an Event of Default had occurred.
2. High Court, Chancery Division — The Vice-Chancellor dismissed Concord’s Part 8 application by order dated 28 May 2004, holding that the trustee could reasonably reject the indemnity offered because of its potential exposure to substantial damages.