Law Debenture Trust Corporation Plc v Elektrim Finance BV & Ors

A contractual requirement for consensus of the entire management board refers to all members of the board, including a suspended bondholder-nominated director. Exercising a domestic-law power of suspension may therefore place the company in breach of the bond documentation. The effective removal of the nominated director otherwise than in accordance with the agreed contractual machinery may itself materially prejudice bondholders, and a later invitation to nominate a replacement does not necessarily cure that prejudice.

Contractual references to assets being seized are construed by their ordinary meaning and are not confined to lawful or confiscatory seizures. A single event may constitute more than one event of default. The filing of bankruptcy proceedings may trigger a contractual default even if the petition is later withdrawn. A trustee may obtain summary judgment for properly incurred costs where detailed supporting material is supplied and no plausible challenge to particular items is advanced.

The claimant was trustee of a €510 million bond issue. The first defendant was the issuer, the second defendant the guarantor, and the third defendant a bondholder. The claimant applied for summary judgment, alleging four events of default under the amended and restated trust deed.

The alleged defaults concerned the suspension of a bondholder-nominated director, administrative execution against a subsidiary’s bank accounts, non-payment of bond interest, and the filing of bankruptcy proceedings against the guarantor. The application also sought judgment for the trustee’s contractual costs and expenses.

The central issues were whether the alleged events fell within the contractual provisions, whether the interest had been paid, and whether the claimed costs could be summarily recovered.

1. First event of default. The requirement in Condition 10(d)[3] for consensus of the entire Management Board meant consensus of all members of the board as constituted, including the bondholder-nominated director. It could not be read as consensus only of members who were not suspended. Although Polish law permitted suspension, the contractual consequence was that Elektrim could no longer satisfy the contractual requirement. The suspension therefore constituted a breach of Condition 10(d).
2. The effective removal of the nominated director was a total repudiation of the contractual protection afforded to bondholders. That repudiation was capable of being certified as materially prejudicial to their interests. The prejudice consisted in the abrogation of their contractual right to have the nominated director participate in, and potentially prevent, relevant decisions. Elektrim’s later invitation to nominate a replacement did not cure the breach because it sought to impose a regime different from the contractual one. The claimant therefore succeeded on this event of default.
3. Second event of default. Administrative execution against Megadex’s bank accounts was a seizure within Condition 12(xiii). The expression was not narrowed by the existence of Condition 12(vi), nor was there any rule that one event could fall within only one default provision. Condition 12(xiii) was not confined to lawful seizures. The claimant therefore had an event of default on which Elektrim had no real prospect of resisting the claim.
4. Third event of default. The interest payment had not been made. The monies remained subject to the security arrangements, and the Security Agent was not obliged to act without the claimant’s instructions. The claimant was entitled to preserve the security and to apply or retain sufficient funds for properly claimed costs and expenses before payment of interest. Elektrim could not insist that the proceeds of the Mostosal sale were freely available to it.
5. Fourth event of default. The filing of an application for Elektrim’s bankruptcy constituted the initiation of proceedings under Condition 12(viii). The fact that the petition was subsequently withdrawn, and that Polish law attached no continuing consequences to it, did not alter the contractual meaning of the filing. The claimant was entitled to rely on this event of default.
6. Costs. The trustee’s contractual entitlement extended to properly incurred costs and expenses. The detailed invoices and narrative breakdown supplied were sufficient at the summary judgment stage. In the absence of a plausible challenge to particular items, judgment could be entered without a full assessment, subject to an inquiry concerning the separable part of Category 1 costs in respect of which a triable issue had been conceded. The precise form of the order and any credit for recoveries were left for further argument.

Not an appeal. The judgment itself records earlier related proceedings, including [2004] EWHC 270 (Ch), but those proceedings were not binding on Elektrim and are not the appellate history of this claim.