Elliott International LP & Ors v Law Debenture Trustees Ltd

A trustee’s powers under an enforcement provision must be construed in the context of the provision as a whole. Proceedings challenging a foreign court’s jurisdiction to open restructuring proceedings are not enforcement proceedings merely because they may preserve bondholders’ contractual rights. A general power to take “other action” is limited to action enabling the trustee to exercise rights under the bonds. A bondholders’ no-action clause likewise restricts only enforcement action where that is the contractual context. The court may grant useful declarations between bondholders and their trustee even where the issuer and other bondholders are absent, provided they have notice and will not be bound.

The claimants held more than 70 per cent of certain Eurotunnel bonds issued under a trust deed. French safeguard proceedings had been opened in respect of the English issuer and other companies. The claimants commenced proceedings in the Paris Commercial Court challenging that court’s jurisdiction and sought declarations concerning the trustee’s powers and the effect of the bond terms.

The central questions were whether the trustee could commence or be required to commence the challenge under condition 14(a), and whether condition 14(b) prevented the bondholders from bringing or pursuing it themselves. The issuer and other bondholders had notice but were not parties.

1. Declaratory relief. The court decided the construction issue under condition 14(a), despite the issuer’s absence. The dispute was substantially between the trustee and the bondholders. The issuer had notice, would not be bound, and could challenge the conclusion in the Paris proceedings. The same reasoning supported granting relief concerning condition 14(b), since the declarations could still have practical utility.
2. Condition 14(a)(i). The Paris proceedings were not proceedings to enforce the bonds or related agreements. Their purpose was to challenge the French court’s jurisdiction and, potentially, to facilitate or preserve a restructuring. That remained so even if the proceedings were treated as part of the safeguard proceedings.
3. Condition 14(a)(ii). The reference to “other action” had to be read with paragraph (i) and the whole of condition 14. It referred to action enabling the trustee to exercise its rights under the trust deed and bonds, such as steps leading to enforcement. Commencing the Paris proceedings would not exercise those rights. Condition 14(a) therefore gave the trustee no power to commence them and could not require it to do so.
4. Condition 14(b). The no-action restriction was directed to enforcement. Although the definition of “dissolution” in the Agreement Among Lenders included administration and could bring the proceedings within the literal wording of condition 14(b)(i)(B) or (C), a further requirement was that the action be an action to enforce the bonds. The Paris proceedings did not satisfy that requirement. The claimants were therefore not prevented from bringing or pursuing them.
5. The court made declarations substantially in the terms sought. It did not resolve whether administration could reasonably be expected to follow the proceedings.