Law Debenture Trust Corporation Plc v Concord Trust & Ors Rev 1

An equitable right to redeem enables a mortgagor to perform the contractual redemption bargain late. It does not entitle the court to rewrite that bargain or permit redemption on more favourable terms. Where security secures accrued and contingent liabilities, redemption may require provision for contingent liabilities on reasonable, non-fanciful worst-case assumptions. A tender into escrow is conditional and is not a valid tender. Payment to a trustee does not itself redeem bonds where the money remains subject to the trustee’s indemnity and retention rights. A trustee may retain sufficient trust money to secure those rights, even while retaining the underlying security, if the contractual documents so provide.

The claimant trustee held security and monies arising from €510 million bonds issued by Elektrim Finance BV and guaranteed by Elektrim S.A. Elektrim paid €525 million to the trustee after earlier default and enforcement proceedings, but disputes remained over accrued costs, contingent liabilities, interest, release of security, distribution to bondholders and alleged rights concerning PAK shares.

The court was also asked to determine whether a bondholders’ resolution authorising payment of committee costs from the bond fund was valid. The central questions concerned the construction of the trust deed, bond conditions and security administration agreement, and the interaction between contractual redemption rights, equitable redemption, mortgage principles and the trustee’s lien and indemnity.

1. Security and redemption. The contractual documents formed a single package and secured Elektrim’s obligations under the trust deed, bonds and conditions, including accrued and contingent liabilities owed to or indemnifying the trustee. The equitable right to redeem did not permit the court to rewrite the contractual redemption terms. Elektrim was therefore not entitled to redeem the security before the bonds were redeemed in full.
2. PAK shares and tender. The wording concerning the PAK shares meant that they would secure both Elektrim’s guarantor obligations and its obligation to make the contingent payment, but the required Polish consent was never obtained, so the shares never became security. Elektrim’s offer to pay the disputed balance into escrow was conditional and was not a valid tender.
3. Contingent liabilities and partial redemption. Redemption required provision for contingent liabilities to the trustee’s satisfaction, assessed on reasonable, non-fanciful worst-case assumptions. The court rejected any general equitable jurisdiction to permit partial redemption of the security.
4. Redemption, interest and distribution. Payment to the trustee did not redeem the bonds because the trustee was not the bondholders’ agent and could apply or retain money for its own indemnity and remuneration. The bonds remained outstanding, interest continued to run, and the trustee could retain money and security needed to meet contingent liabilities. The trustee was permitted provisionally to retain €15.5 million and could not impose additional conditions on distribution inconsistent with the agreed payment scheme.
5. PAK claim and resolution. The conversion claim concerning the PAK certificates had no realistic prospect while a Polish attachment order remained in force; any remedy lay in Poland. The bondholders’ resolution was valid because the power to alter rights had been exercised for the benefit of the class as a whole.

First-instance decision. The judgment records earlier proceedings, including a House of Lords decision compelling acceleration and a judgment of Hart J, but gives no citation for the House of Lords decision.