Elektrim SA v Vivendi Holdings 1 Corp

A bond issue no-action clause should be construed in light of its commercial purpose. It may bar an individual bondholder’s tort claim where, in substance, the claim seeks recovery of a contractual benefit lost by the bondholders as a class. The characterisation of the cause of action does not determine whether the clause applies.

An anti-suit injunction may restrain vexatious or oppressive foreign proceedings. The court should not conduct a summary trial of the foreign claim, but its inherent weakness may be compelling when considered with the natural forum, collateral attack on English proceedings and absence of any legitimate foreign juridical advantage.

Vivendi Holdings 1 Corp acquired bonds guaranteed by Elektrim SA together with assigned claims from an existing bondholder. It then commenced Florida proceedings alleging fraud by Elektrim and breaches of duty by the English bond trustee. The alleged loss was the value of a contingent payment under the bonds.

Lewison J restrained the Florida proceedings. The injunction for Elektrim enforced a no-action clause reserving enforcement to the trustee. The injunction for the trustee rested on vexation and oppression. Vivendi Holdings appealed the former order and renewed its application for permission to appeal the latter.

The central issues were whether a tort claim for a class-wide contractual loss fell within the no-action clause and whether the Florida proceedings could properly be restrained as vexatious or oppressive.

1. The appeal concerning Elektrim was dismissed, and permission to appeal concerning the trustee was refused. Lawrence Collins LJ delivered the leading judgment. Hallett LJ and Sir Anthony May P agreed.

2. The no-action clause applied to claims which were, in substance, attempts to enforce the trust deed or bonds, even if pleaded in tort. Its commercial purpose was to centralise enforcement through the trustee, treat bondholders as a class, preserve equal sharing and prevent competing or duplicative proceedings. It should therefore operate, so far as its language reasonably permitted, against individual pursuit of class claims.

3. The Florida fraud claim sought the lost contingent payment arising under the bond conditions. The alleged statements were directed, if at all, to the bondholders as a class. The alleged misconduct also corresponded to breaches of the trust deed. Both the wrongful acts and the claimed loss mirrored a contractual enforcement claim. The proceedings were consequently within the no-action prohibition.

4. An injunction against Elektrim’s proceedings would also have been justified for vexation or oppression. A court considering that ground should not summarily determine a foreign claim or disregard more liberal foreign pleading and discovery procedures. It may, however, assess the claim in the round. Inherent weakness and implausibility may be important when combined with other oppressive features. The judge was entitled to regard the alleged reliance on press releases as incredible and the Florida claim as hopeless.

5. Permission to appeal the trustee’s injunction was refused. England was the natural forum. The trustee was English, the trust deed was governed by English law and the material conduct occurred in England. The principal non-disclosure allegation was contradicted by the evidence. The trustee had supplied the relevant award to the bondholders’ lawyers and acted on instructions from the required percentage of bondholders. It had no duty to second-guess the advice given by the bondholders’ own experienced lawyers.

6. The causation case was untenable because the petition debt had been paid, the Polish court had approved payment and the instructing bondholders would have directed withdrawal in any event. The Florida proceedings also sought collaterally to undermine English Part 8 proceedings concerning receipt and distribution of the funds. They could properly be restrained to protect the English court’s process.

1. Court of Appeal (Civil Division): By [2008] EWCA Civ 1178, dismissed the appeal against the anti-suit injunction obtained by Elektrim and refused permission to appeal against the injunction obtained by the trustee.
2. High Court, Chancery Division: Lewison J granted final anti-suit injunctions restraining continuation of the Florida proceedings. No neutral citation for that decision is stated in the judgment.