Bank of New York Mellon v GV Films Ltd

Under bond terms, an issuer’s failure to pay the trustee’s properly incurred legal costs can constitute an event of default without any additional requirement of materiality, repudiation or serious breach. A contractual obligation to reimburse such costs does not generally contain an implied requirement that the demand be limited to costs shown to be reasonable, although the scope of the obligation depends on construction and the facts.

A scheme of arrangement transferring substantially all an issuer’s assets may constitute a contractual event of default based on a readjustment of obligations, even where the issuer is solvent and the provision appears under an insolvency heading. Information obligations concern the timely provision of documents, so a delayed disclosure may remain capable of remedy. Complex interlocking redemption and subscription provisions may be unsuitable for summary determination where the contractual construction is genuinely arguable.

The claimant, a bank acting as trustee for holders of two convertible bond issues issued by the defendant, sought summary judgment after accelerating repayment following alleged events of default.

The alleged defaults concerned: unpaid trustee legal costs; the defendant’s Indian proceedings for approval of a scheme of arrangement involving the transfer of assets and liabilities to new companies; and failures to provide information required by the trust deeds. The claimant also advanced an alternative case based on mandatory redemption and a bondholder put option under the Euro Bonds, said to apply to the Dollar Bonds through cross-default provisions.

The defendant argued that the costs were not shown to be reasonable, that the Indian proceedings were not insolvency-related debt readjustment proceedings, that the information breaches had been remedied, and that the redemption and subscription provisions were conflicting. The central issue was whether the defendant had a real prospect of successfully defending the accelerated bond claim.

1. Legal costs. The contractual obligation to pay or discharge costs incurred by the trustee in performing its functions was an obligation within the relevant event-of-default provisions. No further requirement of materiality, repudiation or a really serious breach was imposed. The court rejected an implied term that a demand for reimbursement was valid only if the costs were reasonable. The trustee’s legal advice and the sums invoiced were, on the evidence, incurred and reasonable. The defendant therefore had no real prospect of defending this ground.
2. Indian scheme of arrangement. The relevant provisions were not confined to insolvency or bankruptcy. Despite the heading of the Dollar Bonds provision, the wording extended to proceedings for a readjustment of obligations or debts. The proposed transfer of substantially all the defendant’s assets to newly formed companies fell within those provisions and was not on terms approved by the trustee or bondholders. Events of default therefore arose under both bond issues.
3. Information provision. The defendant had breached its obligation to provide information concerning the proposed scheme, but had an arguable case that the breach was remedied by its later disclosure. The omission of the petition did not necessarily alter that conclusion. The position concerning information about the issue of global depositary receipts was also arguable. This ground could therefore be defended.
4. Alternative claim. It was unnecessary to decide the alternative claim, since the original claim succeeded. Nevertheless, the interaction between the issuer’s subscription right, mandatory redemption and the bondholder put right was sufficiently complex that the defendant could not be denied permission to defend it summarily. The requirement to deliver a certificate was construed as applying where a certificate existed, and not as requiring delivery of the global certificate in a transaction held through Clearstream.
5. The claimant was entitled to summary judgment on its originally pleaded claim. Consequential orders were reserved.

The judgment records that the defendant had appealed in India against the Madras High Court’s refusal to sanction the proposed scheme of arrangement. That appeal had not been heard when this judgment was given. The present proceedings were determined at first instance in the English Commercial Court.