Knighthead Master Fund Lp & Ors v The Bank of New York Mellon & Anor

Declaratory relief is discretionary. The court should consider whether there is a real and present dispute, whether the parties affected have had an opportunity to be heard, whether the declaration would serve a useful purpose, and whether it is the most effective way to resolve the issue.

A declaration may be useful even where its substance is not disputed between the immediate parties, particularly where it may assist a foreign court. The application should nevertheless be adjourned if persons with a material interest have not been given an opportunity to intervene. Interim injunctive relief should be refused where existing orders adequately protect the position and there is no sufficient justification for further restraint.

The claimants held euro-denominated exchange bonds issued by the Republic of Argentina under an English-law trust indenture. Following proceedings in New York concerning Argentina’s pari passu obligations, the Republic paid approximately €225 million to the first defendant, the trustee. The funds were retained pursuant to orders of the United States District Court.

The claimants sought declarations that the money was held on trust for the bondholders and the second defendant, and that a foreign court order could not vary an English-law contract. They also sought an interim injunction preventing the trustee from dealing with the money other than for the bondholders. The central issues were whether the declarations should be granted at that stage and whether interim relief was justified.

1. The application for an interim injunction was refused. The New York order required the trustee to retain the €225 million pending further order. The only outstanding New York application was brought by holders of the exchange bonds, and the trustee had undertaken to notify the claimants of any application or decision that might result in the funds being paid out otherwise than to the second defendant or the beneficial bondholders. There was therefore no sufficient justification for additional injunctive relief.

2. Declaratory relief is discretionary. Applying the principles summarised by Aikens LJ in Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387, the court considered the existence of a real and present dispute, the interests of persons affected, whether the declaration would serve a useful purpose, and whether it was the most effective means of resolving the issues.

3. Although the defendants did not dispute that the funds were held on trust under the Indenture, an English declaration could assist the New York court in determining whether Argentina retained any interest in the money. The declaration might therefore serve a useful purpose. The fact that the trustee opposed the declaration, despite not disputing its substance, also supported that conclusion.

4. The applications for both declarations were adjourned. The Holdout Creditors had not yet been given an opportunity to challenge the existence or terms of the alleged trust or the proposed conflicts declaration. They were to be notified that they could intervene, and the applications were adjourned to the December 2014 hearing, when the court would decide whether to grant both, one or neither declaration.