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

An English court may make a declaration determining the status under English law of funds held under an English-law trust, even where related proceedings are pending in a foreign court, provided the declaration does not interfere with that court’s jurisdiction. A foreign injunction directed to the trustee does not itself confer a proprietary interest in trust funds on the debtor or its judgment creditors. A declaration that preserves unresolved contractual or general trust-law defences is ordinarily futile, because it merely states that the trustee is liable unless a defence exists.

Four investment funds holding euro-denominated Argentine exchange bonds sought interim declarations concerning €225 million transferred by Argentina to the trustee’s account in Buenos Aires. The bonds and relevant trust indenture were governed by English law. US proceedings concerning Argentina’s defaulted bonds had resulted in an injunction affecting payments on the exchange bonds and orders requiring the trustee to retain the funds.

The claimants sought a declaration that the funds were held on the trusts of the trust indenture, a declaration concerning the trustee’s continuing obligations, and a direction requiring the trustee to draw the English judgment to the attention of the US courts.

1. First declaration. It was appropriate to declare that the €225 million was held on the trusts declared by the English-law trust indenture. The declaration authoritatively stated the position under English law and did not improperly intrude into the US proceedings. The US courts remained entitled to determine the effect of their injunction as a matter of US law.
2. The US injunction did not itself give Argentina or the holdout creditors any proprietary interest in the funds held by the trustee. That conclusion was limited to English law and did not comment on the orders that might properly be made by the US courts.
3. The continuing paralysis of the trust caused by the injunction might have future consequences in English law, but those issues had not been argued and were not determined.
4. Second declaration. The proposed declaration concerning the trustee’s obligations was refused. The qualification preserving contractual and general trust-law defences was necessary because the trust indenture might relieve the trustee from obligations it was prohibited from performing, and a legal inhibition might provide a defence to breach of trust: Concord Trust v The Law Debenture Trust Corporation Plc [2004] EWHC 1216 (Ch) at [33]. A declaration stating that the trustee was liable unless it had a defence served no useful purpose.
5. Direction to the trustee. No direction was made requiring the trustee to bring the judgment and order to the attention of the US courts. The trustee was entitled to decide, with its attorneys, whether and when to do so. The claimants could themselves draw the judgment to the attention of the Court of Appeals through their permitted non-party briefs.

The application had previously been before Newey J, who adjourned it to enable holdout creditors to intervene: [2014] EWHC 3662 (Ch) at [21]–[26]. No holdout creditor intervened. The present court made the first declaration but refused the remaining relief.