Madison Pacific Trust Ltd v Shakoor Capital Ltd & Anor

A trustee enforcing security for noteholders must exercise its discretion in the interests of the noteholders as a class and must not ordinarily prefer some beneficiaries over others. That duty does not prevent the trustee accepting and distributing recoveries to some beneficiaries where a legal impediment, rather than the trustee’s conduct, makes recovery for others impossible and the payment causes them no prejudice. Under a contractual payment waterfall, “liabilities” incurred through enforcement may include conditional liabilities to distribute recovery proceeds. “Arrears” refers to principal and interest remaining unpaid from the noteholders’ perspective, and distributions remain pari passu.

The claimant trustee sought directions concerning two series of limited-recourse notes and arbitral awards against PrivatBank. The awards required payments to the trustee, followed by distributions to ultimate account holders who were not implicated in illegality, while excluding related holders and providing a process for other holders to assert entitlement.

The trustee asked whether it could accept the awards’ payments and distribute them under the prescribed mechanism without breaching the trust deeds or incurring liability to other beneficiaries. The principal issues concerned the construction of the payment waterfall, the trustee’s duties when enforcing security, and the effect of the tribunal’s findings on holders who could not recover.

1. Directions granted. The trustee would not breach trust by accepting payments from PrivatBank under the arbitral awards and distributing them to the Entitled UAHs in accordance with the awards’ mechanism.
2. “Liabilities” in clause 8.1.1 of the Trust Deed has a broad meaning. On these facts, the trustee’s obligation to distribute payments required by the awards was incurred in or about the performance of the trusts and the realisation or enforcement of the security. The liability would arise if payment were received. Before receipt, it remained subject to the further contingency that PrivatBank paid, and the trustee was not bound to accept payment.
3. “Arrears” in clause 8.1.2 means principal and interest remaining unpaid from the perspective of the noteholders. The provision therefore applies to recovery proceeds received by the trustee and requires distribution pari passu; it is not limited by whether the Issuer or trustee is presently liable to make the payment.
4. The trustee had a wide contractual discretion over enforcement, but it remained subject to an overarching duty to act for the interests of all noteholders as a class. Ordinarily, it could not use available proceeds to benefit some holders while prejudicing others.
5. The awards created a legal impediment to recovery for the Related UAHs. Accepting payment for the Entitled UAHs did not prejudice the Related UAHs because the inability to recover resulted from the tribunal’s decision, not from the trustee’s action or inaction. The trustee was therefore entitled to proceed.
6. The tribunal’s findings and its definition of Entitled UAHs were binding on the trustee and the UAHs. If late-responding UAHs could still persuade the tribunal that they qualified as Entitled UAHs, the trustee had to advance arguments reasonably available on their behalf.
7. The alternative applications under the Court’s inherent jurisdiction and Trustee Act 1925 ss 57 and 61 did not require determination.