Concord Trust v The Law Debenture Trust Corporation plc
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Concord Trust v The Law Debenture Trust Corporation plc [2004] EWCACiv 1001) (Court of Appeal)
Concord Trust v Law Debenture Trust Corporation plc [2005] UKHL 27 (House of Lords)
Facts
Elektrim issued some bonds under a trust deed. Condition 10(d) entitled the Trustee to require Elektrim’s supervisory board to appoint a person to its management board nominated by holders of not less than 25% of the outstanding value of the bonds. The bondholders nominated just such a fellow, who was appointed to the management board. Later, Elektrim suspended him and invited bondholders to nominate someone else.
The bondholders didn’t like this. They it was a breach of Condition 10(d). The trustee notified Elektrim on their behalf and requested the breach be remedied. Elektrim refused.
Condition 12 of the bonds provided:
- “The Bond Trustee [...] if so requested in writing by [...] an Extraordinary Resolution of the Bondholders shall (subject in each case to being indemnified to its satisfaction), give notice to the Issuer [...] that the Bonds are [...] due and repayable at their relevant redemption value [...] upon the occurrence of any of the following events (“Events of Default”) … ”.
This included any failure to perform any obligation under the Bonds that the Trustee certifies is “materially prejudicial to the Bondholders”.
Before the trustee could issue a notice of acceleration, Elektrim denied the suspension qualified as an Event of Default and warned the trustee it would suffer substantial losses if they went ahead with it.
The trustee feared[1] that it might face a substantial claim upon a disputed acceleration of the bonds. It sought indemnification from the bondholders for any liabilities it might incur for those losses.
Bondholders did not like this. They offered a limited indemnity for the costs of taking action, but not for the wider liability to the issuer for damages.
Writs flew.
Issues
- Is the Trustee obliged to give a notice of acceleration where the bond issuer has challenged the existence of the Event of Default?
- Could the Trustee insist on being indemnified against possible liability in damages to the issuer from giving a notice of acceleration which turned out to be invalid?
Judgments
High Court
At first instance the Vice Chancellor, Sir Andrew Morritt, thought the Trustee’s refusal to accept a limited indemnity was not “Wednesbury” unreasonable. He declined to regard as absurd the contention that the liability might be in the region of EUR1bn."
Court of Appeal
The Court of Appeal did not share the High Court’s view, nor the trustee’s timidity to acceleration. It thought that an acceleration notice, where there was no actual event of default, would be of no ‘legal effect’, and did not therefore cause an effective (but wrongful) acceleration.
Therefore, concluded their Lord Justices, there could be no possible legal action against the trustee and hence, it needed no indemnity, ignoring the age old riposte from those who seek indemnities everywhere[2]