Citicorp International Ltd v Castex Technologies Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 24 February 2016 |
| Neutral Citation | [2016] EWHC 349 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No. CL-2015-000675 |
| Date | 24 February 2016 |
2016 EWHC 349 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Burton
Case No. CL-2015-000675
Felicity Toube QC and Charlotte Cooke (instructed by Hogan Lovells International LLP) for the Claimant
Simon Bryan QC and Edward Brown (instructed by Fladgate LLP) for the
Defendant
Hearing date: Wednesday 3 February 2016
This has been the hearing of an application by the Claimant for summary judgment in respect of its claim that, on a true and proper construction of Condition 8.11 of the Terms and Conditions ("the Conditions") governing the US $ 70m 2.5% Convertible Bonds, due 2017 convertible into equity shares of the Defendant, ("the Bonds"), the Mandatory Conversion Notice by the Defendant dated 31 July 2015 ("the Notice") was invalid and of no effect, such that the Defendant is not entitled to rely upon it. In its response to the application for summary judgment, the Defendant asserted that on a true and proper construction of Condition 8.11 the Notice was valid. During the course of the hearing the parties sensibly agreed that there should be before me an application by them jointly for the determination by me of a Preliminary Issue as to the validity of the Notice. I am therefore entitled, and indeed obliged, to resolve the issue on the balance of probabilities, and there is thus no need for consideration of the nice questions of the onus and standard of proof on a summary judgment and reverse summary judgment application. There is another issue raised in the proceedings ("the Manipulation issue"), but this does not fall for consideration before me.
The Defendant is listed on the Bombay Stock Exchange and the National Stock Exchange of India ("the NSE") and issued the Bonds by a Trust Deed dated 20 September 2012 ("the Trust Deed"). The Bonds are issued to a number of Bondholders. The Claimant is the Trustee of the Bonds and has been instructed by a group of such Bondholders to bring these proceedings. Condition 8.2 of the Conditions permits the Defendant mandatorily to convert the Bonds into shares of the Defendant at any time on or after 20 September 2015 (prior to the date falling seven business days before the Maturity Date of 21 September 2017) having given not less than 30 or more than 60 days' notice, in circumstances where the Closing Price of the shares (as defined in Condition 6.3.15 of the Conditions) for each of the 30 consecutive days prior to the Notice was at least 130% of the principal amount divided by the Conversion Ratio (as defined in Condition 6.1.3). Such mandatory conversion of the Bonds must be " in whole but not in part".
The Claimant asserts that the Notice was invalid, because it did not contain the information which it asserts was required to be incorporated in the Notice by Condition 8.11. The Defendant asserts that Condition 8.11 is inapplicable, and that the Notice had no need to incorporate any of its contents, such that the Notice was valid and in accordance with Condition 8.2.
The Notice that was sent is attached as an Appendix to the Judgment.
There is also the right of a Bondholder to convert Bonds into shares at his election. The price fixed for conversion in the case of either mandatory or optional conversion is the same, and is provided for in Condition 6.
Conversion will be in the interests of the Bondholder when the Defendant's share price is trading above the (fixed) Conversion Price. This is because the Bondholders will effectively be 'buying' shares in the Defendant at a price below the value at which they trade, which they could then sell in the market. Where the shares are trading below the fixed price, the Bondholder's interest will be to retain the Bonds until they are redeemed (either on maturity or beforehand) at their face value. If the Bondholder exercised his option to convert then he would be able to keep the shares rather than their being sold by the Share Agent in accordance with Condition 8.2. By Conditions 8.3 and 8.4 in certain circumstances the Defendant could serve a Redemption Notice entitling it to redeem (in whole but not in part) the Bonds for the principal amount prior to the Maturity Date. The Bondholder's right of conversion applied even where the Defendant itself had served a mandatory conversion notice or a redemption notice, providing it took place seven days before the date specified in such notice.
Although there was some argument between the parties as to whether summary judgment should be granted and as to the remedies available in the light of the positions of third parties, e.g. other Bondholders, in the event once the resolution by way of the preliminary issue was agreed on that became unimportant.
The contractual documents
The Trust Deed in clause 1 (Interpretation) defines the Conditions as follows:-
" 'Conditions' means the terms and conditions set out in Schedule 1 as from time to time modified in accordance with this Trust Deed…..".
Schedule 1, which consists of 5 pages paginated at pages 36–40 inclusive of the 56 page document consisting of the Trust Deed and its Schedules, is in fact a " Form of Certificate for Definitive Bonds". The only reference to the Conditions is in the scheduled proposed format of the Bonds which reads, so far as material:-
" The Bond or Bonds in respect of which this Certificate is issued.. are in registered form.. and constituted by the Trust Deed referred to on the reverse hereof. The Bonds are subject to, and have the benefit of, that Trust Deed and the terms and conditions (the "Conditions") set out on the reverse hereof."
On the fifth and last page (numbered page 40) of the Schedule is the intended back page of the draft Form of Certificate which reads:-
" Terms and Conditions of the Bonds.
The following other than the words in italics is the text of the Terms and Conditions of the Bonds substantially as they will appear on the reverse of each of the definitive certificates evidencing the Bonds."
The Conditions themselves are not within the paginated 56 page document and not included in the Table of Contents of the Trust Deed.
The Conditions are in a separate (unpaginated) document, providing by Condition 21:-
" 21 Governing Law
The Bonds, the Trust Deed… and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, the laws of England…"
There is a separate Definitions section (Condition 6.3.15) which includes the definition of "Closing Price" as referred to below.
The Condition which has been in issue in these proceedings is Condition 8.11, which reads as follows:-
" 8.11 Redemption Notices
All notices to Bondholders given by or on behalf of the Issuer pursuant to this Condition will be given in accordance with Condition 17, and specify the Conversion Price as at the date of the relevant notice, the closing price of the Shares (as quoted on the NSE) as at the latest practicable date prior to the publication of the notice, the accrued interest to the date fixed for redemption, the date for redemption, the manner in which redemption will be effected and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice.
No notice of redemption given under Condition 8.3 or Condition 8.4 shall be effective if it specifies a date for redemption which falls during a Closed Period or within 15 days following the last day of a Closed Period".
The principles of contractual construction were not in issue between the parties: both parties referred to (among others) Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Re: Napier Park European Credit Opportunities Fund Limited [2014] EWCA Civ 984 and Arnold v Britton [2015] 2 WLR 1593. The only contested issue of law between the parties related to the role of the heading to Condition 8.11, to which I shall return below. Both sides addressed in their skeletons, but only minimally at the hearing, a fallback argument about the reasonable recipient test, referring to Mannai Investment Co v Eagle Star Life Assurance Co Limited [1997] AC 749 (including the blue paper / pink paper question addressed by Lord Hoffmann at 716) and further considered in Rennie v Westbury Homes (Holdings) Limited [2007] EWCA 1401 and Siemens Hearing Instruments Limited v Friends Life Limited [2014] 2 P. & C.R. 5, but there was in the event no need to consider this at any length.
As the Claimant's case depends upon establishing that the Notice served by the Defendant was invalid because it did not contain the matters which it asserts were mandatorily required to be included in the Notice by Condition 8.11, I shall set out, by reference to Condition 8.11 which I have quoted above, and number separately, the six matters which Condition 8.11 requires to be specified in a Notice governed by it:-
i. The Conversion Price as at the date of the relevant notice ("Item 1")
ii. The closing price of the Shares (as quoted on the NSE) as at the latest practicable date prior to the publication of the notice ("Item 2")
iii. The accrued interest to the date fixed for redemption ("item 3")
iv. The date for redemption ("Item 4")
v. The manner in which redemption will be effected ("Item 5")
vi. The aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice ("Item 6").
The Claimant contends that Condition 8.11 applies not only to...
To continue reading
Request your trial
-
Krisenergy (Gulf of Thailand) Ltd v Rubicon Vantage International Pte Ltd
...Ltd. v. Qatari Diar Real Estate Inv. Co., [2010] EWHC 1535 (Ch), considered. (6)Citicorp Intl. Ltd. v. Castex Technologies Ltd., [2016] EWHC 349 (Comm), referred to. (7) Company (No. 2340 of 2001), Re a, English High Ct., April 26th, 2001, unreported, considered. (8)Company, Re a, [2016] EW......
-
Judgments
...a similar process to that adopted by Barclays. Right to convert bonds Citicorp International Ltd. v. Castex Technologies Ltd. [2016] EWHC 349 (Comm) This claim was brought by the claimant as trustee of convertible bonds issued by the defendant. The issue to be determined was whether a conve......
-
Judgments
...a similar process to that adopted by Barclays. Right to convert bonds Citicorp International Ltd. v. Castex Technologies Ltd. [2016] EWHC 349 (Comm) This claim was brought by the claimant as trustee of convertible bonds issued by the defendant. The issue to be determined was whether a conve......