The Bank of New York Mellon v GV Films Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 15 December 2009 |
| Neutral Citation | [2009] EWHC 3315 (Comm) |
| Docket Number | Case No: 2009 FOLIO 718 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 December 2009 |
[2009] EWHC 3315 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand,
London, WC2A 2LL
The Hon Mr Justice Blair
Case No: 2009 FOLIO 718
Mr Stephen Phillips QC and Mr William Edwards (instructed by Lovells LLP) for the Claimant
Mr Jeffrey Gruder QC (instructed by Howard Kennedy) for the Defendant
Hearing dates: 30 November and 1 December 2009
This is an application by the Bank of New York Mellon (“the Bank”) for summary judgment against GV Films Limited (“GV Films”) in respect of two bond issues. These were accelerated after alleged events of default. After the issue of proceedings, the Bank says that the amounts due under the bonds in any case fell due under certain mandatory redemption provisions. An application for permission to amend was made together with a further application for summary judgment in relation to the amended claim. It was convenient to deal with all points arising at a single hearing, and the defendant did not oppose the application for permission to amend. The result is that the Court has to consider whether the defendant has a real prospect of successfully defending the claim under two broad heads. The first is whether the Bank did validly accelerate payment under the bonds on the basis of the events of default alleged. If it did not validly do so, the Bank's alternative case is that it is entitled to summary judgment anyway on the basis of the mandatory redemption provision (and a related put option).
The facts are as follows. The Bank is a US bank with a London branch. GV Films is an Indian company based in Chennai (Madras). In 2006, there were two bond issues by GV Films, each subject to English choice of law and jurisdiction, and in respect of each of which the Bank was trustee. The first was an issue of US$4,500,000 2 1/4% convertible bonds due 2011 (“the Dollar Bonds”), the Trust Deed being dated 20 April 2006. The second was an issue of €9,000,000 zero coupon unsecured foreign currency convertible bonds due 2012 (“the Euro Bonds”), the Trust Deed being dated 23 October 2009. The evidence is that there is effectively one holder of the Dollar Bonds and one holder of the Euro Bonds. The action is brought by the Bank as trustee at the direction of the bondholders.
I will have to consider the evidence in relation to the alleged events of default in more detail in due course, but in summary, in about October 2007, that is to say a year or so after the bond issues, GV Films commenced proceedings in the High Court of Judicature at Madras for sanction of a Scheme of Arrangement proposing a “de-merger” of its business. This would have involved part of its assets and liabilities being transferred to two new companies. It is common ground that neither the trustee nor the bondholders were notified of the application. GV Films' view was that the consent of the bondholders was unnecessary since the scheme did not involve the transfer of all or substantially all the assets of the company. The bondholders disagreed, and subsequently intervened in the proceedings in order to oppose the granting of the Court's sanction for the de-merger. By a judgment given on 4 December 2008, Mrs Justice Chitra Venkataraman refused sanction for the proposed Scheme of Arrangement. By notice of appeal dated 18 December 2008, GV Films has appealed against that decision. I am told that the appeal has not presently been heard.
By letter dated 23 February 2009, the Bank notified GV Films of the events of default specified in that letter in the case of the Dollar Bonds. By letter dated 5 March 2009, the Bank notified GV Films of the events of default specified in that letter in the case of the Euro Bonds. The alleged events of default all concerned in one way or another the proposed Scheme of Arrangement. The letters required GV Films to remedy the alleged events of default so far as they were capable of being remedied. By further letters dated 26 May 2009, the Bank gave notice accelerating repayment of the bonds.
This is the basis for the claim in its original form. Proceedings were issued on 29 May 2009, and a summary judgment application followed shortly thereafter. (Because GV Films had not acknowledged service the Bank would in fact have been entitled to enter default judgment, but it wanted a reasoned judgment). It appears that the hearing of the application was delayed by the fact that GV Films commenced proceedings in the Madras High Court seeking an injunction against the Bank from taking any steps to call the bonds. That was contrary to the jurisdiction agreements in the Trust Deeds, and on 15 September 2009, in the English High Court, Mr Justice Field granted an anti-suit injunction restraining the proceedings (which I should record has been complied with by GV Films). The Court of Appeal refused permission to appeal on the papers on 11 November 2009. There had in the meantime been an application by the Bank to amend and seek summary judgment in respect of the alternative case which I have referred to above, and which was made on 5 November 2009. The result is that the issues for determination on this application resolve into three alleged events of default as originally relied on the Bank, together with the Bank's alternative case on the basis of the mandatory redemption provision and a related put option (which although only contained in the Euro Bonds, are said to have effect in relation to the Dollar Bonds by reason of cross default provisions).
The Bank's original summary judgment claim
Before coming to the detailed arguments, I should set out in a little more detail the facts as they appear from the evidence, since it is impossible otherwise to appraise the parties' respective contentions. The evidence consists of three witness statements of Mr Sanjay Jobanputra, who works for the Global Corporate Trust Division of the Bank, and two witness statements of Mr Steven Morris, who is the Defendant's solicitor. Mr Jeffrey Gruder QC, who has appeared for GV Films, has emphasised that there were genuine commercial reasons for the proposed Scheme of Arrangement. It was not an attempt to make away with the company's assets. Nevertheless, as the proposal on any view diminished the company's assets, it would clearly be potentially of concern to the bondholders. The Petition was filed with the Madras High Court some time in October 2007. Though the proposed scheme was embarked upon openly, the consent of the bondholders was not sought. On 29 November 2007, the Madras High Court ordered a meeting of the equity share holders, which took place on 24 January 2008. The proposed Scheme of Arrangement was approved by the shareholders' meeting, and the next step was to obtain the sanction of the Court. The Bank appears to have become aware of the proposed scheme in January 2008. It emailed GV Films on 31 January 2008 drawing attention to condition 7.1 of the Euro Bonds Terms and Conditions, which contain terms prohibiting mergers, or the transfer of all, or substantially all of the issuer's assets without the bondholders' consent. GV films replied on 4 February 2008 to the effect that counsel had advised that the bondholders' consent was not necessary.
On 15 February 2008 Lovells LLP, who are the Bank's solicitors, wrote to GV Films on behalf of the Bank saying that, “the Trustee has received expressions of concern from certain holders of the bonds relating to the proposed de-merger of the Issuer into three entities, and requests for additional information. Despite a number of requests, the Issuer has not provided adequate information to the Trustee or the Bondholders”. There was a request for information under various different heads. This request was clearly a reasonable one in the circumstances, and the contrary is not suggested. On 19 February 2008, GV Films responded to Lovells providing information, and enclosing a substantial package of documents. The letter records the company's opinion that it had provided all material information relevant to the bondholders with respect to the de-merger. It is an important part of its case that it did in fact do so by way of this letter. The package included among other things the notice convening the meeting of the equity shareholders on 24 January 2008, which by that time of course had taken place.
The parties met in London at Lovells' offices on 5 March 2008 to try to resolve their differences. On 14 March 2008, Lovells wrote to GV Films referring among other things to the legal fees that the Trustee was incurring. It stated that fees incurred to date were £15,000, and asked for £50,000 on account. This request does not appear to me to be an unreasonable one in the circumstances, though as will be seen, under the terms of the Trust Deeds, GV Films could not be required to provide funds on account of fees—its liability was to pay fees actually incurred. There was a detailed response from GV Films dated March 25 2008, to the effect that it would reimburse all legitimate and reasonable expenses that might be incurred by the Trustee. Again, that was not an unreasonable response, but it is clear that relations between the parties soon became very difficult. On 9 April 2008, the Bank wrote to GV Films under the heading “Events of Default”. The letter maintained that there had been a failure to provide information in breach of GV Film's obligations, it being asserted that “these breaches are not capable of remedy”. The Trustee and bondholders, it was said, reserved their position as to the effect of the proposed Scheme of Arrangements. The letter makes it clear however that the bondholders' view was that the proposed de-merger would be prejudicial to them in respect of the continuing ability of GV Films to service its debt obligations under...
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