IN THE HIGH COURT OF JUSTICE  
CHANCERY DIVISION
Claim No HC06C03980
 
Court 55

Royal Courts of Justice
The Strand
London WC2A 2LL 

Thursday, 23rd November 2006

Before:

MR JUSTICE WARREN 
________________________________________________________
BETWEEN:
(1) ELLIOTT INTERNATIONAL, L.P. 
(2) THE LIVERPOOL LIMITED PARTNERSHIP 
(3) M.D. SASS RE/ENTERPRISE PARTNERS, L.P. 
(4) M.D. SASS CORPORATE RESURGENCE PARTNERS III, L.P. 
Claimants 
‑v‑

LAW DEBENTURE TRUSTEES LIMITED  
(formerly L.D.C. TRUSTEES LIMITED) 
Defendant
________________________________________________________
 
MS S PREVEZER QC and MR S HOUSEMAN (instructed by Gibson, Dunn & Crutcher LLP) appeared on behalf of the Claimants. 

MR R MILES QC and MR M ARNOLD (instructed by Slaughter and May) appeared on behalf of the Defendant.  
________________________________________________________ 

Thursday, 23rd November 2006
(3.00 pm) 
  
JUDGMENT 
MR JUSTICE WARREN:  
1.	This action raises a short point of construction concerning a trust deed governing the terms of certain bonds under which the claimants are some of the bondholders.

2.	I take the narrative very much from the helpful witness statement of Mr Rocher, who is the solicitor on behalf of the claimants.

3.	Each of the claimants holds a proportion of sterling denominated bonds due in 2050.  The bonds, which are also known informally as "resets", were issued by Eurotunnel Finance Limited, who I will call "the Issuer", pursuant to a document known as the "Resettable Bond Constituting Trust Deed", which I will call "the Trust Deed", dated 15th May 2006 and a Master Deed dated 7th April 1998.

4.	A total of three series of bonds have been issued by the Issuer, the details of which do not matter.  At the commencement of these proceedings and at all material times since 22nd August of this year, the claimants are and have been holders of in excess of 70 per cent of the principal amount of the bonds outstanding.

5.	The bonds form part of a complex restructuring package agreed in 1998 between the Eurotunnel Group of companies and their bank creditors, the precise details of which I do not need to go into.  The restructuring deal is enshrined in the Trust Deed and part of that deed is Schedule 3 which contains the conditions upon which the bonds are held.  By condition 19, the bonds are governed by English law and it is the English court which has jurisdiction to settle any disputes that may arise out of or in connection with the bonds.

6.	The defendant, Law Debenture Trustees Limited, formerly known as L.D.C. Trustees Limited, who I will call "the Trustee", is the trustee under the Trust Deed on behalf of the holders of the bonds from time to time.  I will come to the detailed provisions in a moment.

7.	There is another document called the Agreement Among Lenders, "AAL" for short, dated 3rd March 1998 as amended from time to time.  The bonds, which are themselves secured, rank junior to substantial amounts of other secured indebtedness held by banks and other financial institutions.  The relationship between the various lenders, including the Trustee, is governed by the AAL.  The Trustee is a party to the AAL as trustee of the bonds.  The AAL has been amended from time to time but the amendments are not relevant to the issues in this action.

8.	I come to the recent events which have given rise to these proceedings.  

9.	Eurotunnel Group has been in charge of the construction and operation of the tunnel under the Channel since 1987.  The total costs incurred by the group in relation to the construction and the operating shuttles is said to have amounted to an estimated £9.5 billion, financed by way of bank loans and equity.  Eurotunnel has undergone three debt restructurings in recent years.  As of today, pursuant to publicly available documents, the financial debt of Eurotunnel Group amounts to £6.2 billion in total.  Until the commencement of proceedings in the Paris Commercial Court, to which I will come later, Eurotunnel Group was engaged in negotiations with its junior lenders with a view to a further round of debt restructuring.  On 13th July 2006, the group discontinued all negotiations with its creditors.

10.	Mr Rocher understands that the chairman of the principal Eurotunnel company requested that the Paris Commercial Court open a form of French insolvency proceedings: namely, procédure de sauvegarde, or safeguard proceedings, in respect of a number of companies including Eurotunnel Finance Limited, the Issuer.  

11.	On 2nd August, the Paris Commercial Court issued a series of judgments ‑‑ I will call them "the Judgment" ‑‑ opening safeguard proceedings in favour of a number of companies in the Eurotunnel Group, including the Issuer and a number of other companies registered in the United Kingdom.  The Paris Commercial Court issued the Judgment in relation to the English companies purportedly pursuant to Article 3 of the EC Regulation 1346 of 2000, commonly known as the "Insolvency Regulation", on the basis it was satisfied that the centre of main interests of each of the English companies was situated in France.

12.	Mr Rocher, on the basis of advice he has received from his Paris office, says that, as a matter of French procedural law, any party with standing to challenge the Judgment had ten days from the date of publication in which to do so.  Accordingly, any challenge to the Judgment had to be made by 1st September at the latest.  A challenge to a judgment of this type is known as a "tierce opposition" under French law.  Mr Rocher was advised by his firm's Paris office that, in the light of the decision of the European Court of Justice in In re Eurofood IFSC Ltd [2006] 3 WLR 309, such a challenge against the Judgment could only be mounted in the Paris Commercial Court, a proposition which appears to me to be entirely correct.

13.	Putting the matter very briefly, the safeguard proceedings are a form of court‑sanctioned restructuring for solvent debtors, including in this case the Issuer, which is incorporated in England and would, but for the application of the Insolvency Regulation if properly applied, be subject to the jurisdiction of the English court.

14.	The claimants dispute that the centre of main interests of the issuer and the other relevant English companies is situated in France.  Further, they dispute that the safeguard proceedings fall within the scope of the Insolvency Regulation at all on the basis that they are not insolvency processes which fall within Article 1 of the Regulation. 

15.	The claimants and others accordingly commenced tierce opposition proceedings within the ten‑day time limit in the Paris Commercial Court ‑‑ I will call them "the Opposition Proceedings" ‑‑ in respect of five of the seven English companies within the safeguard proceedings namely, Eurotunnel Plc, the Channel Tunnel Group Limited, Eurotunnel Finance Limited, Eurotunnelplus Limited and Eurotunnel Services Limited.  This ten‑day deadline meant that the Opposition Proceedings had to be filed before any proper discussions could be had with the Trustee as to whether, if instructed to do so by the relevant percentage of bondholders, the Trustee was required under the terms of the bond conditions to launch such proceedings on behalf of the claimants. 

16.	The purpose of the Opposition Proceedings is to challenge the assumption of jurisdiction by the French court over the relevant English companies, including the Issuer.  If the Opposition Proceedings were to succeed, all that would occur is that the relevant English companies would cease to be subject to the safeguard proceedings under the jurisdiction of the Paris court.  It would be open to the Issuer to apply to the English court for protection under the English insolvency regime.  That is one possibility.  Another possibility is that an agreed restructuring would take place.

17.	The context for the declaratory relief sought in these proceedings is the issue of the standing of the claimants to bring the Opposition Proceedings in the Paris Commercial Court.  That standing, according to Mr Rocher, is likely to be challenged, possibly by way of preliminary issue in the near future, and perhaps even at the initiative of the Paris court itself.  The hearing of the Opposition Proceedings is currently scheduled for Monday, 4th December.  Although French law has rules about how a body of bondholders can be represented before the court ‑‑ essentially it has to be through an appointed representative who alone has capacity to represent the bondholders ‑‑ these rules do not apply, at least not without qualification, to bondholders under a foreign bond such as that with which the present case is concerned.

18.	Mr Rocher's advice from his Paris office is that the status of the bondholders will be governed by the contractual provisions applicable to the bonds.  Therefore the question of the Trustee's position as between itself and the bondholders under the bonds in relation to the enforcements of rights may be highly influential as regards the question of standing to take steps within the safeguard proceedings.  This also applies to the issue of standing to bring Opposition Proceedings which, by their very nature, seek to challenge the Paris court's jurisdiction to commence or entertain the safeguard proceedings in respect of the English companies in the first place.  Those are, of course, different, although related, questions.  

19.	In this respect, the construction of certain provisions of the Trust Deed is not entirely clear.  Mr Rocher's office in Paris says that a declaration from the English court as to the proper meaning and effect of condition 14 of the bond terms will, at the very least, be of significant practical value in the determination by the Paris court of the preliminary question of whether the claimants had or have standing to bring the Opposition Proceedings.  It is not difficult to see why, as a matter of significant practical value, they have reached that conclusion.

20.	I turn to the relevant provisions of the documentation and I start with the Trust Deed, to which the Issuer and the Trustee, among others, were parties but not the bondholders themselves.  The terms of the Master Deed are incorporated into the Trust Deed.  There is a covenant by the Issuer with the Trustee to pay, when due, the amount payable under the bonds.  As I have said, the governing law is English law and the English courts have jurisdiction to settle disputes.  The forms of bonds set out in Schedules 1 and 2 to the Trust Deed are subject to the conditions of the Trust Deed, although they do themselves contain direct covenants by the Issuer with the relevant bondholder to pay the amounts due when they fall due.

21.	Schedule 3 contains the terms and conditions of the bonds.  It commences with a preamble which is headed "Important Notice".  I quote:

"The Bonds form part of a complex restructuring package agreed in 1998 between the Eurotunnel groups of companies and their bank creditors.  Although the Bonds are initially secured, they rank junior to substantial amounts of other secured indebtedness.  The Bonds are subject to the terms of the AAL and the other Bond‑related Agreements (each as defined below).  The terms of the Bonds and those agreements are such that the rights of Bondholders and the Bond Trustee (as defined below) are subject to significant restrictions, including in certain cases the requirement to obtain approval from other creditors before exercising those rights."

I need not read the rest of that.

22.	Reference is made to the "Agreement Among Lenders" on page 34 of the document, and I will read two short passages from paragraph C:

"The Agreement Among Lenders sets out, inter alia, inter‑creditor arrangements which, so long as that Agreement remains in force, qualify and in some instances severely restrict the powers granted to the Bond Trustee (including rights of acceleration and enforcement) under the Resettable Bond Constituting Trust Deed, these Conditions and the other Bond‑related Agreements specified below.  In addition, Condition 14(b) severely limits the rights of Bondholders and Couponholders (each as defined below) to take individual action to enforce the obligations of the Issuer and the Guarantors under the Bonds, the Coupons and the Bond‑related Agreements."

23.	The definitions of various other documents are incorporated by reference into the Trust Deed, including those found in Part 1 of Schedule 6 of the Agreement Among Lenders. 

24.	In addition, any reference in these conditions ‑‑ that is in the Trust Deed ‑‑ to words or phrases construed in Part 2 of Schedule 6 of the Agreement Among Lenders shall bear the same construction in the Trust Deed.

25.	The central provision is condition 14, which I shall read in full. It is headed: 
"Enforcement ..."

26.	I should just comment that headings which one might think are helpful are to be ignored, as is conventional, under clause 1.3 of the Trust Deed. Condition 14 starts with a warning:

"The Agreement Among Lenders sets out, inter alia, inter‑creditor arrangements which, so long as that Agreement remains in force, qualify and in some instances severely restrict the powers granted to the Bond Trustee (including rights of acceleration and enforcement) under the Resettable Bond Constituting Trust Deed, these Conditions and the other Bond‑related Agreements.  In addition, Condition 14(b) severely limits the rights of Bondholders and Couponholders to take individual action to enforce the obligations of the Issuer and the Guarantors under the Bonds, the Coupons and the Bond‑related Agreements."

27. Condition 14 continues:
Paragraph (a):
"Action by Bond Trustee: ..."
[I do not think that is part of a heading.] 

"Subject to the Agreement Among Lenders, the Bond Trustee may, at its discretion and without further notice: (i) institute such proceedings against the Issuer and/or any of the Guarantors as it may think fit to enforce the terms of the Bonds, the Coupons and the Bond‑related Agreements and/or (ii) take such other action as it may think fit to exercise its rights under the Bonds, the Coupons and the Bond‑related Agreements but ..."
[and this qualifies both (i) and (ii)] 

"... it need not do so unless (A) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Bondholders holding at least one‑fifth in principal amount of the Bonds outstanding (subject to Condition 12(c)) ..."

[which I do not think is material] and: 

"... (B) it shall have been indemnified to its satisfaction.
  
"(b) No Action by Bondholders 

"(i) Subject to Condition 14(b)(ii), each Bondholder and Couponholder acknowledges that the right to enforce the obligations of the Issuer and the Guarantors under the Bonds, the Coupons and the Bond‑related Agreements is vested in the Bond Trustee and accordingly (without limitation) no Bondholder or Couponholder shall have the right to: (A) commence, either alone or in conjunction with any other Bondholder or Couponholder, or take any action against any member of the Owning Group for the enforcement of any of the provisions of the Bonds, the Coupons or the Bond‑related Agreements or (B) take any step with a view to, or which may reasonably be expected to result in, the dissolution of any member of the Owning Group or (C) take any other action which, by virtue of the Agreement Among Lenders, the Bond Trustee is prohibited from taking in relation to the Bonds, the Coupons or the Bond‑related Agreements." 

28.	All of that is subject to this proviso:

"... provided that nothing in this paragraph shall restrict the rights of Bondholders, inter alia, to present Bonds, Coupons or Certificates for payment, to hold meetings, to give instructions to the Bond Trustee or take action against the Bond Trustee or to indemnify the Bond Trustee for any action it may take."

29.	The Agreement Among Lenders is made between a number of parties including the Issuer and the Trustee.  The individual bondholders are not parties, but the Trustee does agree on behalf of itself and the bondholders a number of matters, including that they are bound by the provisions of the AAL itself.  There are a couple of provisions I should, however, read.  

30.	The first is numbered 16.4.  Clause 16.4.1 opens this way:

"Subject to Clause 16.4.2, each Project Lender, each Resettable Facility Bank, each Stabilisation Facility Bank and the Bond Trustee hereby agrees that it shall not without the consent of the Majority Senior Lenders and the Majority Co‑financiers and shall not during a Standstill Period for so long as the restrictions set out in Clause 18.3 apply ..." 

31.	I jump to (ii):

"... take any step with a view to, or which may reasonably be expected to result in, the dissolution of any member of the Owning Group including, without prejudice to the generality of the foregoing, taking any step to declare immediately payable any amount under the Financing Agreements which would not, but for such step, be immediately payable."

32.	The only other provision is the interpretation provision in Part 2 of Schedule 6.  There is a definition: 

"the 'dissolution' of a person also includes the administration, winding‑up or liquidation of that person and any equivalent or analogous procedure under the law of any jurisdiction in which that person is incorporated, domiciled or resident, carries on business or has assets."

33.	That is a definition which applies to the AAL, and therefore applies, too, to the Trust Deed and in particular to condition 14(b)(i)(B). 

34.	Mr Rocher deals with the Trustee's position in his witness statement, and I again gratefully adopt what he says.  

35.	The claimants' original position, as set out in Mr Rocher's firm's letter of 29th August to the Trustee's solicitors (Slaughter and May) was that the Trustee had capacity, and indeed an obligation, to commence opposition proceedings on behalf of the claimants pursuant to condition 14(a)(ii) of the bond terms and the Trustee was accordingly requested to do so.  It remains the Trustee's position in relation to condition 14(a) that the Opposition Proceedings are not enforcement proceedings and that, therefore, the Trustee cannot under condition 14 bring such proceedings.  It reserves its position on whether it has any other power to do so. 
 
36.	The Trustee had a second reason for saying it could not itself bring the tierce opposition proceedings. This appears in Slaughter and May's letter dated 31st August.  They said this:

"It is clear from the judgment of the Paris Commercial Court that the reason for the Safeguard procedure being invoked was to confer protection from creditor action in circumstances where only the financial reorganisation of the Eurotunnel business would enable it to continue its economic existence and repay its liabilities.  It is also clear that the protection granted by the Safeguard procedure was actively sought by management of the Eurotunnel group.  Assuming that the Tierce Opposition were to result in the sauvegarde procedure ceasing to have effect in relation to the English companies, it may reasonably be expected that one or more of those companies would seek the protection of an administration order or that some other form of dissolution (as defined) ..." 

[that is a reference to the AAL definition]

"... would occur.  Accordingly, the Bond Trustee is prevented from commencing Tierce Opposition proceedings unless the consent of the Majority Senior Lenders and the Majority Co‑financiers were first obtained."  

37.	Then it sets out clause 16.4, which I have already specified.  The letter goes on to say:
"Thus, even if the Bond Trustee accepted, which it does not, that your client had a right to request it to commence the proposed Tierce Opposition proceedings, it could not have so acted without the consent of the Majority Senior Lenders and the Majority Co‑financiers."

38.	That is the position that the Trustee took and still takes.

39.	That is not accepted by the claimants, however.  Administration, they say, would be a possibility but no more.  It is not, they say, reasonably to be expected that administration would ensue.  I have been taken to documents emanating from the Issuer which, taken at face value, suggest that what is on the table is a restructuring of its debt and that its trading position would not lead to any sort of administration or insolvency process.  I cannot resolve an issue, at this hearing, about what can reasonably be expected.  I do not need to do so for reasons which will appear later.  

40.	As to condition 14(b), the Trustee takes no position at all on whether the claimants were precluded by it from bringing the Opposition Proceedings and are now precluded from pursuing them.  What the claimants now seek from the Court are declarations to the effect, first, that the Trustee has no capacity under condition 14(a), even if requested to do so, to institute or to pursue tierce opposition proceedings in the Paris Commercial Court on behalf of the claimants in relation to the Safeguard proceedings; and, secondly, that the claimants are not and have not at any material time been prevented or prohibited from instituting and pursuing the Opposition Proceedings by reason of condition 14(b).

41.	The first question for me is whether I should grant declaratory relief even if I think that the claimants are right in their interpretation of the Trust Deed.  My main concern is that there is noone before the court to argue against the making of any of the declarations which the claimants seek.  Indeed, there does not appear to be an issue as between the parties about the questions in relation to which the declarations are sought.  Should the court grant declarations simply to assist the claimants in their endeavours to persuade the Paris Commercial Court to accept that they have standing?  This question is particularly acute in relation to the declarations sought in relation to condition 14(b), where it might be thought that the Issuer itself is an interested party.  Indeed, I think that the claimants themselves recognise this.  The Issuer and other bondholders have been notified by the Trustee of these proceedings, although not formally joined as parties. 
 
42.	In relation to condition 14(a), I am persuaded I should decide the issue of construction and make declarations accordingly.  This is essentially an issue between the bondholders and Trustee.  The position is analogous to that in Concord Trust v The Law Debenture Trust Corporation Plc [2005] 1 WLR 1591, where the question whether the conditions for the service of an acceleration notice had been fulfilled was a matter between the trustee and the bondholders.  In particular, whether there was an obligation to serve the notice was a matter between them alone.  The issuer's remedy was to challenge the notice once served on the basis that it was invalid.  I note that, as in the present case, not all of the bondholders were before the court, but yet the court was willing to decide the issue as between the parties.  

43.	The present case is not, of course, on all fours with that case but, since the Issuer is not a party and has not appeared, it would not be bound by my decision and there is an effective analogy; just as the issuer in Concord could challenge the validity of the notice, so too the Issuer in the present case will be able to challenge in the Paris Commercial Court the conclusion which I reach if it disagrees with me.  I would hope, however, that the Paris Commercial Court would attach significant weight to the decision of an English High Court judge in relation to the proper interpretation of an English law contract.

44.	The position is more difficult in relation to condition 14(b), since the issue is not one just between the Trustee and the claimants so much as between the bondholders amongst themselves.  It is common in bond issues to find a "no action" clause which prevents bondholders from taking independent action for a number of perfectly sensible commercial reasons.  That the Issuer itself might have an interest in seeing that such a provision is observed is readily apparent ‑ for instance to see that multiple suits against it are avoided.  However, I am persuaded that I should not be deterred from making a declaration which I would otherwise make by the absence of the Issuer and indeed the other bondholders as parties.  Those who will be affected by my decision had notice of these proceedings and could, if they had wished, have appeared to make representations or to seek an adjournment.  Further, they will not be bound by my decision, but that fact does not mean that my decision is without utility, since, as I anticipate, it may nonetheless be of assistance to the Paris Commercial Court in making its decision about the standing of the claimants in relation to the Opposition Proceedings. 

45.	I turn at last to the question of construction.

  Condition 14(a)(i) 

46.	Ms Prevezer for the claimants submits that the Opposition Proceedings are not proceedings within 14(a)(i).  Mr Miles for the Trustee agrees. 

47.	In my judgment, they are both correct.  The simple reason for this is that the Opposition Proceedings are not proceedings to enforce the terms of the bonds, etc.  Even if the Opposition Proceedings are to be regarded as part and parcel of the Safeguard proceedings (much as an application within a company insolvency in this court could properly be viewed as part of the same proceedings) the Safeguard proceedings themselves are not proceedings to enforce the terms of the bonds; rather they are proceedings the purpose of which is to achieve or assist in achieving a restructuring of the Issuer's debt.  

48.	I do not, however, rely on Ms Prevezer's alternative submission, that the Opposition Proceedings are not against the Issuer at all, the challenge being to the Paris Commercial Court rather than to the Issuer.  I do not know enough about the French procedure or how the Safeguard proceedings were instigated to deal with that aspect.

Condition 14(a)(ii) 

49.	Paragraph (ii) must be read together with paragraph (i) and in the context of the whole of condition 14.  In referring to "other action", paragraph (ii) is, I consider, obviously referring, as Ms Prevezer submits, to other actions which would enable the Trustee to exercise its rights under the Trust Deed and bonds; that is to say, for instance to declare events of default leading to enforcement of the obligations of the Issuer under the bonds. 

50.	In commencing tierce opposition proceedings, the Trustee would not, in my judgment, be taking action to exercise its rights under the bonds, etc.  It may be that the Trustee does have power to commence such proceedings but, in doing so, at least on the facts of the present case, it would not be doing so in order to exercise its rights under the bonds.  At most it would be acting in a way which it perceived was in the interests of the bondholders by preserving their contractual rights under the bonds and their expectations that, in the event of insolvency proceedings being invoked, those processes would be in accordance with English law in relation to the Issuer and under the control of the English court.

51.	The claimants, the Trustee and their advisers all agree with that conclusion.

52.	It follows that condition 14(a) does not empower the Trustee to commence tierce opposition proceedings and a fortiori that the Trustee could not have been compelled to do so under that condition by the claimants. 
 
Condition 14(b)(i) 

53.	This paragraph commences with an acknowledgment that a certain right is vested in the Trustee: namely, the right to enforce the obligations of the Issuer under the bonds.  It can be seen that the content of this condition is enforcement, something which one might note is in the heading which we are not allowed to look at.  What follows is to be read in that context, as is made clear by the use of the words "and accordingly ... no Bondholder shall have ..." the rights set out. 
 
54.	For reasons already given in relation to condition 14(a), the Opposition Proceedings are not enforcement proceedings.  Accordingly, there is nothing in condition 14(b) ‑‑ I say nothing about other provisions of the Trust Deed or other documents ‑‑ which prevents the claimants from instigating and pursuing the Opposition Proceedings.

55.	In that context I consider it is proper to read sub‑paragraphs (A) to (C) as covering only those actions which both fall within one or more of those paragraphs and are also actions of enforcement.

56.	In that context I should mention the second reason which the Trustee has for saying that condition 14(a) does not apply and which I have already mentioned: namely, that the Opposition Proceedings were a step which may reasonably be expected to result in the administration in the UK of at least one of the Eurotunnel companies within clause 16.4.1(ii) of the AAL.  

57.	As I have mentioned, for this purpose "dissolution" is defined widely and includes administration.  It would follow, on this argument, that the Opposition Proceedings would fall within the literal wording of both sub‑paragraphs (B) and (C) of condition 14(b).  If all situations within sub‑paragraphs (A), (B) and (C) fell within condition 14(b), then there would be an issue of fact to be determined before the declarations sought could be made, something which I cannot resolve today. In my judgment, however, there is a further requirement for condition 14(b) to be fulfilled: namely, that the action in question has to be an action to enforce the bonds which the Opposition Proceedings are not.  

58.	Accordingly, I accept Ms Prevezer's submissions and will make declarations along the lines sought.