England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
SALES J

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/10/2010

Lady Justice Arden :

1. This is the judgment of the Court, to which all members of the Court have contributed, on (1) the appeal by Elektrim SA ("Elektrim") from the order dated 20 July 2009 of Sales J ordering Elektrim to pay the respondent The Law Debenture Trust Corporation plc ("the Trustee") the sum of €153,857,683 (before interest and costs) as damages for breach of the conditions attached to €510,000,000 2% Bonds due 2005 (formerly 3.75% Euro–Linked Exchangeable Bonds 2004) ("the Bonds") issued by Elektrim Finance BV ("the Issuer") and guaranteed by Elektrim; and (2) the cross-appeal by the Trustee against the same order seeking an increase in the principal amount awarded by the judge up to €655,160,781.

Background

2. The Issuer was a subsidiary of Elektrim, and a special purpose vehicle used by it to raise money by means of the Bonds. Elektrim was the holding company, incorporated in Poland, of a major group of companies operating so far as relevant in the telecommunication and power industries. The Bonds were initially denominated in Polish zlotys (PLN) but they were converted into bonds of a larger nominal amount denominated in euro with a reduced coupon as part of a restructuring in 2002. The Bonds were secured by a Second Supplemental Trust Deed (referred to below as "the Trust Deed") between the Issuer, Elektrim and the Trustee dated 15 November 2002, which among other matters amended and restated the provisions of the principal Trust Deed dated 2 July 1999 as amended by the First Supplemental Trust Deed dated 14 July 1999. The Trustee holds the benefit of the covenants in the Trust Deed as trustee for the Bondholders. Elektrim guaranteed the obligations of the Issuer. The terms and conditions of the Bonds appear in the second schedule to the Trust Deed.
3. Under the restructuring the Bondholders agreed to accept certain changes to the terms on which the Bonds were issued, including a reduction in the coupon. In return the conditions attached to the bonds were amended to include (by condition 6(k)) the right to a Contingent Payment, sometimes called an "equity kicker", entitling Bondholders in certain events to an additional cash payment to be calculated using a formula of which the principal integer was "the Fair Market Value" of Elektrim's assets as determined by reference to its last annual audited consolidated financial statements (in the events which happened) for the period ended 31 December 2005.
4. The first part of the definition in condition 6(k) of Fair Market Value is of critical importance to these appeals so we will set out the whole of the definition at this point:

"Fair Market Value" means the fair market value of the assets of the Guarantor (including, without limitation, the Guarantor's interest in any affiliates, but excluding the receivables from any loans to the Guarantor's shareholders made by the Guarantor) after deduction of any debt (but excluding contingent liabilities or amounts due in respect of working capital) and assuming that the Guarantor has no obligations in respect of the Contingent Payment, as determined (by reference to the most recent annual audited consolidated financial statements of the Guarantor) on the Contingent Payment Determination Date by two leading investment banks of international repute, appointed by, and at the expense of, the Guarantor, one chosen by the Guarantor and one chosen by the Bond Trustee, on the basis that:

(i) if the higher of the two valuations is less than 15 per cent greater than the lower valuation or the two valuations are the same, then the Fair Market Value shall be the arithmetical mean of the two valuations;

(ii) if the higher of the two valuations is 15 per cent or more greater than the lower valuation, then the Guarantor shall, at the expense of the Guarantor, appoint a third investment bank chosen jointly by the Guarantor and the Bond Trustee to determine the Fair Market Value, which valuation must be no higher than the higher valuation and no lower than the lower valuation determined by the original two investment banks and which valuation shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders; and

(iii) the investment banks shall act as experts and not as arbitrators, and their determination and findings shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders..."

5. The definition of "Fair Market Value", therefore, made it clear that what had to be found was the net assets of Elektrim but excluding any liability which was only a contingent liability. In addition, this definition made it clear that Fair Market Value had to be found "by reference to" the latest consolidated accounts. We deal with this expression below.
6. The Contingent Payment had to be paid within 180 days of the Contingent Payment Determination Date, agreed to be 11 July 2006, and so the valuers had a considerable period of time in which to reach a valuation. (The Contingent Payment Determination Date had to be no more than 20 days after the date of publication of the last accounts, but that is a separate point). The relevant consolidated accounts of Elektrim are those for the calendar year ended 31 December 2005, which were published on 5 June 2006. The audit report on these accounts contained a disclaimer of opinion but nothing turns on that point for our purposes.
7. The judge held that Elektrim was in breach of condition 6(k) and liable in damages to the Trustee in respect of the loss of a chance of receiving a significant Contingent Payment by reference to the value of Elektrim's assets.
8. A key element in the valuation was the value of Elektrim's approximately 48% interest (referred to below as "the PTC shares") in a Polish company, Polska Telefonia Cyfrowa Sp zoo ("PTC"), which was the major asset of the Elektrim group. This interest was not shown in the consolidated balance sheet as an asset of Elektrim but as an asset of another Polish company, Elektrim Telekomunikacja Sp zoo ("ET"), a subsidiary of Elektrim. For many years there had been disputes as to the ownership of the PTC shares. PTC had been set up as a joint venture between Elektrim and DeTeMobil Deutsche Telekom Mobil Net GmbH and its associates (referred to below collectively as "DT"). The terms of the agreement between Elektrim and DT gave DT a call option over the PTC shares at cost if Elektrim transferred them to another party. Prior to 31 December 2005, Elektrim had in fact transferred the PTC shares to its subsidiary, ET in exchange for shares in ET and with a view to a sale of the PTC shares to a third party outside the Elektrim group namely Vivendi SA ("Vivendi"). The disputes as to the ownership of the PTC shares led to arbitral proceedings in Vienna (commenced by DT against Elektrim and others), London (LCIA) (commenced by Vivendi against Elektrim and others) and Geneva (ICC) (with which we are not concerned) and to court proceedings (often for the recognition of arbitral decisions) in England and Wales, Switzerland, Poland and Austria. As at the balance sheet date, the Warsaw Regional Court had recognised the decision of the Vienna Arbitration Court of November 2004 (which held that the transfer by Elektrim to ET of the PTC shares would be a breach of the joint venture agreement with DT if not reversed within two months) and held that the transfer of the PTC shares to ET was ineffective, and that the PTC shares belonged to Elektrim. The notes to the accounts record the decision of the Warsaw Appeal Court affirming this decision on 29 March 2006 as a non-adjusting post-balance sheet event. The balance sheet items were not adjusted to reflect the decisions of the Polish courts which were clearly binding on ET, Elektrim and the PTC shares. But those decisions were clearly referred to in the notes to the accounts and we agree with the judge that in those circumstances it is unnecessary to consider whether there is any difficulty arising as a matter of the construction of condition 6(k) from the fact that the assets at the Contingent Payment Determination Date included an asset not referred to in the 2005 accounts.
9. The judge correctly held that condition 6(k) required a valuation of the assets of Elektrim (and not its group) but that this was to be performed "by reference to" its consolidated accounts and thus by reference to the value of the underlying assets of its group. Condition 6(k) still, however, requires the Fair Market Value of Elektrim's assets to be determined (and not, for example, book or carrying cost). The overarching objective of condition 6(k) is to find the Fair Market Value of Elektrim's assets and thus if there is any conflict between this and what is shown in the last audited consolidated accounts of Elektrim, it is the latter which must give way. Thus the valuers would have been authorised and required to make such adjustments to the values shown in the consolidated accounts as are reasonably necessary to establish that Fair Market Value. If no relevant adjustment is required, the valuers can apply the assumptions and conventions used in the consolidated accounts, such as the going concern assumption and the criteria as to materiality.
10. It was common ground that the word "asset" was to be interpreted with the meaning attributed to asset for the purposes of the International Accounting Standards ("IAS") (Elektrim's 2005 accounts were required by Community law to comply with the relevant IAS), and that the valuation fell to be performed as at 11 July 2006 (which constituted the Contingent Payment Determination Date). The judge also correctly held that the valuers would have access to legal advice, and that they were not limited to the advice that Elektrim might actually have had. He also, in our judgment correctly, held that, for property to constitute an asset for the purposes of condition 6(k), it had not simply to be of value but also to meet the recognition criteria in the IAS (discussed below). In our judgment, this follows from the direction to the valuers to determine the Fair Market Value by reference to the 2005 accounts.
11. Extracts from the IAS can be found in the judge's judgment. It is sufficient, at least at this stage, to summarise the relevant provisions: (1) an asset is property likely to produce value for the entity preparing the accounts; (2) to be included as an item in the financial statements the asset must also meet certain recognition criteria. Critically, the value of the assets must be capable of being measured with reasonable certainty. Debts owed to the entity but of speculative value are thus excluded. Condition 6(k) unsurprisingly provides for the deductions of debts owed by Elektrim, but contingent liabilities are expressly to be disregarded. Contingent liabilities include obligations that cannot be measured with reasonable reliability. Testing whether the recognition criteria are met is a separate exercise from determining the value of any asset which meets the recognition criteria.
12. On 9 February 2005, DT sought to enforce its call option. Elektrim and ET challenged this. As at the balance sheet date, there was no doubt but that DT was entitled to enforce the call option: the judge found that this would have been confirmed by the legal advice that the valuers would have been given. The only uncertainty was as to the price which DT was liable to pay under the call option. DT accepted that it had to pay €377m, the book cost of the PTC shares. The question was how much more it had to pay.
13. The Vienna tribunal in its award of 6 June 2006 held that DT had duly exercised the call option under the joint venture agreement, and that it (the tribunal) would undertake a separate exercise to ascertain the price at which the option was to be exercised. In its award, it held that the price payable under the terms of the call option, being book value, involved a penalty and accordingly that it would be necessary for the tribunal to reduce this penalty and fix the price that should be paid. The tribunal gave a list of considerations that it would take into account, such as the dolus directus of Elektrim. It is clear that the price to be fixed by the Vienna tribunal would be substantial but that, of itself, it was too uncertain to meet the recognition criteria.
14. At about the time this award was made, ET and DT entered into negotiations for a settlement agreement. These negotiations were not completed by 11 July 2006 but were then at an advanced stage. The parties were considering the terms of settlement, which were approved by Elektrim's management board, so that all that remained to be done on its side was to obtain the approval of the supervisory board of Elektrim. The judge found:

"104. In May and June 2006, in parallel with work for and at the hearing in the next phase of the Vienna Arbitration (which took place on 15 – 18 May 2006), Elektrim and DT were in negotiation to agree between themselves, so far as possible, in advance of the next Vienna award the amount which DT should pay Elektrim as the price for the PTC shares under the call option, if the Vienna Tribunal determined that the call option had been validly exercised by DT. A draft Master Agreement was drawn up by DT on 10 May 2006, setting out the terms DT was prepared to agree to ("the Master Agreement"). On 11 May 2006 DT put the Master Agreement to Elektrim, inviting its agreement by 28 May. The general object of the Master Agreement was to allow the ownership and control of PTC to be clarified as speedily as possible. The proposed terms did not purport to prevent Elektrim from seeking a higher price for the PTC shares if the Vienna Tribunal eventually made a higher award. The minimum price payable by DT for the PTC shares as contemplated by the Master Agreement was about Eur1.45 billion, payable in instalments at defined points in time:

(a) Eur600 million after events including an award determining that DT had validly exercised the option, Elektrim had allowed DT to appoint members of the Management Board of DT in place of its own nominees, Elektrim had created security interests in favour of DT in case the price had later to be repaid (and had used the payment to redeem the bonds, in relation to which DT would stand in the shoes of the bondholders), all injunctions prohibiting the transfer of the shares to DT had been set aside or DT was satisfied they would be set aside (consideration in this regard would have to include the LCIA freezing order, but that did not prevent an involuntary transfer to DT, ie pursuant to a determination of the Vienna Tribunal that DT had validly exercised the option) and all other disputes between Elektrim and DT were settled;

(b) Eur150 million after Elektrim finally accepted such an award by the Vienna Tribunal in DT's favour, or it was recognised in Poland, and DT's ownership of the PTC shares and its management nominees for PTC had been registered in the KRS Register; 

(c) Eur150 million when ET's appeal against the March 2006 Judgment had been rejected and DT's representation on the management of PTC consolidated;  

(d) a final payment of Eur200 million once DT's ownership of the PTC shares was no longer disputed or had been finally determined by the Polish courts (with the possibility of a reduction of Eur100 million if DT was the party which effectively procured settlement with Vivendi and ET); and, in addition,  

(e) DT agreed to procure the declaration of a dividend by PTC for the benefit of Elektrim, as an addition to the price."

15. The judge held that these negotiations and the Master Agreement constituted evidence as to the value of the PTC shares as at the Contingent Payment Determination Date which the valuers would have to have taken into account.
16. The outcome of any exercise by DT of its call option was a matter of great concern to Vivendi. On 3 September 2001, Vivendi, Elektrim and others entered into an agreement ("the TIA") which, among other provisions, dealt with the situation which would arise if the PTC shares had to be transferred to DT. The price payable to Elektrim had to be transferred by it to ET. The relevant provision was clause 5.24 which read as follows:

"OUTCOME OF ARBITRATIONS

(i) In the event that [ET] is required, as a result of any final enforceable order in the Arbitrations or in any proceedings in relation thereto, to transfer any PTC shares to Elektrim, then Elektrim agrees that to the extent that there is no further order in either of the Arbitrations requiring the transfer of any shares to DT, it will retransfer all PTC shares held by it back to [ET] at a price (whether nominal or otherwise) and in a manner and at a time to be determined by Vivendi in its absolute discretion. Until Elektrim has transferred its PTC shares to [ET] as required by Vivendi, Elektrim agrees to hold such PTC shares on trust for [ET] and further agrees (a) not to seek to sell, agree to sell, transfer, encumber, or otherwise dispose of or create any interest in the PTC shares, and (b) to exercise all voting and any other rights attached to the PTC shares (including making all appointments to PTC's Supervisory and Management boards as well as any other PTC committees) strictly on [ET]'s instructions which shall be obtained before any such rights are exercised.

(ii) In the event that [ET] is required, as a result of any final enforceable order in the Arbitrations or in any proceedings in relation thereto, to transfer any of its shares in PTC to DT and Elektrim receives consideration for such transfer either directly from DT or indirectly through the other Respondents named in the PTC arbitration any such consideration shall be paid directly and immediately to [ET]."

17. The judge held that the effect of clause 5.24(i) was to make Elektrim a trustee of the PTC shares for ET and that accordingly the PTC shares were not an asset of Elektrim for the purposes of condition 6(k). The judge further held that, while the draft agreement between Elektrim and DT was conditional, the conditions principally related to Vivendi and that it was apparent from the TIA that Vivendi accepted that in certain circumstances the shares would have to be retransferred to Elektrim and then to DT.
18. Apart from its interest in the PTC shares, the assets of Elektrim also included a holding of about 43% of the issued share capital of another Polish company, called Zespol Elektrowni Patnow-Adamow-Konin SA ("PAK"), which carried on business operating three electricity generating plants. On its appeal, Elektrim challenges the value which the judge placed on this asset for the purposes of the claim for damages for breach of condition 6(k) in two particular respects, which we explain below.
19. Elektrim encountered financial difficulties from about 2001. In March 2006 the Trustee presented a petition for Elektrim's winding up based on non-payment on the Bonds, but this was contested and the Trustee later withdrew when the Bonds were repaid. However, Elektrim was wound up by the court in Warsaw on 21 August 2007. Mr Richard Millett QC, for Elektrim, sought to make some submissions on the basis of insolvency. But it was not suggested at trial that Elektrim had negative net assets at the Contingent Payment Determination Date until closing speeches and the possibility of Elektrim's insolvency at that date is not referred to in the judgment. We agree with Mr Robert Miles QC, for the Trustee, that, if this point was to be raised, evidence was required in order that the court could properly determine the materiality of the insolvency risk. It cannot therefore be raised on these appeals. This means that it is not open to Mr Millett to argue that any sum received by Elektrim should be discounted for the risk of Elektrim's insolvency. Likewise, evidence was not led about the time value of money in the court below, and we therefore do not consider that it is open to Mr Millett to argue in this court that the figure of €1.45bn should be discounted because it was only to be received in stages. The judge does not refer to this point.
20. Some of the agreements between the parties are governed by foreign law, but no evidence of foreign law was adduced at trial and accordingly, save where the Polish courts have determined an issue as a matter of Polish law, we have applied English law throughout.
21. On the valuation of the PTC shares the sequence of the judge's reasoning was in summary as follows: he made findings as to the legal advice which the valuers would have received as to the title disputes in relation to the PTC shares. He held that the valuers would have received (firm) advice that Elektrim was the legal owner of the PTC shares, that DT was entitled to have the PTC shares transferred to it and that it would have to pay a minimum of €377m and would be likely to have to pay €1.45bn, the total of the stage payments provided for in the Master Agreement; and that Elektrim was bound by the TIA and would therefore have to pay the proceeds paid to it over to ET.
22. The judge then held that, although Elektrim had the right to receive a sum of money from DT, which met the recognition criteria in IAS 37, such sums would be held by it on trust for ET and that they therefore did not qualify as assets of Elektrim (judgment, paragraph 182). Accordingly, the question was the Fair Market Value of Elektrim's investment in ET. He held that this should be valued on a net asset basis. The notional valuers would have regarded this as equivalent to Elektrim's share of that proportion of the price payable by DT which was not speculative. He found that the proportion of the price that was not speculative was €1.45bn. The final valuation of Elektrim's investment in ET on this basis was left to be agreed between the parties, but would contain a discount of 5% on the value of its net assets to take account of the fact that Elektrim's investment was not a controlling holding. The judge rejected the argument of the Trustee that the PTC shares should be treated as an asset of Elektrim to be valued at the full price payable by DT for those shares (with the obligation to pass that price on to ET being treated as a contingent liability which had to be excluded from debt which was to be deducted from the Fair Market Value of assets under condition 6(k)), as well as the argument of Elektrim that no account should be taken of the price payable by DT. In any event, even if the PTC shares had been an asset of Elektrim, the amount payable to ET was a "debt" which would have to be deducted from the value of the PTC shares so that the result was the same (judgment, paragraph 189).
23. The judge placed a value of €1.45bn on the amount which, on his holding, Elektrim would probably have to pay to ET under the TIA. From this, €700m had to be deducted for liabilities owed by ET to Vivendi. This left €750 million. Subject to a small discount of 5% for the fact that Elektrim's holding was a minority holding, 49% of this sum represented the value of Elektrim's holding. On this basis, ET was solvent and the intra-group debt, which ET owed to Elektrim (called "the ET Receivable"), could be valued at its face value.

The principal issues

24. The first issue ("the Construction Issue") is whether on the true interpretation of condition 6(k) the Contingent Payment was payable at all as the Bonds had not been redeemed by 15 December 2005. After hearing Elektrim's opening on this point, we gave a ruling dismissing Elektrim's appeal against the judge's ruling on this point with reasons to be given in this judgment. That meant that it was unnecessary to hear three further issues about rectification, res judicata and estoppel.
25. The parties prepared a lengthy list of issues but the key issues, apart from Issue 1, are as follows:

Issue 2: should the judge have approached the valuation of the PTC shares by reference to the loss of a chance?

Issue 3: was the judge's valuation of Elektrim's interest in the PTC shares erroneous?

Issue 4: was the valuation of the PAK shares erroneous (1) because different rates of inflation had been used for costs and revenues or (2) because the estimates of fixed costs used for the purposes of the valuation were less than those in PAK's own budget?

Issue 1: the Construction Issue

26. The judge held that on the true interpretation of condition 6(k) the Contingent Payment was payable even though the Bonds had not already been redeemed, and the reasons which the judge gave for this conclusion included the fact that the second sentence of condition 6(k) on which Elektrim principally relied dealt with mechanics and the fact that Elektrim's interpretation produced a commercially absurd result.
27. Elektrim's appeal against liability turns on the construction of clause 2.3 of the Trust Deed and condition 6(k) of the bond conditions. The Trustee seeks damages in the amount of the Contingent Payment which it would have received but for Elektrim's alleged failure to operate the machinery for the determination of the Contingent Payment contained in those provisions. The Contingent Payment is a liability imposed on Elektrim personally in addition to its guarantee liabilities under clause 8 of the Trust Deed in respect of the redemption of the bonds issued by its subsidiary.

The Trust Deed

28. Under the Trust Deed Elektrim Finance covenanted with the Trustee (in clause 2.2) to pay or procure the payment of the principal and interest due in respect of the bonds on the final maturity date provided for in the conditions or on such earlier date as the bonds might become due and payable under the conditions. The final maturity date was 15^th December 2005. Clause 2.3 then provided that:-

"The Guarantor covenants with the Trustee that it will, in accordance with these presents, on the Contingent Payment Date pay or procure to be paid unconditionally to or to the order of the Trustee or to such account as the Trustee may direct in Euro in immediately available funds the Contingent Payment PROVIDED THAT:

(A) every payment of the Contingent Payment to or to the account of the Principal Paying and Transfer Agent in the manner provided in the Agency Agreement shall operate in satisfaction pro tanto of the relative covenant by the Guarantor in this Clause except to the extent that there is default in the subsequent payment thereof in accordance with the Conditions to the Bondholders;

(B) in any case where payment of the Contingent Payment is not made to the Trustee or the Principal Paying and Transfer Agent on or before the Contingent Payment Date, interest shall start to accrue on the Contingent Payment (both before and after any judgment or other order of a court of competent jurisdiction) at the rate that was applicable to the Bonds immediately prior to their final redemption (or, if higher, the rate of interest on judgment debts for the time being provided by English law) up to and including the date which the Trustee determines to be the date on and after which payment is to be made to the Bondholders in respect thereof as stated in a notice given to the Bondholders in accordance with Condition 16 (such date to be not later than 30 days after the day on which the whole of the Contingent Payment, together with an amount equal to the interest which has accrued and is to accrue pursuant to this proviso up to and including that date, has been received by the Trustee or the Principal Paying and Transfer Agent); and

(C) in any case where payment of the whole or any part of the Contingent Payment is improperly withheld or refused upon due presentation thereof (other than in circumstances contemplated by proviso (D) above) interest shall accrue on that part of the Contingent Payment, payment of which has been so withheld or refused (both before and after any judgment or other order of a court of competent jurisdiction) at the rate that was applicable to the Bonds immediately prior to their final redemption (or, if higher, the rate of interest on judgment debts for the time being provided by English law) from and including the date of such withholding or refusal up to and including the date on which, upon further presentation of the Bond, payment of the full amount (including interest as aforesaid) in Euro payable in respect of the Contingent Payment is made or (if earlier) the seventh day after notice is given to the Bondholder (either individually or in accordance with Condition 16) that the full amount (including interest as aforesaid) in Euro payable in respect of the Contingent Payment is available for payment, provided that, upon further presentation thereof being duly made, such payment is made."

29. Clauses 7 and 8 of the Trust Deed (so far as material) contained further covenants by Elektrim with the Trustee in relation to the obligations of Elektrim Finance as issuer of the Bonds. Clause 7.1 provided, in relevant part as follows:-

"7. The Guarantor hereby covenants with the Trustee that: …

(C) it will procure the compliance by the Issuer with all the Issuer's obligations under the Bonds and this Trust Deed;"

30. Clause 8.1 and 8.2 provided as follows:-

"8.1 The Guarantor hereby irrevocably and unconditionally guarantees to the Trustee:

(A) the due and punctual payment in accordance with the provisions of these presents of the Principal of and premium and interest on the Bonds and of any other amounts payable by the Issuer under the Bonds or otherwise under these presents;

(B) the due and punctual performance and observance by the Issuer of each of the other provisions of the presents on the Issuer's part to be performed or observed.

8.2 If the Issuer fails for any reason whatsoever punctually to pay any such Principal, interest or other amount, the Guarantor shall cause each and every such payment to be made as if the Guarantor instead of the Issuer was expressed to be the primary obligor under these presents and not merely as surety (but without affecting the Issuer's obligations) to the intent that the Bondholders will receive the same amounts in respect of Principal, premium, interest or such other amount as would have been receivable had such payment been made by the Issuer PROVIDED THAT:

(A) where the Issuer is or would be required to deduct or withhold from such payment any amount for or on account of any withholding taxes, upon a call being made under this Clause, the Guarantor shall pay the full amount due to the Trustee as if no withholding or deduction was required to be made by the Issuer; and

(B) where the Guarantor is required to deduct or withhold any amount for or on account of any withholding taxes, the Guarantor shall pay the amount due to the Trustee under deduction of any withholding taxes, together with such additional amounts as may be necessary to ensure that the Trustee receives a net amount equal to the full amount which it would have received had payment not been made subject to tax."

Bond Conditions

31. The relevant bond conditions are conditions 6(a) and (k). Condition 6(a) provides that:-

"Unless previously purchased or redeemed as herein provided, the Bonds will be redeemed at the Adjusted Principal Amount together with accrued interest on December 15, 2005 (the "Repayment Maturity Date"). The Bonds may not be redeemed at the option of the Issuer or the Guarantor other than in accordance with this Condition 6. Although no further amounts of principal or interest will remain owing on the Bonds after redemption in full of the Bonds at the Adjusted Principal Amount together with accrued interest, the Bonds will remain in existence and retain a right to receive the Contingent Payment (if any) on the Contingent Payment Date in accordance with Condition 6(k)."

32. It is common ground that the effect of this condition is that the defined term "Repayment Maturity Date" means 15^th December 2005 even though there are provisions in condition 12 which entitle the Trustee to bring forward the date for repayment if there is what is described as an "Event of Default" on the part of Elektrim Finance or Elektrim prior to that date. That power was in fact exercised so as to advance the date for repayment to 18^th January 2005 but nothing turns on this for purposes of the construction issue.
33. The critical condition in relation to the issues on this appeal is condition 6(k). This provides that:-

"The Guarantor will pay an amount equal to the Contingent Payment (if any) to the Bondholders on the Contingent Payment Date. The Contingent Payment will be distributed to the Bondholders pro rata to the principal amount outstanding of the bonds that they held immediately prior to the final redemption of the bonds on the Repayment Maturity Date in accordance with Condition 6(a) or, if earlier, immediately prior to the final redemption payment in respect of the Bonds (the "Final Date").

Within five Business Days of the Contingent Payment Determination Date, the Guarantor shall give notice to the Bondholders (with a copy to Euroclear, Clearstream, Luxembourg, the Principal Paying and Transfer Agent and the Bond Trustee) of the size of the Contingent Payment (if any) and of the date fixed as the Contingent Payment Date.

The Bond Trustee shall be entitled to assume that no Contingent Payment is due under this Condition 6(k) unless and until expressly notified to the contrary in writing by the Guarantor and, if so notified, the Bond Trustee shall be entitled to rely absolutely on any certificate signed by any two directors of the Guarantor as to the amount of the Contingent Payment without being obliged to investigate or verify the accuracy thereof. Any such certificate will be binding on the Bond Trustee and the Bondholders in the absence of manifest error.

For the avoidance of doubt, the obligation to make the Contingent Payment under this Condition 6(k) is an obligation of the Guarantor and not of the Issuer. The Guarantor's obligation to make the Contingent Payment is secured only by the security described in paragraph (vi) of Condition 8(a) below.

In this Condition 6(k):

"Contingent Payment" means an amount calculated by the Guarantor that is equal to the Relevant Portion of:

(i) the Fair Market Value; minus

(ii) (a) €160,000,000 less (x) any payments made by the Guarantor in respect of the purchases or redemptions of its own shares, and (y) the amount of any loans to the Guarantor's shareholders made or acquired by the Guarantor, in each case before the Contingent Payment Determination Date; and

(b) 50 per cent of the costs incurred by the Guarantor of engaging the investment banks appointed to determine the Fair Market Value.

For the avoidance of doubt, no interest shall accrue on the Contingent Payment during the period between the Contingent Payment Determination Date and the Contingent Payment Date;

"Contingent Payment Date" means such date (being a Business Day) falling no later than 180 days after the Contingent Payment Determination Date as the Guarantor may select and notify as such to the Bondholders in accordance with this Condition 6(k);

"Contingent Payment Determination Date" means a date falling after, but no later than 20 Business Days after, the earlier of:

(i) the date on which the Guarantor publishes its annual audited consolidated financial statements for the year ending December 31, 2005; and

(ii) the date on which the Guarantor publishes its annual audited consolidated financial statements for the year ending on the December 31 immediately following the disposal of its interests in the ET Shares, the Carcom Shares and the PAK Shares,

provided that, in the event that the Bonds have been redeemed in full at the Adjusted Principal Amount together with accrued interest, the Guarantor may elect that the Contingent Payment Determination Date shall be the date on which the Guarantor publishes its annual audited consolidated financial statements for the year ending on the December 31 immediately following such redemption;

"Fair Market Value" means the fair market value of the assets of the Guarantor (including, without limitation, the Guarantor's interest in any affiliates, but excluding the receivables from any loans to the Guarantor's shareholders made by the Guarantor) after deduction of any debt (but excluding contingent liabilities or amounts due in respect of working capital) and assuming that the Guarantor has no obligations in respect of the Contingent Payment, as determined (by reference to the most recent annual audited consolidated financial statements of the Guarantor) on the Contingent Payment Determination Date by two leading investment banks of international repute, appointed by, and at the expense of, the Guarantor, one chosen by the Guarantor and one chosen by the Bond Trustee, on the basis that:

(i) if the higher of the two valuations is less than 15 per cent greater than the lower valuation or the two valuations are the same, then the Fair Market Value shall be the arithmetical mean of the two valuations;

(ii) if the higher of the two valuations is 15 per cent or more greater than the lower valuation, then the Guarantor shall, at the expense of the Guarantor, appoint a third investment bank chosen jointly by the Guarantor and the Bond Trustee to determine the Fair Market Value, which valuation must be no higher than the higher valuation and no lower than the lower valuation determined by the original two investment banks and which valuation shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders; and

(iii) the investment banks shall act as experts and not as arbitrators, and their determination and findings shall be conclusive and binding on the Issuer, the Guarantor, the Bond Trustee and the Bondholders; and

"Relevant Portion" means:

(i) in the event that the Final Date occurs in the year ending December 31, 2003, 10 per cent;

(ii) in the event that the Final Date occurs on or after January 1, 2004 but on or before December 31, 2004, the sum of (A) 10 per cent, plus (B) the percentage rate obtained by multiplying 10 per cent by a fraction (i) the numerator of which is equal to the actual number of days from and including January 1, 2004 to but excluding the Final Date, and (ii) the denominator of which is 366; and

(iii) in the event that the Final Date occurs on or after January 1, 2005 but on or before the Repayment Maturity Date, the sum of (A) 20 per cent, plus (B) the percentage rate obtained by multiplying 5 per cent by a fraction (i) the numerator of which is equal to the actual number of days from and including January 1, 2005 to but excluding the Final Date, and (ii) the denominator of which is 349. …"

34. Elektrim's submission on liability is that the obligation to appoint the investment bankers to determine the fair market value of its assets and to make the Contingent Payment did not arise unless the bonds had been redeemed in full by the Repayment Maturity Date of 15^th December 2005. As mentioned earlier, the bonds were not finally redeemed until 25^th April 2008. This argument depends upon treating the second sentence of the first paragraph of condition 6(k) as making the payment of the Contingent Payment on the Contingent Payment Date conditional on the final redemption of the bonds occurring on or before 15^th December 2005. Mr Millett QC submits that the Final Date as defined cannot be later than 15^th December 2005 and is not defined in those terms regardless of whether or not final redemption and payment is made. The words "immediately prior to the final redemption of the Bonds on" are otiose, he submits, if what the parties intended to do was to fix 15^th December 2005 as a long-stop date for calculating the basis of distribution regardless of whether redemption had occurred by then.
35. In support of this argument he relies on the fact that the formula in condition 6(k) requires there to be an identifiable Final Date in order to determine the Relevant Portion and therefore the amount of the Contingent Payment. This depends upon when redemption in fact took place. It also serves to determine the proportion of the Contingent Payment which is to be distributed to each bondholder. Unless there has been a "final redemption in respect of the Bonds" on or before 15^th December 2005 then there is no Final Date as defined and the provisions in condition 6(k) for determining the Contingent Payment are inoperable.
36. The difficulty about this argument is that it elevates the second sentence of condition 6(k) to a status which is not justified by the overall structure and language of the bond conditions or the Trust Deed. The obligation imposed upon Elektrim by clause 2.3 of the Trust Deed and the first sentence of condition 6(k) is to pay an amount equal to the Contingent Payment on the Contingent Payment Date. The Contingent Payment Date is a date to be chosen by Elektrim within a window of 180 days beginning after the Contingent Payment Determination Date. This is fixed by reference to the publication of Elektrim's audited consolidated financial statements and is not dependent in any way on whether the bonds have been redeemed.
37. The second sentence of condition 6(k) is not concerned with Elektrim's liability to make the Contingent Payment. As its opening words make clear, it is designed to fix a date for determining the basis of distribution of the payment among the bondholders. For this purpose, it offers two alternatives: the Repayment Maturity Date (i.e. 15^th December 2005) or any earlier redemption date. This second alternative obviously does depend on the actual redemption of the bonds in order to fix the date for the pro rata distribution. It is also relevant to the calculation of the amount of the Contingent Payment because an earlier redemption of the bonds would result in a different formula being used to determine the amount of the Relevant Portion according to the period in which redemption took place. But if redemption does not take place before the Repayment Maturity Date or (in relation to the Relevant Portion) before 1^st January 2005 there is no further scope for variation. Distribution of the Contingent Payment will be pro rata to the amount of principal outstanding on the bonds as of 15^th December 2005 and the Relevant Portion will be that specified in alternative (iii). The imposition of a requirement that redemption should actually take place by 15^th December 2005 is not necessary for the operation of these provisions and introduces a consequence which is flatly inconsistent with the opening sentence of condition 6(k) and with the terms of Elektrim's covenant in clause 2.3 of the Trust Deed. It seems to us that the reference in the second sentence to the "final redemption of the bonds" on the Repayment Maturity Date is explicable by reference to the obligations of Elektrim Finance under the bonds but, in contractual terms, is simply descriptive. The actual redemption of the bonds by that date in accordance with their terms is not intended to be a pre-condition of Elektrim's obligations under condition 6(k).
38. The judge described the second sentence of condition 6(k) as subordinate to the first sentence which seems to us to be right. On Mr Millett's construction of these provisions, any delay in the redemption of the bonds after 15^th December 2005 would release Elektrim from its obligation to make the Contingent Payment and would therefore give it the option of determining whether or not it wished to make the payment simply by procuring its subsidiary to breach the repayment terms of the bonds. The bondholders would be penalised for a breach of contract not by them but by the paying party. We are minded to agree with the judge that it is not open to Elektrim to rely on a breach of the redemption provisions for this purpose but this point is a wider one than simply whether a party should be allowed to rely on its own wrong. As stated earlier, the evidence before the judge was that the Contingent Payment was negotiated and agreed as a quid pro quo for the bondholders agreeing to vary the original terms of the Bonds in order to rescue Elektrim from insolvency. The construction which the company now relies on in these proceedings is incompatible with the basis of that agreement and would completely frustrate the purpose of the Contingent Payment provisions. It would therefore produce the kind of result which Lord Hoffmann described in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 as both arbitrary and irrational.
39. For these reasons, we dismiss the appeal on the issue of construction.

Issue 2: should the judge have approached the valuation of the PTC shares by reference to the loss of a chance?

40. The Trustee's primary case is that damages for breach of condition 6(k) should be assessed by reference to the loss of a chance of what the bondholders might have received by way of a Contingent Payment had the machinery in condition 6(k) been operated and investment banks been appointed to make the relevant assessment of Fair Market Value of Elektrim's assets at the proper time. At the trial it submitted in the alternative that Elektrim was in breach of an obligation to redeem the bonds prior to 15 December 2005 and that damages for this breach should similarly be assessed on the basis of a loss of a chance but we are not concerned with this alternative argument. The judge accepted that the correct principle was loss of a chance but (in relation to the PTC shares) that where the court was in a position to hold that it was probable that the valuers would have received certain legal advice there was no need to make any discount for the chance of other advice having been rendered. Likewise he held, in relation to the valuation of the PAK shares, that as Elektrim failed to lead evidence as to the financial information that would have been available at the time, he was entitled to draw inferences and make findings against Elektrim as to what such information would have shown and thus that he did not need to make a discount for the possibility that the financial information might have been otherwise.
41. On the Trustee's cross-appeal, Mr Miles repeated his argument below that, since Elektrim's breach of contract was its failure to operate the contractual machinery for valuation of the shares, the damages to which the Trustee was entitled depended on the hypothetical actions of third parties and that, since it was impossible to be sure how such third parties would have valued the shares, or what figure would be reached, it was appropriate to assess the damages on the basis of a "loss of the chance" of the notional investment bankers arriving at a particular valuation. The wording of condition 6(k) may be said to encourage this approach since it contemplates the possibility of a difference of view between the valuers and indeed the possibility of the appointment of a third valuer to resolve this difference.
42. Mr Miles submits that there were four possible approaches that might have been adopted by the investment bankers:-

i) To assess the fair market value of the PTC shares without regard to the various title disputes which would be regarded as mere "contingent liabilities"; that would result in a valuation of about €2.4 billion (this was an agreed figure as to the net asset value of the PTC shares at the Contingent Payment Determination Date);

ii) To conclude that the value of the shares was what DT were likely to pay, namely €1.45 billion;

iii) To conclude (as the judge ultimately did) that what had to be assessed was the value of Elektrim's 49% of ET after the sum payable by DT had been passed to ET, namely €352 million;

iv) To assess the value as nil by reason of the title disputes.

43. He then submits by reference to authorities such as Blue Circle v MOD [1999] Ch 289 and Langford v Hebron [2001] PIQR Q13, that the court should determine the chance of each of these eventualities and total the results. Apart from saying that approach (iv) should be discounted altogether since there was no realistic chance of an investment banker coming to a nil valuation, Mr Miles did not condescend to put a specific figure on the chance of (i) (ii) and (iii), but left that to the discretion of the court. No doubt he hoped that even a small chance of approach (i) (such as 5%) would increase his damages well beyond what he submitted was the much too low a figure awarded by the judge.
44. The judge would have none of this. He accepted that he had to assess what conclusion a third party would be likely to reach in relation to the valuation of the PTC shares but said that it was very little different from deciding the consequences of a negligent solicitor failing to issue proceedings before a limitation period expired or allowing a client's action to be struck out. He said (para 173):-

"In this type of case, the court hearing the negligence claim usually makes a single broad assessment of the value of the opportunity which has been lost, assessing the legal merits for itself and allowing an appropriate discount to take account of contingencies which might have affected the claimants' prospects of winning at trial. The court does not usually try to assess a range of different possible judgments on the legal merits which might have been given by the notional trial court, and then produce a table of probabilities in respect of the possibilities in that range and aggregate the resulting values. Rather, the court draws on its own legal knowledge and expertise to produce the best assessment it can of the legal merits, with a discount primarily to take account of contingencies and uncertainties in relation to the evidence which might have been called in the case."

He further decided following the decision of Neuberger J (as he then was) in Harrison v Bloom Camillin [2001] PNLR 195 para 101 that where a point or points of law were in issue the court should be ready to determine whether a claimant would have succeeded or failed on it. Since the points in the present case were primarily points of law the judge proceeded to decide them and he decided that approach (iii) was correct and that no discount from that was necessary.

45. We endorse the judge's approach. It does not follow that merely because the court has to assess what a third party would be likely to have done that the case must be regarded as a "loss of a chance" case and a percentage of damages thus be awarded. It is different from being deprived of the chance to participate in a beauty contest (such as Chaplin v Hicks [1911] 2 KB 786) where the outcome is not dependent on a legal assessment. Nor is it like having to assess the outcome of negotiations which would have taken place if a solicitor had not (negligently) failed to give correct advice because that depends on many extra–legal factors, as was the case in Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602. In that case Stuart-Smith LJ was careful (page 1611A) to introduce his third category of case (namely where the claimant's loss depends on the hypothetical action of a third party and can therefore be evaluated on a loss of a chance basis) with the words "in many cases". He is not saying that all such cases must be evaluated on that basis.
46. Indeed we rather doubt whether the present case should be categorised as a "loss of a chance" at all. Dr Harvey MacGregor QC has pointed out (Damages 16^th ed para 8-032) that the "loss of a chance" concept has been extended well beyond the kind of case in which it was originally developed. In the present type of case the court has to assess what a banker would have concluded as to the valuation of certain shares. That may not be easy but if something of value has been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share is likely to be.
47. Mr Miles's further submission that, once one decides that damages are to be assessed on the basis of a loss of a chance, one should then take the various approaches and assess the chance of each, is even less attractive. It is over-complicated and no more likely to achieve an accurate (or even predictable) result. The authorities on which he relied should, in our view, be approached with caution. Blue Circle was not a case in which the court adopted different chances of different approaches. There was only one approach which resulted in an award of damages of 75% of a missed sale of property at a particular price, because the Ministry had contaminated the claimant's land. The court merely pointed out that, if there was 75% chance of a sale, there must logically be 25% of no sale and that the claimant should therefore also be entitled to 25% of the diminution in value of the land. It was the opposite side of the same approach, not two different approaches, which the court adopted.
48. Langford v Hebron was a case of a young man, aged 27, who was negligently injured by the defendant in December 1994. Since he was 17 he had worked as a hod carrier. At the time of the accident he had been working as a trainee bricklayer for four or five months. But he had also become the World light middleweight amateur kickboxing champion in February 1994 and then turned professional. He then won his only professional fight before the accident. A forensic accountant produced four alternative scenarios for loss of earnings depending on the chances of his kickboxing career being a success. Klevan J accepted this approach and so did this court although it altered Klevan J's assessment of the relevant chances to a small degree. One can see that this may be a viable approach to loss of earnings after a personal accident especially for a young person at the beginning of his or her career. But (1) this approach ought not to replace the traditional approach of adjusting the multiplier and the multiplicand (see MacGregor on Damages, para 8-075) and (2) there are dangers of extending it to commercial cases, especially valuation cases where permutations may be almost infinite. It may be an appropriate approach if the ultimate outcome depends on further negotiations as in Allied Maples or on decisions to be reached by a number of other bodies on what might not be a strictly legal basis such as in the decision of Nelson J in Bell v Druces & Attlee [2004] PNLR 39 in relation to the Eden project in Cornwall. But that is not this case and, in our view, the judge's general approach as set out in para. 173 of his judgment cannot be faulted.

Issue 3: was the judge's valuation of Elektrim's interest in the PTC shares erroneous?

49. We have explained above how the judge reached his valuation of the PTC shares. On Elektrim's case, the judge's valuation was excessive. He should have ascribed no more than cost (which the judge took to be €377m) to the value of the shares. The Trustee's primary case is that the PTC shares were an asset of Elektrim, that their value was €2.4bn and that no deduction falls to be made under condition 6(k) for the outflow of resources consequent on the determination of the price at which the option had to be exercised as this was a purely contingent liability. Its alternative case is that the PTC shares were an asset of Elektrim, which was worth €1.45bn for the reasons given by the judge, again with the liability consequent on determination of the call option price being treated as a contingent liability. There was a suggestion at trial that the value to be attached to the PTC shares was, because of all the uncertainties pertaining at the Contingent Payment Determination Date, to be valued at nil, but, like the judge (and Mr Miles), we would reject this option.
50. Under condition 6(k), the valuers had to have regard to the consolidated accounts produced by Elektrim. The parties to the Trust Deed no doubt took the view that these accounts would be more likely to throw more light on Elektrim's asset base than its entity balance sheet. As already explained, however, the overarching nature of the direction to the valuers to find the Fair Market Value of Elektrim's assets means that there may be circumstances in which the accounting conventions on which the consolidated accounts have been drawn or the values there attributed to the underlying assets of Elektrim's subsidiaries or its affiliates would have to be departed from. The accounting conventions in the consolidated accounts cannot, in our judgment, on the true interpretation of condition 6(k), allow the Fair Market Value, as defined in condition 6(k), to be distorted. On the other hand, condition 6(k) specifically directs the valuers to leave out of account any contingent liability. This is a part of the bargain between the parties and a specific direction with which the valuers must comply whatever the effect is in their view on the fairness of the resulting valuation. Furthermore, it would not be right for the valuers to read the consolidated balance sheet without taking into account what is said in the notes. The notes form part of the accounts, and the question whether a particular investment constituted an asset for the purpose of the valuation cannot be determined by looking at the consolidated balance sheet alone. Moreover, as Mr Miles submits, the valuation has to be performed as at the Contingent Payment Determination Date. Although this falls after the balance sheet date, events may have occurred after the balance sheet date which affect the valuation which the valuers have to carry out and which require a departure from the consolidated accounts.
51. Issue 3 raises a plethora of complex and interrelated issues and we consider that the discussion is best structured by reference to a decision tree as follows:

52. We therefore start with the question whether the PTC shares were an asset of ET or of Elektrim. Mr Millett adopts what has been called the inventory approach: he submits that the consolidated accounts provided a list of the assets that under condition 6(k) cannot be departed from as those accounts show that the PTC shares are an asset of ET (see paragraph 8 above). We have already explained why in our judgment the consolidated accounts do not set the position in stone for the purposes of the valuation of Fair Market Value and also why in our judgment the valuers were obliged to look not just at the balance sheet but also at the notes to the consolidated accounts. In any event, any provision for the valuation to be carried out as at the Contingent Payment Determination Date is inconsistent with the notion that the balance sheet is the inventory for the purpose of the condition 6(k). We accordingly reject that argument.
53. Mr Miles rejects the idea that the PTC shares were an asset of ET. He submits that the notes to the accounts, reciting the decision of the Warsaw Court of Appeal, show that this is the position taken in the consolidated accounts. The difficulty with this approach is that the time for appealing the order of the Warsaw court's decision had not expired. Elektrim did in fact appeal after the Contingent Payment Determination Date and the Supreme Court of Poland set the decision of the Warsaw Court of Appeal aside and remitted the matter to the Regional Court.
54. Mr Miles submits that the judge was wrong to hold that the PTC shares were held by Elektrim on trust for ET. True, on 22 May 2006 the tribunal in the LCIA arbitration had issued an award declaring that the TIA was and always had been valid and dismissing Elektrim's claims to have the TIA set aside. However, on 12 July 2006, Elektrim having discovered a document which had not been disclosed to it by Vivendi purporting to show that Vivendi had been in negotiation with DT at the time the agreement was made sought to have the award set aside for fraud in proceedings in the Commercial Court. This attempt failed but judgment was not given until after the 180 days for paying the Contingent Payment had expired. As at the Contingent Payment Determination Date the existence of the trust imposed by clause 5.24(i) was subject to serious uncertainty. The later judgment of Aikens J (as he then was) could not be read back into the July valuation. Mr Millett (who appeared on behalf of Elektrim in the Commercial Court) submits somewhat unconvincingly that this was not so. He also seeks to argue that there could be no trust of the shares because there was no obligation to keep the proceeds of sale separate and because in his judgment of 1 May 2007 Lewison J had held, in proceedings, to which neither ET nor Vivendi was a party, that clause 5.24(i) of the TIA did not result in the creation of a trust of the proceeds of sale of the PTC shares as well as a trust of the shares themselves. On this basis Mr Millett sought to argue that there should be a discount on the proceeds of sale in any event to reflect the risk of Elektrim's insolvency but we have already held that it is too late for any such point to be taken in these proceedings. Moreover, the judgment of Lewison J could not prevent ET from pursuing a proprietary claim to the proceeds of sale, which would almost certainly follow from the trust over the shares. It is unnecessary to take these points further.
55. We were regularly reminded by counsel of the evidence, accepted by the judge, of Mr Mark Bezant, the expert valuer called by the Trustee, that, where the entity producing accounts has sold an asset but title does not pass until it has been paid (as the Vienna tribunal held was the case here), the asset sold should continue to be shown as an asset in the entity's accounts but a liability raised for the outflow of resources reflecting the price. (This approach enables the Trustee to argue that in this case, where the extent of that liability was yet to be ascertained, the liability was contingent only.) But this evidence takes one only so far. It tells one the accounting convention as between buyer and seller. It does not tell one to whom an asset belongs when that is in contention as between companies the assets of both of which are included in a consolidated balance sheet.
56. To answer that question we must apply the IAS definition of an asset. We summarised this in paragraph 11 above. The recognition test is not in point as there is no doubt that the PTC shares had some value. The actual words of paragraph 49 of the IAS Framework Guidance (set out by the judge in paragraph 36 of his judgment) are as follows:

"An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity."

57. For this purpose, in our judgment, it is not essential that an asset is held on trust as that expression would be defined by the English law of trusts. If an asset were held on trust and the trustee had no material beneficial interest, it would not properly be included in the trustee's accounts. The question is where would the benefits of the assets go. In this case, even if, as Mr Millett argues, there was no trust, it was clear from the decision of the Vienna arbitral tribunal that the only interest that Elektrim or ET could have in the PTC shares was in the proceeds of sale, not in the capital or (it would seem) income of the PTC shares. The judge took the view that the valuers would have received clear advice that clause 5.24 was binding. In the light of the challenge that Elektrim brought in the Commercial Court, we doubt whether that advice could have been unequivocal. On the other hand, the valuer had to bite the bullet and form a view as to whose asset, in the sense given above, the PTC shares were. It would be obvious that ET had to have some recompense for the award of the Vienna tribunal, and moreover as at the Contingent Payment Determination Date that award had been recognised in Poland. In those circumstances we consider that the valuer would have reached the conclusion that the PTC shares were an asset of ET and not Elektrim. This reinforces the judge's conclusion on this point.
58. That conclusion leads to the next question in our structured series of questions. What was the value of the PTC shares? Three choices are given: cost (€377m), the aggregate of the sums shown in the draft Master Agreement (€1.45bn) or fair value (agreed at €2.4bn).
59. Mr Millett's primary submission is that, in the circumstances where the Master Agreement was still in a state of negotiation and certain conditions had to be met before the payments due thereunder could be made, the judge had to find that the value of the PTC shares was their book value, since that was the indisputable minimum price payable on exercise of the call option. In choosing a valuation based on the Master Agreement the judge gave no weight to the expert evidence on both sides that the amount to be awarded by the Vienna tribunal was subject to considerable uncertainty. The Fair Market Value of the PTC shares could only be found by identifying the price which the Vienna tribunal would be likely to award under the call option. In addition, on Mr Millett's submission, DT would also be able to deduct the amount of damages which Elektrim was liable to pay it.
60. Mr Millett's further submission is that the judge's valuation of the PTC shares by reference to the Master Agreement was not an assessment of what the Vienna tribunal would have awarded. The sum of €1.45bn reflected the fact that under the Master Agreement DT got security of tenure of the PTC shares free from the adverse claims of ET and Vivendi, settlement of all outstanding litigation with Elektrim, payment off of the bonds, relief from the threat of Elektrim's bankruptcy and reputational advantages in that the sum would assuage Polish public and political opinion. DT bent over backwards to be fair to Elektrim because of the sensitivities of the German/Polish situation. These were important advantages that DT would or at least might not obtain under the anticipated award of the Vienna tribunal. In fact the Master Agreement was completed (with significant amendment to the conditions to which the various payments were subject). The Vienna tribunal did not in the event fix the option price for the PTC shares.
61. Mr Millett also submits that the judge failed to take proper account of the conditions for the payment of the tranches of the price payable under the agreement with DT, and in particular the first tranche of €600 m which was allocated to the purchase of the Bonds. There was no certainty that the conditions required to be satisfied under the agreement before the tranches of the price became payable would be met. Anything over €377m would be in "the lucky dip world". Moreover, on Mr Millett's submission, the price in the Master Agreement did not represent the fair market value of the PTC shares. DT was prepared to pay a special price in the Master Agreement because it would be getting good title and getting rid of Vivendi. DT was therefore paying a premium over the Fair Market Value of the shares.
62. But our response is that the judge did not find the value of the PTC shares by forming a view as to what the Vienna tribunal would have found to be the price. He took the value to be the price which DT was prepared to pay as part of a settlement, which amounted to some €1.45bn. This price did not purport to be and did not need to be a rationalisation of the amount of the likely award by the Vienna tribunal. The price arrived at by negotiation was not a forecast of what the Vienna tribunal was likely to award. It represented a sum which DT was willing to pay in order to avoid reputational damage.
63. Mr Millett's argument is that the valuer would not have given any weight to the Master Agreement. Mr Bezant did not give expert evidence that any weight could be attached to the Master Agreement, and the judge was not entitled to fill that gap in this evidence. (We note, however, that Mr Bezant accepted in his evidence that in the light of the Master Agreement an outcome as low as book value for the PTC shares was "very unlikely", and that he was not asked to amplify his evidence on this point). Furthermore, on Mr Millett's submission, the Master Agreement gave DT more than it could get under the award of the Vienna tribunal and therefore did not represent the fair market value of the PTC shares. DT was prepared to pay more to avoid reputational damage.
64. We do not accept these submissions. The valuer did not have to estimate what the Vienna tribunal was likely to award. That inquiry was open-ended but we tend to the view that if the valuer had no other guide as to value he would have sought to establish a minimum figure for the price which would be payable over and above book value. Clearly some significant sum would be awarded over and above book value. Be that as it may, the judge took another route, not that of valuing the likely award but of relying on the draft Master Agreement. He had that as a guide. We shall examine that route below but at this stage, in answer to Mr Millett's submissions, it is no objection that DT was prepared to pay more than perhaps it needed to, in order to obtain goodwill and reputational advantages. Those would be reasons for paying the price, not a price for some additional item of property. It is therefore irrelevant whether those motives were known at the time. In any event, DT obtained security of tenure from the award of the Vienna Tribunal and thus this point is of little weight.
65. As to the valuation of €2.4bn, advanced by Mr Miles, we see this figure as the product of an accounting construct founded on the need in accounting terms to reflect an asset held for resale as an asset. But what the valuers had to value was the asset which could be sold and which the seller was capable of vesting in the purchaser. The judge set out the explanation of fair market value provided in the evidence of Mr Bezant:

"ii) The concept of "fair market value" to be used in calculating the Contingent Payment was intended to engage a standard of measurement of value which is well understood by valuers and which is properly to be formulated in the following terms (as set out by Dr Ciepal, one of the expert witnesses called by Elektrim, and agreed by Mr Bezant, the relevant expert witness called by the Trustee):

"The Fair Market Value is the price described in cash or cash equivalents, for which property passes from the hands of a hypothetical independent willing-and-able seller capable of concluding the transaction, both acting independently in an open and unrestricted market, where neither of the parties is acting under any form of compulsion to buy or sell and where both parties have sufficient knowledge of the relevant facts pertinent to the transaction and where the subject of the transaction is offered for sale in the market for a reasonable period of time"

66. Neither Elektrim nor ET could sell an unencumbered interest in the PTC shares, which is what the figure of €2.4bn represents. In effect, due to the award of the Vienna Tribunal, all they could sell was the right to receive the proceeds of sale payable by DT. Accordingly, this is a situation when the overarching aim of producing a fair market valuation of an asset must require an approach involving some adjustment of the accounting treatment. Accordingly we reject the valuation of €2.4bn, and we would have reached this conclusion whether the asset was that of ET or of Elektrim.
67. That leaves the remaining candidate of €1.45bn. This was, as Mr Miles put it, "the offer on the table". The negotiations for the Master Agreement were in the judge's judgment sufficiently advanced for the judge to be satisfied that a hypothetical purchaser would purchase the PTC shares for the amount which DT had offered to pay. Elektrim stood to receive more if the Vienna Tribunal ordered a larger sum, and so it is difficult to see why Elektrim should not want to take up this offer. It was an attractive offer. Mr Millett argues that the judge paid insufficient regard to the need to satisfy the conditions in the Master Agreement. The judge considered the conditions, and this was his conclusion:

"Mr Millett emphasised that the Master Agreement was conditional on various matters, but in my view the principal conditions related to the resolution in favour of DT of its claim to the PTC shares as against ET and Vivendi, and since the TIA recognised that DT (if successful in the Vienna Arbitration in its claim for a transfer of those shares to it) would have a claim to those shares prior to the claims of ET and Vivendi, the conditional nature of the Master Agreement's provisions would not significantly have detracted from it being a fair and reasonable indication for the notional investment banks of the approximate minimum amount of the price DT would be likely to have to pay Elektrim for the PTC shares under the option." (Judgment, paragraph 106)

68. Mr Millett did not really dispute this view of the TIA and indeed it would have been inconsistent with his submissions in support of his case that the PTC shares belonged to ET to argue otherwise. He principally raised the difficulty of satisfying condition (a) which required the purchase of the Bonds but as Mr Miles points out that could be done leaving the right to the Contingent Payment outstanding as an independent obligation of Elektrim. DT was offering to put up sufficient funds to meet the principal and a further amount which it was no doubt anticipated would cover unpaid interest.
69. Mr Millett suggests that the judge was not entitled to reach the view that the sum of €1.45bn provided adequate evidence of the value of the PTC shares. As we have noted, Mr Bezant did not deal with the effect of the Master Agreement on the valuation of the PTC shares. Elektrim's expert valuer, Dr Ciepal, had no qualifications to express a view on what a valuer might do in these circumstances. In those circumstances, without the aid of any expert evidence, the judge had to proceed cautiously but as we see it he considered all the relevant questions in the course of a long judgment with great thoroughness and care. We therefore consider that the judge was entitled to take the course that he did and it was one that was open to him. He had heard extensive evidence (the trial lasted five weeks), an advantage that has not been available to this court. No party has suggested that he should have discounted the sum of €1.45bn for the risk of non-completion of the Master Agreement, and so we have not had to consider that question.
70. That takes us to the question whether the liability to DT was a contingent liability. It seems to us that, as the valuation of €1.45bn proceeds on the assumption of a sale to DT for that sum, there is no further need to raise any contingent liability, and there is no need for any outflow of resources to be recognised. Mr Millett did not argue for any further deduction to be made in those circumstances.
71. On the basis that the PTC shares were an asset of ET, no argument was led to show that there should be some liability to it and no evidence was led to suggest that ET had any claim against Elektrim in excess of the price payable by DT.
72. The judge was concerned with an inter-company debt owed by ET to Elektrim (referred to above as the ET Receivable), which was irrecoverable if the PTC shares belonged to Elektrim. Again this issue does not arise.
73. The question whether the judge was wrong to value the PTC shares as a minority holding because Elektrim had a further holding of such shares through another subsidiary does not now arise.

Issue 4: was the valuation of the PAK shares erroneous (1) because different rates of inflation had been used for costs and revenues or (2) because the estimates of fixed costs used for the purposes of the valuation were less than those in PAK's own budget?

74. On this issue, Mr Julian Kenny presented the oral argument for Elektrim.
75. As explained above, Elektrim challenges the judge's valuation of the PAK shares in two particular respects. It is common ground that Elektrim's shareholding in PAK should be treated as an asset of Elektrim and that this shareholding should be valued on a discounted cash flow basis. The judge heard expert evidence from Mr Bezant on behalf of the Trustee and from Mr Zielinski on behalf of Elektrim on this valuation exercise and in general he accepted and preferred the evidence of Mr Bezant.
76. The first criticism made by Mr Kenny is that Mr Bezant did not use the same rates of inflation for costs and revenues and that this court should order that the same rate should be used. We do not consider that this is a sound basis for challenging the judge's valuation. It is possible that it may be appropriate to have different rates of inflation for these costs and revenues. It is not, as Mr Kenny suggests, self-evident that the rates should be the same. Indeed, Mr Zielinski, Elektrim's expert, used different rates of inflation for the purposes of his valuation. As Mr Miles points out, if this point was going to be taken it should have been put to Mr Bezant in cross-examination. The point is not open in this court, as it is a new point not raised below and therefore it requires this court's permission to be raised as a new point, which in the circumstances and on established principle this court refuses.
77. The second respect in which the judge's valuation of the PAK shares is challenged by Elektrim is on the basis that, the judge having found that certain heat costs treated by Mr Bezant as fixed costs were variable, the judge was in error in not requiring Mr Bezant to increase his fixed costs to accord with the budget prepared by PAK. This was, Mr Kenny submits, an error because Mr Bezant in his evidence accepted the principle that a proper estimate of fixed costs for the purpose of a valuation of the PAK shares had at least to approximate the actual fixed costs reported by it in its budget. Thus, if costs were removed from fixed costs, fixed costs had to be increased in line with the actual fixed costs shown in PAK's budget. Again, we do not accept this is a matter which can be raised on appeal. Again, these points were never put to Mr Bezant in cross-examination so we do not know whether his previous statement applied in these circumstances. Elektrim had been able to recall Mr Bezant for other purposes and so they could have put this point to him. As it is, it would appear that the effect of the judge's holding that certain heat costs should be included in variable costs is merely to change the composition of fixed and variable costs and not to reduce them overall. On this basis, that would seem to be no justification for inflating fixed costs in line with PAK's budget.
78. We therefore dismiss Elektrim's appeal against the judge's valuation of the PAK shares.

Position of the second respondent

79. The second respondent, Concord Trust, was joined as the representative Bondholder to this appeal. For the most part, Concord simply agreed with the points made by the Trustee. It filed a short skeleton argument and Miss Susan Prevezer QC made short oral submissions on its behalf. However, those submissions did not appear to us to raise any new argument requiring separate mention in this judgment.

Disposal of the appeals

80. We dismiss the appeal of Elektrim and the cross-appeal by the Trustee.