England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th February 2004

Mr Justice Peter Smith:

INTRODUCTION

1. This is an application by the Claimant by Part 8 claim form issued on 10^th February 2004 seeking directions as to the construction of a provision in a Trust Deed as set out in this judgment as between the Claimant as Trustee and the Defendants as Beneficiaries.
2. The issue with the construction concerns the meaning of the expression contained in Condition 12 'materially prejudicial to the interests of the Bondholders" in the context of a Bond Issue where the Claimant is the Trustee of the Bond Issue and the Defendant Beneficiaries are Bondholders.

BACKGROUND

3. The wording referred to above appears in Condition 12 of the Second Schedule to the Amended and Restated Trust Deed dated 15^th November 2002 ('The Trust Deed') between Elektrim Finance BV ('The Issuer'), Elektrim S.A. ('The Guarantor') and the Claimant, the Law Debenture Trust Corporation Plc ('The Trustee').
4. The subject of the Trust Deed comprises 510 million Euro 2% Bonds ("the Bonds") due 2005 of the Issuer.
5. Condition 12 sets out the Events of Default upon the occurrence of which the Trustee is entitled or may become bound to give a notice to the Issuer and the Guarantor that the Bonds have become immediately due and repayable, together with accrued interest.

TERMS OF TRUST DEED

6. The two major provisions about which the arguments essentially revolved were Condition 10(d) and 12(ii), which provide as follows:-

"(d) Member of Management Board Appointed by the Bondholders

So long as the principal amount outstanding of the Bonds exceeds £150,000,000, the Bond Trustee, acting on the written instructions of the holders of at least 25 per cent in principal amount outstanding of the Bonds (an "Instructing Bondholder Group"), shall have the right to require the Supervisory Board of the Guarantor to have appointed one member to the Management Board of the Guarantor nominated by such Instructing Bondholder Group (the "Bondholder Nominated Director"). The Supervisory Board shall have the right to reject any individual nominated by an Instructing Bondholder Group, provided that it shall give reasonable written justification to the Bond Trustee and to the Bondholders in accordance with condition 16 for such rejection on grounds that (a) the nominee (including any replacement thereof selected by such Instructing Bondholder Group):

(i) has insufficient experience;

(ii) has a conflict of interest that would prevent the nominee properly conducting the function of a management board member;

(iii) is of unsound mind;

(iv) is an undischarged bankrupt; or

(v) is not a full-time resident of Poland,

or (b) the Supervisory Board reasonably considers that the Management Board so constituted could not reasonably be expected to operate on a consensual basis. In the event that the individual nominated by an Instructing Bondholder Group is rejected by the Supervisory Board on the grounds specified in paragraph (b) above, any alternative individual nominated by an Instructing Bondholder Group (with respect that the particular appointment) may only be rejected by the Supervisory Board on one of the grounds specified in paragraph (a) above or on the grounds that then nominee is reasonably considered by the Supervisory Board to be so objectionable (on grounds other than those stated in paragraph (a) above) that it would be impossible for the Management Board to operate on a consensual basis.

If the Bondholder Nominated Director shall resign or become incapable of acting or if the Bond Trustee is requested in writing by the holders of at least 50 per cent in principal amount outstanding of the Bonds to request that the Supervisory Board dismiss the Bondholder Nominated Director, then the Bond Trustee, acting on the written instructions of an Instructing Bondholder Group, shall have the right to require the Supervisory Board to appoint a replacement member nominated by such Instructing Bondholder Group (subject to the Supervisory Board's right to reject any individual nominated by an Instructing Bondholder Group as described in the first paragraph of this Condition 10(d)).

The Guarantor agrees that its Management Board will consist of two or three members having positions, status and benefits commensurate with their role in the joint management of the Guarantor. Material decisions of the Guarantor and all financial decisions relating to amounts exceeding Euros 25,000 may only be taken with the consensus of the entire Management Board.

In the event of any impasse or deadlock of the Management Board that the Supervisory Board reasonably believes to be prejudicial to the interests of the Guarantor, the Supervisory Board may dismiss the entire Management Board or any two members of the Management Board and appoint other persons in their place. In the event that only two members of the Management Board are to be dismissed of which one is the Bondholder Nominated Director, the Bond Trustee, acting on the written instructions of an Instructing Bondholder Group, may direct the Supervisory Board as to which of the two members (who are not the Bondholder Nominated Director) shall be dismissed. In addition, the Bond Trustee, acting on the written instructions of an Instructing Bondholder Group, shall have the right to require the Supervisory Board to appoint a replacement member nominated by the Bondholders (subject to the Supervisory Board's right to reject any individual nominated by an Instructing Bondholder Group as described in the first paragraph of this Condition 10(d)) … "

"12 Events of Default

The Bond Trustee at its discretion may, and if so requested in writing by the holders of at least thirty per cent in principal amount outstanding of the Bonds or if so directed by an Extraordinary Resolution of the Bondholders shall (subject in each case to being indemnified to its satisfaction), give notice to the Issuer and the Guarantor that the Bonds are, and they shall accordingly immediately become, due and repayable at their relevant redemption value, together with the accrued Interest Amount as provided in the Bond Trust Deed, upon the occurrence of any of the following events "Events of Default"):

(i) if default is made for seven days or more in the payment of any principal and premium (if any) or default is made for more than fourteen days in the payment of interest due on any bond; or

(ii) if either the Issuer or Guarantor fails to perform or observe any of its other respective obligations under the Bonds, the Bond Trustee Deed, the Pledge Agreements, the Mortgages, the Assignments, the Security Administration Agreement or the Deed of Delegation or if any event occurs or any action is taken or fails to be taken which is (or but for the provisions of any applicable law would be) a breach of any of the covenants referred to in Condition 10 and in any such case (except where the Bond Trustee considers the same to be incapable of remedy when no such continuation or notice as is hereinafter referred to will be required) the same continues for the period of 30 days (or such longer period as the Bond Trustee may permit) next following the service by the Bond Trustee on the Issuer or Guarantor of notice requiring the same to be remedied, except in the case of the Issuer failing to make the First initial Payment and such failure continuing for a period of three days next following the service by the Bond Trustee on the Issuer or Guarantor of notice requiring the same to be remedied; or

(iv) if any governmental authorisation necessary for the performance of any (i) payment obligation of the Issuer or the Guarantor under the Bonds or (ii) any material obligation of the Issuer or the Guarantor under the Bond Trust Deed or the paying and Transfer Agency Agreement (other than any approvals required in connection with the pledge over the Pledged PAK Shares) fails to take full force and effect or remain valid and subsisting; or

(v) if an order of a court of competent jurisdiction is made or an effective resolution is passed for winding up the Issuer, the Guarantor or any Material Subsidiary of the Guarantor, except (a) a winding up for the purpose of a consolidation, merger, reconstruction or amalgamation the terms of which have previously been approved in writing by the Bond Trustee or by an Extraordinary Resolution of the Bondholders, or (b) in the case of a solvent winding up of a Subsidiary of the Guarantor (other than the Issuer) where the undertaking and assets of the Subsidiary are transferred to or otherwise vested in the Guarantor or another of its Subsidiaries; or

(vi) if, after the Restructuring Date, an encumbrancer takes possession, or a receiver, manager or administrator is appointed, of the Issuer, the Guarantor or any Material Subsidiary of the Guarantor or of the whole or of any part of the undertaking or assets of any of them (being substantial in relation to the undertaking or assets of the Guarantor and its Subsidiaries taken as a whole) or if a distress, execution, attachment, sequestration or other process is levied or enforced upon or sued out of or put in force against the whole or any part of the undertaking or assets of the Issuer, the Guarantor or any Material Subsidiary of the Guarantor (being substantial in relation to the undertaking or assets of the Guarantor and its Subsidiaries taken as a whole) and is not removed, discharged or paid our within 14 days (or such longer period as the Bond Trustee may consider appropriate in relation to the jurisdiction concerned); or

(vii) If, after the Restructuring Date, the Issuer, the Guarantor or any Material Subsidiary stops or threatens to stop payment (within the meaning of Dutch, Polish or any other applicable bankruptcy law) of its debts or ceases or through an official action of the Management Board or the Board of Directors of the relevant company threatens to cease to carry on the whole or a substantial part of its business or is unable to, or admits inability to, or is deemed unable to, pay its debts as and when they fall due (in each case, otherwise than for the purposes of a consolidation, merger, reconstruction or amalgamation, the terms of which have previously been approved in writing by the Board Trustee or by an Extraordinary Resolution of the Bondholders); or

(viii) if, after the Restructuring Date, proceedings shall have been initiated against the Issuer, the Guarantor or any Material Subsidiary of the Guarantor under any applicable bankruptcy, reorganisation or insolvency law or the Issuer, the Guarantor or any Material Subsidiary of the Guarantor initiates or consents to proceedings relating to itself under any applicable bankruptcy, reorganisation or insolvency law or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangements with, its creditors generally (or any class of its creditors) or any meetings is convened to consider a proposal of or a composition or other arrangement with its creditors generally (or any class of its creditors); or

(ix) if, after the Restructuring Date, any event occurs which under the laws of the Republic of Poland or the laws of The Netherlands has an analogous effect to any of the events referred to in paragraphs (v) to (viii) above; or

(x) other than judgment(s) or order(s) (i) in connection with any claims arising or proceedings initiated prior to the Restructuring Date in connection with the Bonds or (ii) arising as a result of a failure of the Management Board of the Guarantor to reach a consensus with regard to any material decisions in respect of the arbitration brought against the Guarantor by Deutsche Telekom at the International Arbitration Centre for the Austrian Federal Economic Chamber in Vienna, Austria, if one or more judgement(s) or order(s) for the payment of any amount in excess of Euro 10,000,000 (or its equivalent in other currencies) are rendered against the Issuer or the Guarantor or any Material Subsidiary of the Guarantor in respect of which the Guarantor or any Material Subsidiary of the Guarantor is not otherwise secured, through a guarantee or surety, or indemnified, and such judgement(s) or order(s) continue unsatisfied for a period of 90 consecutive days after the date of such judgment(s) or order(s) or, if later, the date (if any) specified for payment in such judgment(s) or order(s), expect to the extent that such judgment(s) or order(s) are stayed or suspended pending appeal or judicial review; or

(xi) if there shall occur any material adverse change in the business, assets, regulation or finical condition of the Guarantor, its material Subsidiaries and the Issuer taken as a whole form that at the Restructuring Date which, in the sole discretion of the Bond Trustee, would be likely to have a material adverse effect on the Issuer's or Guarantor's ability to perform or comply with its payment obligations under the Bonds or the Bond Trustee Deed; or

(xii) If (i) it is or will become unlawful for the Issuer or the Guarantor to perform or comply with any one or more of its payment obligations under the Bonds, its other material obligations under the Bond Trust Deed, the Security Documents or the Guarantee or (ii) the validity of the Bonds, the Guarantee or the Security Documents is contested by the Issuer or the Guarantor or either the Issuer or the Guarantor denies any of its obligations under the Bonds, the Guarantee or the Security Documents or (iii) any one of more of such obligations becomes unenforceable or invalid; or

(xiii) if (i) all or any part of the undertaking, assets and revenue of the Guarantor, the Issuer or any Material Subsidiary is condemned, seized or otherwise appropriated by any person acting under the authority of any national, regional or local government or any political sub-division thereof or (ii) the Guarantor, the Issuer or any Material Subsidiary is prevented by any such person from exercising control over all or any material part of its undertaking, assets and revenues; or

(xiv) If an event of default specified in the Guarantor Trust Deed occurs, provided that in the case of paragraphs (ii), (iv) or (xiv) or, in relation to a Material Subsidiary other than paragraphs (v) to (ix) (inclusive) or (xiii), the Bond Trustee shall have certified that such event is materially prejudicial to the interests of the Bondholders".

7. I refer to the witness statement of Mr Roome dated 10^th February 2004, a partner in the firm of Bingham McCutchen LLP ('BMC'), solicitors to the Defendants, which sets out the factual background. The Trustee's application was supported by a witness statement signed by John Davies, a partner in the firm of Simmons & Simmons, also dated 10^th February 2004 but nothing factually significant is set out in that witness statement for self evident reasons beyond the rehearsal of the arguments justifying its present application as set out in paragraph 10 thereof.
8. Reverting to Mr Roome's witness statement, as I have said it sets out the Defendants are beneficiaries under the Trust Deed and holders of over 30% face value of the Bonds (as defined above), issued by Elektrim Finance guaranteed by Elektrim.
9. Elektrim is the parent company of a substantial Polish Group with its registered office at YL.Panska, 77/79, 00-834 Warsaw. Its principal asset is and has been its 49% shareholding in and loans to a telecommunications company, Elektrim Telecommunikacja Sp.z.oo ('ET'). Elektrim also owns 49% of Carcom Warsaw Sp.Z.oo ('Carcom'). ET and Carcom together directly or indirectly own 51% of Poland's largest mobile phone company Polska Telefonia Cyfrowa Sp.Zo.o. ('PTC').

ORIGINAL BONDS AND DEFAULT

10. In July 1999 Elektrim Finance issued and Elektrim guaranteed 440 million Euro's 3.75% Euro linked exchangeable bonds due 2004. These bonds are and have been held and traded by Bondholders including the Defendants.
11. The Bondholders' interest under the Bonds are clearly to ensure that payments due under the bonds (including annual interest payments and following the restructuring and as set out further in this judgment mandatory redemption payments and contingent payments) are made in full on time and that the Bonds are ultimately redeemed in full. In addition, they plainly have an interest in ensuring all other rights and benefits which are exercisable for the benefit of the Bondholders, ancillary to the bonds and to provide security or protection for the bonds remain fully in place and enforceable. That seems to me to be self-evident.
12. The original bonds were redeemable on 17^th December 2003. The Bondholders were originally granted an optional redemption exercisable on 15^th December 2001. Commencing in May 2001 certain Bondholders commenced discussions with Elektrim to ensure it had taken the necessary steps to fund the redemption, which was expected to be exercised by the great majority of the Bondholders. Substantial funds sufficient to fund the redemption were received by Elektrim during August of 2001. By early December 2001 it had become clear to the Bondholders that those funds had been applied in payments to other creditors in preference to the Bondholders and that both Elektrim and Elektrim Finance would default on their respective obligations upon the exercise of the optional redemption.
13. Accordingly, almost all Bondholders exercised their redemption option on 17^th December 2001. During a seven-day grace period following that, limited negotiations took place but no agreement was reached with the result that on 24^th December 2001, both Elektrim Finance and Elektrim defaulted on the Bonds in the sum of Euro 479,332,722 ('the December Default').
14. On 28^th December 2001, Elektrim filed an application for composition in the Warsaw District Court (this is a procedure somewhat akin to an administration order in England and Wales). The Trustee issued a cross application on behalf of the Bondholders for bankruptcy but that was dismissed on 16^th January 2002 and the composition application was accepted by the Polish Court instead.
15. Following the December default and the commencement of the Composition Proceedings, negotiations ensued between the Bondholders through a negotiating committee and Elektrim. Those negotiations lasted from January 2002 until September 2002.
16. Towards the end of that period on 13 September 2002 Elektrim filed for bankruptcy. The market value of the Bonds fell significantly as a result. In the period leading up to the hearing of Elektrim's bankruptcy proceedings, intensive negotiations took place between the Bondholders and Elektrim to see if it might be possible to agree alternative restructuring terms and avoid a bankruptcy.
17. It was obvious to the Bondholders that a cash payment would not be available to them in the near future. The Bondholders were therefore anxious to obtain the maximum security for their lending under the Bonds and ensure that monies, which became available to Elektrim in the future, would be properly applied to making payment under the Bonds and to other creditors of the company. To this end, they sought and obtained in these negotiations (the relevant Condition 10(d) not being in the original Bonds) a power to appoint a member to Elektrim's management board ('the Bondholder Nominated Director').
18. In respect of all transactions exceeding 25,000 Euro (a relatively modest sum in the circumstances), his consent was required. It followed, therefore, that the Bondholder Nominated Director (being one of three on the Board) provided considerable protection to the Bondholders. Any decision above the value referred to above required his consent. He was therefore in a position to block any transaction. There were no provisions under Condition 10(d) for his removal by the Board of Elektrim save in circumstances that either two Board members were removed or the whole Board was removed. Nor is it possible under the terms of Condition 10(d) to remove the Bondholder Nominated Director and then make decisions, which are supposed to be effective after his removal.
19. In other words at Elektrim Board level, complete unanimity was required and the Bondholders had a full right to participate in the decision-making processes of Elektrim at all times. This seems to me to be a very valuable right and was clearly so perceived by the Bondholders when they negotiated its introduction for the first time when the new terms in the Second Supplemental Trust Deed were finalised on or about 3^rd October 2002. I discern this from paragraph 8 of Mr Roome's witness statement.
20. This evidence to me seems to be relevant material to be considered when construing the words of the Trust Deed as per Lord Hoffman in ICS v West Bromwich Building Society [1998] 1 WLR 896 at 912-913.
21. The Trust Deed is to be construed in accordance with English Law.

SECURITY

22. In view of the Bondholder's lack of confidence in the company, the provision of security by granting to the Bondholders security over its own assets was also of utmost significance and they were given security in accordance with Clause 8. I do not propose to set out those provisions, as the actual wording is not of significance.

THE BREACH

23. The Bonds were restructured on 15^th November 2002 in accordance with the new terms following approval thereof by a majority of Bondholders. At about the same time in accordance with the Bonds, Mr Piotr Rymaszewski ('Mr Rymaszewski') was appointed Bondholder Nominated Director. At that time Ryszard Opara and Wojciech Janczyk were acting as Directors of Elektrim nominated by it.
24. The Bondholders allege that Elektrim took a series of steps in breach of its obligations under the Trust Deed and the Bonds. The Trustee do not disagree that the acts complained of were all breaches of the Trust Deed.
25. The breaches are summarised in paragraph 14.2 of Mr Roome's witness statement. Two of them are to my mind not particularly significant at this stage, namely failing to comply with the request for information (in breach of Clause 5.1 of the Trust Deed) (Item 4) and failing to pay the Trustee's fees in breach of Clause 16 of the Trust Deed (Item 5). That is not to say that they are not significant but in the overall context of the matters before me, I do not see that they carry the weight that the other matters do.
26. The most important breach was the suspension of Mr Rymaszewski as Bondholder Nominated Director. This is a clear and substantial breach of Condition 10(d). There is no power to suspend the Bondholder Nominated Director. Subsequent to the suspension, various transactions have taken place involving loans and pledging of shares. Further transactions are also proposed. The Bondholders are totally excluded from the management of Elektrim and in particular in considering whether or not these transactions should take place. Quite apart from their inability to discuss them at Board level, they are deprived of an opportunity if necessary of blocking any transaction if they think it is appropriate so to do.
27. Elektrim has suggested (by its letter 17^th June 2003 to the Trustee) that the Bondholders could nominate an alternative Bondholder Nominated Director. The Bondholders informed the Trustee there could be no appointed replacement until Mr Rymaszewski had been properly dismissed in accordance with the procedures set out in Condition 10(d). The Trustee agrees with that analysis. So do I.
28. Requests had been made by the Bondholders of Elektrim to "unsuspend" Mr Rymaszewski and properly dismiss him, thereby permitting them to nominate a new director, but no such action has occurred. Elektrim seems determined to operate with the Bondholders totally excluded.
29. On 24^th July 2003 the Trustee gave notice to Elektrim that the suspension gave rise to a breach of covenant at Condition 10(d) and stated pursuant to Condition 12(ii) it required the breach to be remedied within 30 days. Elektrim failed to remedy the breach and failed to reinstate Mr Rymaszewski within 30 days or at all.
30. This is a serious material breach of the conditions of the Trust Deed. The Trustee accepts that as being the case.
31. The Bondholders' case as summarised in paragraph 15.8 of Mr Roome's witness statement is that the breach of covenant at Condition 10(d) fundamentally undermines the protections negotiated with the Bondholders because of the particularly significant nature of the power of appointment to the board and the ability to block any transactions at board level of any significant amount.
32. The urgency of the present application arises out of the fact that Elektrim had started to dispose of certain of his assets, which are secured in favour of the Bondholders. Each of these transactions is a breach of the covenants contained in Condition 10(d) as they exceed Euro 25,000 in value and have not been approved by the Full Management Board due to the wrongful suspension of the Bondholder Nominated Director.
33. The Trustee concurs in that analysis, as I do.

ATTITUDE OF THE TRUSTEE

34. As I have said, the attitude of the Trustee is summarised in paragraph 10 of Mr Davies' witness statement. It has been advised by Leading Counsel that before declaring an Event of Default by virtue of the breaches, it needs to determine whether the event or breach in question has in fact caused material prejudice to the interests of Bondholders. The Trustee is further advised that material prejudice means prejudice to the Bondholders, which is damaging in the sense of being materially harmful to the economic interests of the Bondholders. It accepts that the Court could conclude as a matter of construction of the covenant that there would be a Bondholder Nominated Director that such covenant was an important one such as the Bondholders were materially prejudiced simply by a breach of that covenant but its belief is that having had discussions with Elektrim in financial terms it does not believe that the Bondholder's position has actually been materially prejudiced by the proposed transactions.
35. It is no part of the hearing before me to evaluate the evidence as to whether or not that is a correct conclusion to take. Equally, Elektrim is not a party to the present proceedings. Mr Potts Q.C. submitted that the application was akin to a Beddoe application, but of course it is somewhat different. The purpose of the Beddoe application is to obtain an indemnity for an estate. The Trustee needs an indemnity and that will be provided by the Bondholders. However, there is a dispute between the Trustee and the Bondholders as to the consequences of the breach of Condition 10(d) in the light of the requirements in the proviso of Condition 12. That is the issue in effect, which I am asked to determine.
36. If I determine it in favour of the Bondholders, Mr Potts Q.C. has indicated on behalf of the Trustee that subject to the proper indemnities being in place, it will serve the requisite default notice and if necessary commence the requisite proceedings. At that stage of course, any such proceedings brought against Elektrim might raise the same issue as to whether or not the Trustee was entitled to serve the default notice. Any decision I make as to the construction of the Trust Deed does not bind it and it is possible that the meaning of the clause might be re-visited at later stage, if that arises.

THE COMPETING ARGUMENTS

37. The Trustee's case is that in respect of a breach of Condition 10(d) which falls within Condition 12(ii) the breach of itself does not constitute an Event of Default. At first sight, this might seem curious. For example, the failure to pay the interest (even if subsequently paid) by one day is an automatic Event of Default under Condition 12(i). One might have thought that that was surprising when contrasted with the important provision (as put forward by Mr Roome) at Condition 10(d), which does not automatically constitute an Event of Default. As I have said, Condition 10(d) was inserted into the draft at a later stage but it was accommodated alongside any other breach of the terms and falls within Condition 12(ii) for its enforcement.
38. The proviso requires "[that] the Bond Trustee shall have certified that such event is materially prejudicial to the interests of the Bondholders". In the context of a request in writing by 30% of the Bondholders, the Trustee is obliged to issue an Event of Default provided all the other criteria are satisfied.
39. The Trustee's case is that for there to be an Event of Default for breach of Condition 12(ii), it must be satisfied that the event:-

a) is prejudicial

b) is so prejudicial to the interests of the Bondholders and

c) is materially prejudicial to such interests

40. There was much debate before me (in amplification of the skeleton arguments) as to the effect of the words materially prejudicial and interests of the Bondholders.
41. It must clearly be a present breach and the Trustee must be presently satisfied that there is a breach, before it issues a certificate, and before that certificate can be issued it must be satisfied that it is prejudicial to the interests of the Bondholders in a material way. I do not see how any other conclusion is possible on the wording "is materially prejudicial".
42. The case of the Defendants as set out in a skeleton argument of Ms Prevezer QC who with Mr Stephen Houseman appears for the Defendants involved a number of submissions at variance with the Trustee's stance. Thus she submitted that the interests of the Bondholders covered a far wider range of matters than merely the Bondholders' legal or contractual rights or the economic interest of the Bondholders. However, as this argument developed, it seemed to me that it was impossible for her to identify in any meaningful way what wider interests would be so covered. It seems to me to be plain that the interests of the Bondholders in the proviso are in the interests in the bond, that is to say the contractual entitlements under the bond to the payment of interest and the repayment of the capital on the redemption date. In addition it also extends in my opinion to any ancillary rights which the Bondholders have to protect the entitlement to payment of interest and redemption. Thus it would extend to the security rights and most significantly in my opinion it would extend to the right to appoint the Bond Nominated Director. This is especially so, given the significance of this appointment as referred to in Mr Roome's witness statement.
43. The second significant argument which she raised contrary to that of the Trustee was that the words "material prejudice" might also extend to potential harm which is more than minimal or trivial. I do not see how that argument can be correct. The Trustee has to issue a certificate. That is not merely an administrative act. It is plain that a certificate contemplates there has been a present breach, and that that event is (not may be) materially prejudicial to the interests of the Bondholders. That in my judgment, is a requirement that there must be material prejudice to the interests of the Bondholders.
44. Miss Prevezer QC also submitted in her skeleton argument that any breach of Condition 10(d) was by definition materially prejudicial to the interest of the Bondholders and any breach that went unremedied would also be a breach.
45. Once again I do not see that this argument is sustainable. The Trustee has to be satisfied that there is a material prejudice to the interests of the Bondholders. It is to be observed that it dose not have to be satisfied that there is any material breach. If the breach is not material, it is still possible for it to be materially prejudicial to the interest of the Bondholders. Equally a material breach might not be materially prejudicial. It is necessary for the Trustee to look at the consequences of any given breach before it can issue a certificate. It can only issue a certificate when it is satisfied that the event is materially prejudicial to the interests of the Bondholders.
46. How would the Trustee be satisfied? In most cases it will involve an investigation as to the facts. Of course their decision will be an expression of an opinion based on their investigation of the facts. It will not be self evidently determinative being an opinion, but I do not see how the Trustee can issue a certificate that there has in its opinion been material prejudice to the interests of the Bondholders, unless it has the information which justifies that conclusion.
47. This is capable of being tested by an example, I put to Miss Prevezer QC in argument. If there was a desire on the part of the Bondholders to replace the existing Bondholder Nominated Director but Elektrim in breach of its obligations under Condition 10(d) was persistently refusing to accept the nominee, that would be a breach of Condition 10(d). However, given the importance to the Bondholders to have representation, that breach would not cause material prejudice to their interests as long as they continue to have an effective continuity of representation on the board. If the existing board nominee had died or become incapable, that would be another matter. However, that analysis shows that even in respect of some parts of Condition 10(d) it is not possible to say without investigation as to the facts that a breach of that part of the Clause will necessarily cause material prejudice to the interests of the Bondholders.
48. However, the obligation of the Trustee in my opinion, is relatively straightforward. It has to ascertain that there is a breach. It then has to ascertain the consequences of the breach. If the consequences of the breach are that the interests of the Bondholders (as set out above) are materially prejudiced then, and only then can it issue a certificate. In most cases that will require an examination of the circumstances. However, that examination might be short, it might be long, depending on the nature of the breach and the acts complained of. It will also be dependent on the nature of the obligation that is broken. Some obligations (for example the reasons for refusal to accept a newly nominated director under Condition 10(d)) might require factual investigation.
49. Deploying these arguments the Trustee submits that it cannot be required to issue a certificate in respect of a suspension of Mr Rymaszewski until it has investigated the circumstances including the consequences of the disposals by the Board and has concluded that the suspension has caused material prejudice to the interests of the Bondholders.
50. In my view in relation to a total repudiation of Condition 10(d) that is an unnecessary exercise. Given what Mr Roome says about the importance of the Clause, it seems to me that it is self evident that there is present prejudice of a material nature to the interests of the Bondholders. They have a present interest in participating in and if necessary vetoing any transaction. The mere act of exclusion of Mr Rymaszewski is a material breach prejudicial to their interests in my opinion. They have been excluded from the Board, and deprived of their veto rights.
51. Mr Potts QC submitted that of course there may be an exclusion but no action has been taken, so there is a material breach but no material prejudice. I do not accept that. Given the factual background, it was plainly of vital significance that the Bondholders would have this representation and blocking power at all times.
52. Thus Mr Potts QC's argument overlooks the right of the Bondholders to veto transactions even if it might benefit Elektrim but harm them or even if it accrues benefits to them. Of course in any event, in the context of Elektrim it is difficult to see given the low level of 25,000 Euros how there would ever occur a situation where the Board would not be making decisions on a day to day basis in breach of Condition 10(d).
53. A serious breach i.e. the exclusion of Mr Rymaszewski in my opinion becomes an even more serious breach when decisions are taken without him (and thus the Bondholders) being consulted, and if necessary being given the opportunity to which they are entitled to veto the transactions. It is to my mind clear, that there has been material prejudice to the Bondholders' interests. The economic interests and the rights ancillary to the economic interests of the bonds have been prejudiced. It is difficult to see a more clear case of prejudice.
54. It is likely that this will only apply to a total repudiation of Condition 10(d), I say that because during the course of argument Miss Prevezer QC was unable to identify any other provision which would have quite such a significant effect. I should not be taken as deciding, however, that the repudiation of Condition 10(d) is a unique situation. As I have said the exercise required of the Trustee is to evaluate on a breach by breach basis.
55. I was referred to authorities under Section 459 of the Companies Act 1985 and also to various definitions in the Oxford English Dictionary. Finally I was referred to other parts of the Trust Deed. To my mind none of these references assists me. I have in mind the Court of Appeal decision in The Football Association Premier League Limited and others v. Panini UK Limited [2002] EWCA CIV 995 and in particular paragraph 39 where Mummery LJ said this:-

"As to the "incidental inclusion" point I agree with Chadwick LJ's full argument on it. The question whether the inclusion of copyright material in artistic work is incidental is not answered by rushing to dictionaries or by searching the internet for substitute words and expressions; or by enquiring into the subjective intensions, motives, views or state of mind of the makers, distributors or collectors of the stickers and albums; or by the use of a non statutory check list apostil indicators …"

56. In my view that observation is equally applicable to the question of construction of what are the words "materially prejudicial to the interests of the Bondholders". As I have said in my opinion the purported suspension of Mr Rymaszewski, which is a total repudiation of this fundamental provision, is not only a material breach, it is also self-evidently materially prejudicial to the interests of the Bondholders. I do not see it requires an investigation as to the transactions that have taken place. Even if the transactions objectively examined conferred benefits on the Bondholders or did not affect their interests in economic terms that does not address the fundamental issue which is that they were entitled to be heard and block (if they thought appropriate) any transaction whether it was beneficial or not. That right has been taken away by the breach and is clearly materially prejudicial. They have lost these rights and continue to be deprived of the right to issue them.
57. Accordingly, I would answer the question by determining that the suspension of Mr Rymaszewski in breach of Condition 10(d) is a breach of Condition 12(ii) which is materially prejudicial to the interests of the Bondholders and that the Trustee can certify to that effect without the need for any further investigation.
58. I have made an Order in these terms.