Re Golden Key Ltd

Parties C and D (“the Longs”), holders of commercial paper (“CP”) issued by Golden Key Ltd (“Golden Key”) with maturity dates in September 2007, claim in these proceedings that all CP of Golden Key, maturing and unpaid on or after 23 August 2007, is now, by virtue of section 5 of the terms of issue, repayable on 24 September 2007. Parties A and B (“the Shorts”) contend that, in the events which happened, section 5 only affected CP whose maturity date had not arrived by that date. All other CP fell due for repayment on their respective maturity dates and they were entitled to repayment on the basis of first come, first served. The obligation on Golden Key is described as “pay as you go”. In practice, the earliest tranches of the CP to mature after 23 August 2007 will exhaust the funds available for repayment. The interpretation of the Longs, on the other hand, leads to pari passu distribution, that is, a distribution in which all unpaid holders of CP rank from 23 August 2007 on the same footing.

This question is one of the construction of the relevant provisions applying to the CP. It raises an interesting and important question as to how complex documentation in a sophisticated securities market should be interpreted: in particular the weight to be given to the commerciality of various provisions. In order for those provisions to be understood in context, it is necessary to place the terms of issue in the context of the whole transaction. Distribution on the basis of “first come first served” is self-explanatory, but it is appropriate to say a little by way of introduction about the principle of paripassu distribution.

Pari passu distribution is derived from the maxim that “equality is equity”. Halsbury’s Laws, 4th ed., vol. 16 par. 747 states:

“The maxim that equality is equity expresses in a general way the object both of law and equity, namely to effect a distribution of property and losses proportionate to the several claims or to the several liabilities of the persons concerned. Equality in this connection does not necessarily mean literal equality, but may mean proportionate equality… [I]n the distribution of property, the highest equity is to make an equality between parties standing in the same relation, though this cannot be done contrary to the plain meaning of the deed.”

In Cox v Bankside Members Agency Ltd [1995] 2 Lloyd’s Rep. 437, Peter Gibson LJ explained:

“The fairness of a rateable distribution of limited assets insufficient to meet all the claims on them is what underlies the insolvency legislation and has led the Court to adopt that solution in contexts not governed by that legislation where a common misfortune has occurred (see, for example, Barlow Clowes International v Vaughan [1992] 4 All ER 22).

But the maxim is not of universal applicability. It always yields to a contrary intention, express or inferred, …”

Pari passu provisions are commonly found in debentures. A provision for pari passu repayment can, however, be implied if it is clear that the debenture holders are to stand on an equal footing (see for example Murray v Scott (1883-4) 9 App Cas 519). Accordingly, where a document on its true interpretation provides for the distribution of assets to a group of persons as between whom no distinction is to be drawn, the court will imply a requirement to make distributions proportionately even though the words “equally” or “pari passu” are not used. Such an implication is not, however, possible where the document evinces an intention that the distribution should be on some other basis.

Given its importance, the concept of pari passu distribution can be taken to be part of the background to the issue of the CP that would have been known to the parties. (Some of the contractual documentation is expressed to be governed by the law of New York but we have been asked to proceed on the basis that the law of New York and English law are in all relevant respects the same.) The concept of pari passu distribution may also be a factor which makes one interpretation more plausible than another.

Golden Key is a “structured investment vehicle”, that is to say, it invested in highly-rated mortgage-backed securities. It was principally capitalised by short-term commercial paper (“CP”), which was issued on terms that the holders would only have recourse to the assets of Golden Key (and not, for example, in general to any claim against any third party) for payment of their claims. Those assets comprised the benefit of the underlying securities and various accounts holding monies derived from the issue of CP and other sources (“the collateral”), and they were vested in a Security Trustee on trust for the benefit of capital providers, some of whom were subordinated to the holders of CP. The relevant documentation setting up the arrangements for the CP is extensive and needs in the main only to be summarised. It consists of the following:

The CP has various Maturity Dates. No CP could be issued for more than 185 days. When CP matured, it was often rolled over into a fresh issue of CP. So far as relevant, the CP was denominated in US dollars and is therefore described as “USCP” in section 5 of the terms of issue. A person purchasing newly-issued CP would customarily not know the Maturity Dates of the CP already in issue, which would be listed without any differentiation of Maturity Date on website services such as Bloomberg Financial Markets Commodities News.

Sections 7.3 and 7.5 of the CTSA refer to an obligation to “defease” the CP. The definition of this term also appears in the appendix to these judgments, and it means the crediting of amounts in respect of the CP to a bank account called the note defeasance account. The obligation under section 7.3 is an obligation to credit the full amount of the capital and interest payable on redemption of the CP. The obligation applies to all the CP in issue and not simply CP whose Maturity Date has been reached. It is an obligation “to defease”, and not to pay (cf section 7.4). Within section 7.3, a distinction is drawn between defeasing the CP and paying other secured obligations e.g. swing line advances. Section 7.3 only comes into operation on Confirmation of an Enforcement Event, but the interval of time between the occurrence of a Mandatory Acceleration Event, referred to in the first sentence of section 5 of the terms of issue, and Confirmation of an Enforcement Event is likely to be very short because the Collateral Manager has an obligation to inform the Security Trustee as soon as a breach of the Mandatory Acceleration Test occurs.

The general scheme of the documentation is clear. (The documentation clearly has to be read together, and this is confirmed by the inter-availability of most of the definitions.) There is obviously a risk that the collateral will turn out to be worth less than the CP and the other debt capital secured by it. Evidently to minimise this risk, the financial position of Golden Key was to be tested on a daily basis by the administrator. One of those tests was “the Mandatory Acceleration Test”. So long as these tests are met, Golden Key carries on its business in the usual way (unless a “Wind Down Event” occurs: see above, para. 7(i)(a)). The Mandatory Acceleration Test is breached if the value of the collateral is less than 92% of the capital provided by the CP and certain other capital. Breach of the Mandatory Acceleration Test, or the occurrence of an Insolvency Event, is a Mandatory Acceleration Event, and thus an Enforcement Event. When a breach of the Mandatory Acceleration Test occurs, the mandatory acceleration mechanism in section 5 of the terms of issue operates. I will need to examine closely what section 5 means. Monies can continue to be appropriated to the note defeasance account under section 7.3 of the CTSA. However, once the ARD occurs, then under section 7.4 of the CTSA all the CP is repaid pro rata and pari passu. Thus, when section 7.4 incepts, the distribution is on the fundamental and familiar basis on which assets are distributed to creditors of equal rank in a liquidation.

The factual background to the present appeals can be briefly stated for the purpose of the question of construction summarised above. On 20 August 2007, the Collateral Manager gave notice to the Security Trustee that there had been a Wind Down Event. On 23 August 2007, (1) Golden Key confirmed (at 16.20 EST) the occurrence of an Enforcement Event and a Mandatory Acceleration Event, resulting from a breach of the Mandatory Acceleration Test, and (2) the $10m CP held by Party A matured and was not paid. There was a sufficient balance on Golden Key’s US $ cash account for Party A’s CP to be repaid but a bank (Barclays Bank plc) (“Barclays”) made a claim to repayment of $257.2m from that account on the basis that it had a proprietary claim to that amount. The judge was asked to assume that that claim had been made but that it was not sound.

On 24 August 2007 (9.26 EST), the Security Trustee gave notice pursuant to section 3.3(b) of the CTSA of the occurrence of an Enforcement Event and a Mandatory Acceleration Event. The parties have treated this notice as an ARN for the purposes of section 5 of the terms of issue of the CP. On the same date, the $210m CP held by Party B matured and was not repaid. Golden Key did not give notice specifying a redemption date, and so, under section 5 of the terms of issue, the ARD was fixed at 24 September 2007 (23 September not being a business day). The CP held by the Longs matured on 14 and 24 September 2007 but remains unpaid. Receivers were appointed on 14 April 2008. I will call the period between 23 August 2007 and 24 September 2007 “the intermediate period”. As at 27 September 2007, some 9.7% of the liabilities secured by the collateral was attributable to capital subordinated to the CP.

It appears that Golden Key did not maintain a bank account known as the note defeasance account but maintained the records in ledger form. It maintained (inter alia) the US$ cash account already mentioned.

The Shorts submitted to Henderson J in the court below that holders of CP which matured in the intermediate period acquired an immediate right to repayment in full on their respective Maturity Dates and that this was not affected by either the occurrence of a Mandatory Acceleration Event or the delivery by the Security Trustee of an ARN. Thus, the priority of payments provided for in section 7.3 of the CTSA continued to apply until the ARD. The terms of the CP provided for acceleration of the Maturity Date, and not for its postponement. The Longs submitted that the documents should be interpreted so that the Shorts had no right to repayment of their CP, because a Mandatory Acceleration Event had occurred on 23 August, and that meant that all the outstanding CP fell due to be repaid pro rata and pari passu on the Acceleration Redemption Date, when section 7.4 of the CTSA applied.

The Longs also ran a number of alternative arguments. They submitted that the Security Trustee should have served an ARN on 23 August 2007. They also submitted that the CP of Party A had not matured before the Mandatory Acceleration Event occurred, and that the CP of Party B had not matured before the service of the ARN (on the assumption that that was the relevant point in time.)

In his judgment handed down on 4 February 2009, Henderson J accepted the arguments of the Shorts. In particular, he held section 7.4 could only apply after the ARD. CP maturing before 24 September 2007 had to be repaid in accordance with sections 7.3 and 7.5. The critical paragraphs of the judge’s judgment for this purpose are the following:

“95.

What Section 5 does leave unclear, in my judgment, is what is meant to happen to Notes which mature after the occurrence of a Mandatory Acceleration Event, but before the date on which the accelerated Notes become due and payable (i.e. in the present case the Acceleration Redemption Date). Are such Notes to be treated as remaining due and payable on their respective maturity dates, or are they caught by the machinery in Section 5 in such a way that they become due and payable only on the Acceleration Redemption Date?

96.

Even looking at Sections 4 and 5 in isolation, I would be inclined to answer this question in the former sense. There is nothing in Section 5, on the face of it, to modify the clear principle stated in the second sentence of Section 4; and as in the case of Notes maturing before a Mandatory Acceleration Event, the effect of the alternative construction would again be to postpone an otherwise vested right, not to accelerate a future right. On the other hand, there is obvious force in the point that, at a time when insolvency is likely to be imminent, if not already an actual fact, pari passu distribution is fairer and produces a more commercially sensible result than continuation of a pay as you go regime.

97.

Any doubt on the point, however, is in my judgment dispelled by reference to the CTSA, and the carefully delineated system of successive operating states which it contains. The Post-Wind Down Priority of Payments in Section 7.4 applies only upon the occurrence of an Acceleration Redemption Date. It does not apply from the occurrence, or notification, of a Mandatory Acceleration Event, although those events are necessary precursors of an Acceleration Redemption Date. It seems clear, therefore, that the scheme of the CTSA, for better or for worse, is that distribution on a pro rata and pari passu basis applies only to funds received or recovered by the Security Trustee on or after the Acceleration Redemption Date. Funds received or recovered before that date, but after confirmation of a Wind Down Event (in the present case 21 August 2007) or confirmation of an Enforcement Event (23 August), are to be dealt with in accordance with the combined effect of Sections 7.3 and 7.5. As I have already explained, those sections provide for the outstanding CP to be “defeased” by means of crediting the Note Defeasance Account, and for withdrawals from the Note Defeasance Account of the amounts needed to redeem Notes on their maturity dates. Subject only to the question of availability of funds in the Note Defeasance Account, that system seems to me clearly to envisage the continuation of payment of maturing CP on a pay as you go basis, in the same way as during the initial pre-wind down phase when Section 7.2 applies.”

98.

I accept the submission of counsel for the Shorts that the structure established by the CTSA is one that depends on written notification of defined and (for the most part) clearly ascertainable events in order to bring about a change of operating state. A structure of that sort has the merits of being clear, certain and relatively simple to operate, all of which are in themselves desirable commercial objectives. The point that one might expect to find machinery for pari passu distribution once insolvency is imminent has force, I acknowledge, but (as I have already suggested in paragraph 48 above) less force than in many commercial contexts precisely because the parties have all agreed to sign up to an investment structure which is “insolvency remote”. In those circumstances, it is dangerous to start with assumptions about what the parties must or are likely to have intended, and there is in my judgment no substitute for a close examination of the language of the contractual terms in order to ascertain what their rights may be.”

In his judgment, he had found assistance in the following passage from the judgment of Rimer LJ in Sigma Finance Corporation [2008] EWCA 1303, [92]:

“I think it likely that many lawyers may be instinctively surprised at such a conclusion, since the culture with which they will be familiar is one ordinarily providing for a pari passu sharing in an insolvency. The notion of first come first served, or pay as you go, is alien to that culture and so cannot be right. I too had an instinctive initial sympathy with the case advanced by [the parties in an equivalent position to the Longs], since when the available pot is too small to pay everyone in full, a pari passu distribution has an obvious appeal. But we are not here concerned to apply any conventional insolvency regime. The STD [i.e. the Security Trust Deed] reflects a commercial bargain made between, or on behalf of, the interested parties and our task is to interpret what that bargain was. It seems to be apparent that the STD foresaw the possibility that any enforcement might be either a solvent or an insolvent one as regards secured creditors. It is, however, improbable that it foresaw the possibility of the extraordinary, probably unprecedented, market events that have recently unfolded. In those extraordinary events, Party A’s successful argument can, on one view, perhaps be regarded as having achieved an unfair result. But any such assessment necessarily assumes that the parties had made some different bargain which is not being respected. This litigation is concerned with ascertaining the bargain they in fact made. I have expressed my view as to what it was, and the court’s duty is to give effect to it. It is not the court’s function to re-write it.”

On alternative arguments of the parties put forward separately from the question of interpretation of section 5, he held that nothing turned on the fact that the note defeasance account had not been established, and that the rights of the Shorts were not affected by the claim made by Barclays.

On this appeal, Mr Mark Phillips QC, for the Longs, accepts that the appropriate starting point is the terms of the CP. In his written submissions and orally, he contends that on the true interpretation of section 5 the occurrence of a Mandatory Acceleration Event had the effect of postponing the maturity date of any CP that had not then actually been repaid. He submits that the first sentence of section 5 of the terms of issue applies to all CP which had not then been redeemed. He submits that the notice period in the CTSA was for administrative convenience only and should not result in CP being treated differently according to whether or not its Maturity Date was before or after the date of expiration of the ARN. The randomness of the timing of the ARD would otherwise be uncommercial. There was no provision for Golden Key to give a notice specifying the date which is to be the ARD when there was an Insolvency Event because unsecured obligations of Golden Key would then be payable, and under New York law there was doubt as to whether Golden Key could then give notice. Mr Phillips accepts that section 7.4 does not apply until the ARD arrives.

Mr Phillips submits that the expectation of the parties is that postponement of all outstanding CP will take place on the occurrence of a Mandatory Acceleration Event. Otherwise, there is in effect subordination of later maturing CP to earlier maturing CP. There is no commercial logic in this. It has an arbitrary result. A Mandatory Acceleration Event is in effect insolvency. The parties are unlikely to have intended “pay as you go” in an insolvency situation. The documentation provided for resolution by the Security Trustee of conflicts between secured and other creditors, but not conflicts between secured creditors inter se and this is a further indication that they were all intended to enjoy priority pari passu.

Mr Phillips submits that the judge misunderstood the nature of the parties’ agreement that the procedure should be “insolvency remote”. All that meant was that the holders of CP would not petition for winding up. It would still be possible to have insolvency. In sum, he submits that as from 23 August 2007 all the outstanding CP had to be repaid pro rata and pari passu on the Acceleration Redemption Date.

For Party A, Mr Zacaroli submits that clear words were required to take away Party A’s vested rights on 23 August 2007. He submits that the language of acceleration is inconsistent with the Longs’ argument, and that the more natural reading of section 5 is that only CP that had not matured on the ARD became redeemable. He submits that the first sentence of section 5 of the terms of issue cannot affect the meaning of the Maturity Date, and so cannot affect CP which matured before the ARD. He submits also that the Longs fail to recognise the different treatment in section 5 of Insolvency Event and other events. He submits that the effect of the Longs’ approach to the interpretation is impermissibly to elide paragraphs (1) and (2) of section 5. This is “a bespoke, carefully designed regime”. The mere fact that there is a breach of the Mandatory Acceleration Event does not mean that Golden Key is insolvent.

Mr Zacaroli further submits that the Longs’ construction is incompatible with section 7.5 of the CTSA: he submits that the Longs’ argument prevents section 7.5 from operating during the intermediate period. On his submission, section 5 of the terms of issue and section 7.4 of the CTSA operate concurrently.

Mr Jonathan Crow QC, for Party B, seeks to uphold the judge’s judgment and adopts the arguments of Mr Zacaroli. He emphasises the role of notification under the documentation: it is conducive to commercial certainty which is important in a transaction such as this. Party B’s CP matured before the Security Trustee gave notice under section 5 on 24 August 2007. He also submits that the Longs conflate the occurrence of a Mandatory Acceleration Event and insolvency. The occurrence of a Mandatory Acceleration Event did not mean that the collateral was insufficient to repay the CP. The limited recourse provisions meant that none of the holders of the CP could put Golden Key into liquidation and the judge was right to interpret the arrangements in the light of that fact. He further submits that this court derives little assistance from the decision in Re Whistlejacket Capital Ltd [2008] EWCA Civ 575, considered below, where the documentation was different. Here, he submits, it is plain that sections 4 and 5 of the terms of issue must be read together and in the context of the documentation as a whole. Mr Crow makes the submission that nothing can be described as “arbitrary” which is the result of a contractual scheme.

It goes almost without saying that what the court has to do in this case is find the true interpretation of the contractual documents and that the court is not entitled to rewrite the contractual documents, or more precisely to write some provision into the contractual documents, to reflect some provision that the court considers that it would have been reasonable for the parties to have agreed or to reflect some provision that the court considers would have made more commercial sense. But that leads to the question as to the weight to be given to the commerciality of a particular interpretation.

In his skeleton argument, Mr Zacaroli submits: “Recourse to the ‘commercial expectations of the parties’ is meaningless, since there is no evidence as to the expectations of the parties other than the contents of the documents under consideration.” (para. 58). It is well-known that the court is not concerned with the subjective intentions of the parties: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (“the ICS case”). I thus read the reference in Mr Zacaroli’s submission to commercial expectations of the parties as a reference to what objectively was their commercial aim. This submission raises the very question that I identified in the preceding paragraph.

In his famous speech in the ICS case, Lord Hoffmann set out the modern approach to the interpretation of documents. The first principle is that “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in a situation in which they were at the time of the contract.” (page 912). Lord Hoffmann does not explicitly refer to the need to have regard to what objectively is the aim of the transaction, but he approved the speech of Lord Wilberforce of the House of Lords in Prenn vSimmonds [1971] 1 WLR 1381. In his speech in that case, with which the other members of the House agreed, Lord Wilberforce makes it clear that, if it can be shown that a particular interpretation would further the parties’ intention, the court should take that into account. Accordingly, this court must have regard to the parties’ aim, objectively ascertained, as part of the process of interpretation, if that aim can be ascertained.

In my judgment, this must be the case even if (as here) there is little evidence as to the circumstances surrounding the parties’ agreement to the transaction other than the terms of the transaction itself. Even in that event, the court must consider whether the objective aim can be ascertained from the documentation. (Moreover, when the issue of interpretation arises as to documentation to which, as here, parties adhere at different points in time, the commercial aims as shown by the documentation are for obvious reasons of practicality of particular significance.) To that end, unless the contrary appears, the court must assume that the parties to a commercial document intended to produce a commercial result, and the court must thus take into account the commerciality of the rival constructions, if that commerciality can be identified. The commerciality of a particular construction may be a crystallising factor in its favour where it is implausible that parties would have intended any other result.

The line between giving weight to the commerciality of a provision and writing a provision into an agreement can become a fine one when the court finds that there are deficiencies in the drafting of the contractual documents. There are cases where the documentation simply leaves the parties’ intentions as to what should happen in a foreseeable set of circumstances quite unclear. This is particularly liable to happen in what might be called multi-dimensional documentation because of the sheer number of permutations that those who negotiate and draft the documents have to take into account. The court can spend a great deal of time immersed in the detail of lengthy contractual documents searching for clues. That task has to be carried out but if, despite a thorough search, the position is still unclear, and more than one meaning is properly available, the right approach is surely to give greater weight to the presumption that the parties must have intended some commercial result than to the textual clues if the latter yields an uncommercial result. I make these observations, because the judge may have been adopting a different approach at the end of paragraph 98 of his judgment, which I have set out above.

It is very common in debentures and other similar instruments that are to be repaid on a fixed date to provide that that date will be accelerated in certain events, for example, if a petition is presented for the winding up by the court of the Issuer. Where debentures are repayable on separate dates, they can all be accelerated to the same date. But the scheme of section 5 of the terms of issue is more complex than that. It is directed to CP issued in tranches with different Maturity Dates. It then states that “the USCP” shall be redeemed after the occurrence of the MAE. It then goes on to provide for the delivery by the Security Trustee of an ARN. This in turn will lead to a date being fixed for redemption (the ARD), but the identification of that date depends on whether the circumstance leading to the delivery of the ARN was an Insolvency Event or a breach of the Mandatory Acceleration Test.

The principal deficiencies of section 5 may be described as follows. Section 5 fails to make clear whether it is the MAE or the delivery of the ARN or the arrival of the ARD which accelerates the Maturity Dates of the CP. The answer to that question enables one to identify the “USCP Notes” referred to in the first sentence of section 5. Section 5 also fails to make clear which CP are affected by this acceleration. It further fails to make it clear whether the acceleration can result in postponement of Maturity Dates where those Maturity Dates occur before the date fixed for redemption.

The parties have taken us to many of the provisions in the various documents, with a view to shedding light on these questions. I will refer to the provisions which I have found of assistance below. Much of the reasoning brings one back to the first sentence of section 5. The Shorts take the position that the opening sentence of section 5 of the terms of issue of the CP is descriptive only. In the words of Mr Crow, it is “simply a general description of what happens elsewhere” in section 5. As Mr Zacaroli put it, the first sentence of section 5 has “no bearing” on the rest of section 5. This is also the effect of the judge’s interpretation. In other words, that sentence on this approach adds nothing because it does not fix the date for redemption of the CP.

The first sentence of section 5 is indeed short and lacking in detail, and it is the case that a meaning can be found for section 5 without it. However, that does not justify discarding that sentence. The court in my judgment is more likely to find the interpretation of section 5 from the starting point that it has some meaning.

There is a striking difference between section 4 and section 5 of the terms of issue. Section 4 is dealing with the case of an individual CP whereas section 5 is dealing with CP collectively, perhaps even all the CP in issue. This suggests that the parties had it in mind that after the occurrence of a MAE the CP would all stand together. That would mean that they would all rank equally in any payment by the Issuer out of the limited fund of assets to which the holders of CP can have recourse.

The argument to the contrary that particularly impressed the judge was based on the priority of payments in sections 7.3 to 7.5 of the CTSA. I would interpose that the Paying Agent, Security Trustee and any receiver appointed by the Security Trustee undertake in the contractual documents to make payments to holders of CP in accordance with these sections and section 7.2. Sections 7.2 to 7.5 deal with three different stages: (1) in section 7.2, pre-confirmation of Wind Down Event, Enforcement Event or ARD; (2) in section 7.3, post-Confirmation of a Wind Down Event or of an Enforcement Event but prior to the occurrence of an ARD; and (3) in section 7.4, post-occurrence of the ARD. Section 7.5 deals with the note defeasance account and applies “on any date which is the Maturity Date” for any CP. As already explained, the Issuer had passed through each of these stages in this case. The judge noted that these provisions do not refer to the occurrence of the MAE (though they do refer to Confirmation of Enforcement Event). Nor do they refer to the delivery of an ARN.

It seems to me with respect to the judge that reliance on section 7.5 is potentially circular. The essential question, with respect to the situation prior to the occurrence of the ARD, is whether the Maturity Dates of any of the CP is accelerated or postponed. If so, the Maturity Date as defined will not apply, and thus section 7.5 will not apply. The fact that payment has to be made on the ARD does not touch on the question whether there will be effectively a suspension of payments in the meantime. Section 7.3 is merely an obligation to credit sums to the note defeasance account and although it is to apply until the ARD, rather than any earlier date, the substantive provision of itself throws limited light on the problems. The same point as I have made about section 7.5 applies to the obligations of the Paying Agent under the PA, on which the Shorts also rely. The Paying Agent’s obligation is to facilitate repayment of the notes on their Maturity Dates or the ARD. Section 4 of the terms of issue of the CP contemplates that a requirement can be made pursuant to section 5 which will result in redemption (meaning as it seems to me the imposition of an obligation to redeem) before the Maturity Date, and thus instead of the Maturity Date. Thus the court is driven back to the question of the true interpretation of section 5.

The judge was impressed by the fact that the paragraphs (1) and (2) of section 5 of the terms of issue, provide that the CP “shall become immediately due and payable” on the dates respectively specified in paragraphs (1) and (2) of that section. I agree that this is a strong textual indication in favour of his view, but, as I explain below, there is an alternative approach that these words were simply identifying the date on which payment would take place.

I agree that there is no express provision for postponement on delivery of an ARN. The first sentence of section 4 merely says: “Except as required pursuant to section 5 below, a USCP note may not be redeemed in whole or part prior to its maturity date”. This suggests that acceleration of the Maturity Date can only occur if physical repayment takes place. In my judgment, the word “redeemed” must mean “be subjected to an obligation to redeem” in this context. There can be no doubt that the opening words refer to the imposition of an obligation to redeem on the delivery of an ARN by reason of happening of the Insolvency Event, even though it is likely that there will be no physical repayment on that date.

There is a significant point that arises from considering the commerciality of the judge’s construction. If acceleration only occurs on the ARD, that acceleration will (in the absence of an Insolvency Event) depend on the action or failure to act of Golden Key. The only reason advanced by any party for the power given to Golden Key under section 5 of the terms of issue to fix the actual redemption date was that this was for administrative convenience, not for any purpose of the holders of the CP. It would be odd if the Issuer, especially while in default, could cause the practical difference to the ability of a holder of CP to be repaid that is said to have occurred in this very case. The holders of CP would have surrendered any control over the choice of date. I would add that I am not wholly convinced that the parties are right to say that the reason for giving the Issuer the power to determine the precise timing of the ARD is simply so that it can arrange repayment. It may also want to use the time it can obtain in this way for such purposes as persuading the holders of the CP to agree to some restructuring of the Issuer. If section 5 gives any sort of suspension of obligations to redeem the CP, it would, in effect, give it a moratorium for this purpose. But such reason is still a purpose of the Issuer and not that of the holders of the CP.

Lloyd LJ made a similar point when giving the judgment of this Court in Whistlejacket Capital Ltd, at [44]. On that appeal, the principal issue was whether, under a provision for the distribution of proceeds of realisation of collateral by the Security Trustee, the holders of certain notes secured on the collateral ranked pari passu or were to be entitled to receive distributions only if the Maturity Date of their notes had accrued. This court held on the basis of the documentation in that case that all the notes in question ranked pari passu, even if they had not matured for payment (“the priority issue”). The provision in question did not establish priority as between noteholders. There was a provision for early redemption (“the early redemption clause”) in the event of an “insolvency acceleration event” under which, as here, the Issuer could fix the date for redemption. Lloyd LJ held, as one of his two grounds for his conclusion on the priority issue ([58]), that it was “to say the least, bizarre that action on the part of the company, as the debtor, could influence the respective priorities within the class of senior creditors, by virtue of the choice as to the length of notice to be given under” the early redemption clause.

There was a second issue (“the postponement issue”) in Whistlejacket as to whether, under the early redemption clause, notes which had already matured were postponed for the purposes of redemption to the date specified in this clause for redemption. This court held that, while it was “barely necessary” to decide this point, in its judgment the early redemption provision applied to all notes in issue and unpaid, and that the argument that the early redemption provision did not apply to the matured notes was less cogent because, on the documentation in that case, it did not affect the priority of payment. The court observed that: “If priority of payment out of an inadequate fund did depend on maturity date, there would be more to argue about on this point”. ([62]). As the documentation was significantly different, I agree with the judge that on this narrow point we gain limited assistance from Whistlejacket. However, the approach of this Court in Whistlejacket is striking. The court paid particular attention to the commerciality of the rival contentions. For the reasons given in [26] and [27] above, in my judgment that is the correct approach that we should take on this question of interpretation arising in this case.

While the judge’s interpretation is a possible interpretation, the objections to it on the grounds of lack of commerciality are substantial and it is necessary to examine whether some other interpretation is reasonably open on the wording to avoid the uncommerciality identified. One candidate is the first sentence of section 5 of the terms of issue which provides that the CP shall be redeemed on the occurrence of the MAE. If the acceleration takes effect from this event, the uncommerciality of the judge’s interpretation may be capable of being avoided.

In support of this interpretation, the remainder of section 5 can be said to be explicatory of its first sentence. It is possible to impose an obligation to redeem (that is, to buy back an obligation) to be performed in the future in one sentence, and to fix the date on which the obligation is to be performed in the next sentence. Thus, one possible interpretation of section 5 is that the drafter has bifurcated redemption into two elements: (1) the obligation to redeem; and (2) the fixing of a date for redemption. The first sentence of section 5 imposes on Golden Key an obligation to redeem. The remaining provisions of section 5 fix the date for redemption if the Security Trustee delivers an ARN. This is one way of achieving the parties’ wish to have two different dates for redemption following delivery of an ARN. The fact that there is an obligation to redeem is confirmed by the use of the word “required” in the first sentence of section 4.

This interpretation is, moreover, consistent with the purpose of section 5(2) being only to achieve some administrative or other advantage for the Issuer: that mere administrative advantage on this interpretation has, as one would expect, no substantive effect on the liability of the CP to be redeemed. Furthermore, the obligation to repay CP subjected to the liability to redemption is on this interpretation “accelerated” and hence the term “mandatory acceleration” and cognate terms are appropriate to be used. It is a separate question whether the interpretation also has the effect of postponement, that is postponing the date for redemption of any CP which has by then arrived in circumstances where the CP were not repaid through insufficiency of funds and continue to be outstanding.

As a consequence of this interpretation as to acceleration, section 5, by imposing a mandatory obligation to redeem and stating that the CP “shall be redeemed”, would inevitably disapply the Maturity Date. The requirement that the CP “shall be redeemed” would necessarily imply that the CP shall not be repaid on its Maturity Date, and it is unnecessary so to state either in the first sentence of section 5 or the second sentence of section 4. Section 5 imposes an obligation to pay “the Redemption Amount” on the ARD. This amount, following the definition in the CTSA, would include, in the case of interest-bearing CP, interest down to the date of redemption. Section 5 does not therefore impose an obligation to pay the amount due on the Maturity Date (contrast clause 7.3(d)).  The reference to the Redemption Amount here is consistent with a conclusion that Maturity Dates have been displaced. As to interest, none of the CP of Golden Key in issue is interest-bearing. While we have heard no argument on the effect of section 5 on unpaid interest, the obligation to pay “the Redemption Amount” may have the effect that the date for payment of all interest payments due after the occurrence of a MAE is also postponed to the ARD. This is dependent on how section 5 is interpreted.

It may be asked why only the first sentence of section 4, and not the second sentence of section 4, is qualified if section 5 affects Maturity Dates. In my judgment, the drafter did not need to do this in order that the qualification to the first sentence of section 4 should take effect. It would necessarily follow that, if there was a requirement pursuant to section 5, which meant that there was a redemption in whole or part prior to the Maturity Date, the CP affected would not be repaid on its Maturity Date in accordance with the second sentence of section 5. Furthermore, the Maturity Date of CP is defined to mean only its stated Maturity Date, and so this itself did not have to be modified if the CP matured on some other date due to the operation of its terms of issue. The fact that the words “except as required pursuant to section 5 below” do not appear at the end of the second sentence of section 4 provides support for another point, namely that section 5 does not affect the obligation to make payment if the Maturity Date has already arrived. The parties could reasonably agree that that should be the position.

Furthermore, if the occurrence of the MAE had the effect of postponing the repayment of the CP, the problem referred to above of the uncommercial consequences of the Issuer being able to determine the precise date of the ARD in its own interests, would be avoided. Moreover, the CP would be protected against the possibility of holders of CP, whose CP matured first, “scooping the pool” of available assets. Under the enforcement management procedures, investments have to be liquidated, and so the assets available for the holders of CP maturing first are increased. An immediate postponement of Maturity Dates would also be consistent with the Wind Down Management Procedures which are likely to, and did in this case, precede the occurrence of the MAE. Their purpose is “to arrange for the payment in full of the secured obligations” (CTSA, section 3.1). This interpretation would also protect the holders of CP against delay by the Security Trustee in delivering the ARN. Section 5 does not simply say “after a MAE”, which would clearly indicate that the first sentence was simply an introductory sentence, indicating in general terms that the timing of redemption. It states that the CP will be redeemed “after the occurrence of a Mandatory Acceleration Event”, which gives it more substance.

There is a further point relevant to the consideration of the commerciality of the judge’s construction. Mr Phillips pointed out that the holders of CP would not know when they purchased CP whether there was other CP in issue which would rank ahead of them because they would not know the Maturity Dates of the CP then in issue. It would therefore be odd if they had agreed to repayment under section 5 in order of Maturity Dates. Even assuming (as I do) that there was nothing to prevent the subsequent issue of CP with shorter Maturity Dates than CP already in issue and thus the purchaser of CP with a relatively long Maturity Date was always liable to find itself with a later Maturity Date than other CP is issue, this point also provides some minor support for the proposition that the interpretation contended for by the Shorts lacks commerciality. Lloyd LJ made a similar point at [43] of his judgment in Whistlejacket.

Another date to be considered as a potential date from which postponement of redemption to the ARD could take effect is the date of the delivery of the ARN. The judge was impressed by the importance attached by the contractual documentation to the service of notices. In a commercial agreement, they have the advantage of bringing certainty to a situation. However, certainty can also have its limitations. I have, for example, drawn attention to the difficulty in accepting the judge’s conclusion with respect to the ARD as the date on which acceleration of the CP takes place, because of the arbitrary results it produces. This is so, even though the ARD may be ascertained using a notice process. On the other hand, there are few instances in the contractual documentation where the parties contemplate that action will be taken on the strength of the occurrence of an event, rather than confirmation of that event (c.f. CTSA, section 3.6(b)). That strengthens the case for the event which triggers mandatory acceleration under section 5 to be one which involves the giving of notice.

It is important to consider the extent to which the occurrence of a MAE would be uncertain as opposed to delivery of an ARN. It seems that the occurrence of a MAE as a trigger for acceleration under section 5 may be sufficiently certain in practice. The Administratorhas the duty of performing the Mandatory Acceleration Test on a daily basis and of giving the results to the Collateral Manager. The latter has the duty forthwith to report any breach to the Security Trustee. The contractual documentation is drafted on the basisthat it will be only if the Administrator has found a breach of that test that there will be a MAE.

Moreover Section 3.3(a) of the CTSA provides a means of permitting a challenge by the Issuer to a notice of an Enforcement Event not given by or on its behalf on the grounds that the MAE had not in fact occurred, which is designed to achieve finality in any such dispute within a relatively short space of time. When the Security Trustee receives notice of an Enforcement Event from one of a number of persons, including the Administrator or a Paying Agent, it must no later than the next business day give notice to the Issuer and the Collateral Manager. The Issuer then has three business days following the notification to advise the Security Trustee if it intends to contest the enforcement notice. If the Issuer notifies the Security Trustee in writing within this period that it wishes to contest the enforcement notice, it has a further five business days during which to satisfy the notifying party that the Enforcement Event had not occurred. If at the end of this period, the notifying party is satisfied that the Enforcement Event has not occurred, it must advise the Issuer that the enforcement notice has been withdrawn. The Enforcement Event is deemed confirmed at the end of this period if the notice has not been withdrawn. Thus certainty would be largely achieved.

It is to be noted that the Issuer has up to nine business days under section 3.3(a) of the CTSA in which to challenge a notice of an Enforcement Event given by a person other than itself or the Collateral Manager on its behalf. (In the present case, that problem did not arise since it was the Issuer which gave notice of the relevant Enforcement Event). In this period, holders of maturing CP can again scoop the pool. It would on the face of it be unlikely that the parties would have intended that the Issuer should have this further period in which to carry on redeeming CP as usual, despite the occurrence of an event as serious as a MAE. Added to that, if the relevant date is the date of delivery of a ARN there must be added to the period of eight days the further period required by the Security Trustee before it delivers the ARN in accordance with section 5 of the terms of issue. If, however, section 3.3(b) of the CTSA applies to this notice, it must be delivered within two business days and may obviously be delivered before that period expires. Accordingly this further period is less important.

On first impression, it seemed to me that the risk of a lengthy challenge in this way by the Issuer made it more likely that the parties intended that acceleration should operate from the occurrence of the MAE rather than the ARN. On reflection, however, section 3.3(a) and the surrounding contractual provisions seem to me to support the interpretation that it is the delivery of the ARN, rather than the occurrence of the MAE, which the parties intended to operate to accelerate the redemption of the CP. If the Mandatory Acceleration Event is disproved (and it is worth noting that the only grounds of challenge are that the Enforcement Event did not occur, and not that it has been remedied by subsequent events), the notice of the Enforcement Event given to the Security Trustee “is withdrawn”. The parties did not consider it necessary to say anything more than that. That suggests that the parties were proceeding on the basis that notification of an Enforcement Event had no effect until it was confirmed. Otherwise they would have had to make further provision for what was to happen if a MAE is notified to the Security Trustee but that notice is subsequently withdrawn. If, meanwhile, the notification of the MAE had been treated as having the consequence that all Maturity Dates were accelerated to the (subsequently to be identified) ARD, it is highly likely that other Maturity Dates will have occurred before the dispute as to the occurrence of a MAE was resolved. If the Issuer was obliged forthwith to stop paying CP on their Maturity Date, then some further provision would be necessary to cure the possibility that the Issuer has not redeemed CP on its due Maturity Date and committed another Enforcement Event by reason of that fact. The fact that the parties have not made any such provision is to my mind a strong signal that the occurrence of the MAE was not by itself an event that displaced existing Maturity Dates. In this respect, it appears that the parties did not intend that anything should be done on the strength of the occurrence of the MAE. On the contrary, the inference which I draw from section 3.3(a) is that the parties did not intend that the Issuer should suffer any change of position, if it challenged the notice of enforcement, and hence the occurrence of a MAE. To make the occurrence of a MAE the event which makes the CP repayable on the ARD, and to permit challenges to the notice of occurrence of that event without making provision for the consequences of a successful challenge seems likely to be a recipe for chaos.

A further relevant factor is that the Paying Agent would not have been protected from liability during the period in which the Issuer was contesting whether a MAE had occurred. Accordingly, if the Paying Agent wrongly facilitates the repayment of CP, which if the MAE is unsuccessfully challenged ought not to have been paid, he would appear to be liable to the Issuer and by parity of reasoning, if the challenge is successful, but the Paying Agent has taken a cautious line and not facilitated the repayment of CP until the dispute was resolved, he may be liable to at least the holder for the losses it has incurred. Another factor supporting this conclusion is that an enforcement notice need only be given to the Issuer and Collateral Manager. That suggests that the information was not information that the Paying Agent needed to know. By contrast, section 5 requires the ARD to be copied to the Paying Agent.

In the light of these conclusions, I do not accept the argument that the event which causes the CP to be postponed to the ARD is the occurrence of the MAE. Another aspect of Mr Phillips’ submission is this regard is that, in the first sentence of section 5, the words “the USCP notes” must mean all the CP in issue at the date of the MAE. In my judgment, this is not necessarily so as no date is fixed by this sentence and so the verb which follows - “shall be redeemed” – has to be read as creating a future obligation. In those circumstances the words “the USCP notes” are equally capable of referring to the CP at some future date.

Does this mean that the first sentence adds nothing to the remainder of section 5? Is it merely a truism and repetition of the second sentence of section 4? I do not think so. As already noted, that sentence does not appear in section 8.4 of the PA where the remainder of section 5 is repeated but that is not conclusive as the Paying Agent only agrees to make payment on a Maturity Date or ARD. While it is not necessary to decide the point, I prefer the view that the first sentence of section 5 is part of the requirement referred to in the first sentence of section 4. It creates the obligation to redeem provided the ARN is delivered. The second sentence begins “If”. It is not clear why this word is used. It may be that this word has to be construed as “when” as, when an Enforcement Event is confirmed, the Security Trustee must serve a notice which will in fact fulfil all the requirements of an ARN. Another possibility is that the drafter erroneously had in mind that the occurrence of the MAE might be successfully challenged under section 3.3(a), forgetting that any such successful challenge would result in the notification being withdrawn and (it appears) ceasing to be of any effect. Section 5 as it stands suggests that the Security Trustee is intended thereby to have some discretion to give a notice under section 3 without at the same time giving an ARD. There are moreover throughout the documentation references to the earlier to occur of the Confirmation of the Enforcement Event and delivery of the ARN (see for example clause 5.2 of the deed of charge and section 3.3(b) of the CTSA). These suggest that the Security Trustee might be able to serve an ARN even though no MAE had occurred or been confirmed. It is not necessary to decide that point either. It may have been thought that the Security Trustee should be able to take the view, where this is consistent with his fiduciary duties to those entitled to the collateral, that, even though a MAE has occurred, events have moved on and that it is not necessary to accelerate the CP. If the receiver is appointed, or the Security Trustee takes possession of the collateral, there may be little point in delivering an ARN immediately, but the probability is that, if there are funds to distribute, the Security Trustee would need to serve an ARD at some point in order to be able to distribute on a pari passu basis in accordance with section 7.4 of the CTSA. If there were found to be a discretion, that would be an additional reason for saying that the first sentence does not impose some unqualified and unconditional obligation to redeem the CP after the MAE.

When section 5 is read as a whole, it is clear that the date for redemption is that fixed by paragraphs (1) and (2) of section 5 (see also the definition of “ARD” in section 5, and the obligation in the PA agreement on the Paying Agent to facilitate redemption of the CP either on the Maturity Date or the ARD). For there to be a requirement for the purposes of the opening words of section 4, there must in my judgment be an unqualified obligation to redeem on a future date, and the obligation imposed by the first sentence (assuming that it does impose such an obligation) is not unqualified. An ARN must be delivered.

In my judgment, it follows that the parties are more likely to have intended that the delivery of the ARN should be the event which causes the redemption of the CP to be fixed at the ARD than the occurrence of the MAE. Where two interpretations are open, the court should take that which on the true interpretation of the contractual documentation the parties are more likely to have intended. Once the ARN is served, it is known that there will be an ARD, although, unless there is a Insolvency Event, the holders of CP will not know the actual ARD for some days because of the discretion given to the Issuer.

On this approach, the opening sentence may have a purpose, in that it may impose an obligation to redeem subject to a condition precedent of delivery of an ARN to fix the date for redemption or to put in train the events which will lead to that date being fxed. The first sentence is supportive of the interpretation of section 5 which I prefer since it indicates that the subjecting of the CP to redemption is closely connected in time with the occurrence of the MAE. This indicates that the obligation to redeem is imposed by the ARN and not by the arrival of the ARD.

The next question is whether, if the new obligation to redeem the CP under section 5 postpones CP maturing prior to the ARD to that date, the ARN also postpones the repayment of all CP in issue on the date of the ARN, or only those that have not then matured for payment. The former is more consistent with pari passu distribution, whereas the latter may lead to Party A and Party B “scooping the pool”.

Putting the question another way, can CP be subjected to a liability to be redeemed when it is already due and payable? The Longs argue that it can. They argue that the effect of the first sentence is to postpone all Maturity Dates, including those that have already arisen. I would reject that argument for the reasons already given and because it would be anomalous if CP that had already become due and payable could be converted into CP with no immediate right to redemption. It would involve interference with an accrued right to payment. It could be done by agreement but it would require much clearer wording. The words “the USCP”, which I have already discussed above, are not clear enough to produce that effect.

Moreover, as explained above, section 5 only qualifies the first sentence in section 4 dealing with repayment before the Maturity Date. This supports the conclusion that the ARN does not affect CP which has already matured.

It has not been suggested that this is a case where the parties have contributed to some collective investment, and thus suffered some common misfortune which would be a factor favouring a pari passu distribution.

In those circumstances, I consider that an ARN can only postpone redemption of CP where the Maturity Date has not arrived on or before the date on which the ARN is delivered. The Maturity Date starts at the beginning of the day, and thus occurs before delivery of ARN later in the day subsequently to the opening of business. Mr Phillips contends that the ARN should be treated as delivered on the previous day but there is no support for this contention in the documentation or general law. Indeed, insofar as the Security Trustee had a discretion over the timing, section 8.5(b) of the CTSA makes it clear that he is under no obligation. I further agree with the judge that although no note defeasance account had been set up, equity would look on that as done which ought to have been done. There were sufficient funds to pay Party A on the Maturity Date of its CP. The fact that Barclays raised a claim which we are asked to assume is unsound cannot affect the right of Party A to redemption.

There were insufficient funds to repay Party B on 24 August 2007, the Maturity Date of its CP. Under section 8.3.2 of the PA, the Paying Agent could not repay Party B in those circumstances without a direction from the Security Trustee, but the Security Trustee under that provision would then be obliged to follow the priority of payments in sections 7.3 and 7.5. I do not consider that it is possible to the words "payment shall be made at the direction of Security Trustee" as conferring a discretion on the Security Trustee in circumstances where the right to be redeemed has not been postponed. Sections 7.3 and 7.5 would apply to Party B to the exclusion of section 7.4, which had not in any event come into operation. Section 7.5 does not make it a condition of any payment out of the note defeasance account that the obligation to defease under Sections 7.3 should have been carried out. Section 7.5 requires repayment to be made to a holder of matured CP as and when funds become available in the note defeasance account. The requisite funds were available in Party B’s case by about 28 August 2007. There was no exception for funds that were reversible or subject to an encumbrance, even though such funds were not available funds as defined by the custody agreement. In my judgment, such words cannot be implied into the CTSA.

There are some outstanding points with which I wish to deal. Once a MAE occurred, there was a deficiency of assets as regards all the secured creditors. Mr Zacaroli makes the point that there was other capital secured on the collateral, which was subordinated to the CP, and that there was not in fact a deficiency as regards the CP because of the subordinated loan capital. But it is unlikely that the holders of the CP were prepared to agree to have no right to intervene in Golden Key’s business until the value of the collateral fell below the nominal amount of the CP. They would expect to be secured by an appropriate margin. The documentation equated breach of the Mandatory Acceleration Test with default in repayment of the CP: both constituted Enforcement Events entitling the Security Trustee to enforce the security over the collateral. If there is a deficiency of assets as regards secured creditors as a whole, it is immediately foreseeable that a deficiency as regards the holders of CP may occur.

As respects the passage which the judge cited from the judgment of Rimer LJ in Sigma, the questions on this appeal must of course be decided on the documentation in this case. The question of interpretation in Sigma was very different.

I would like to deal at this point with another submission by Mr Phillips. Following the Confirmation of an Enforcement Event, the Security Trustee is empowered to exercise the rights of the Issuer under the transaction documentation. The documentation assumes that this will not give rise to any problem arising from a conflict of interest amongst the class of holders of CP. But, on Mr Phillips’s submission, if some have matured for payment but some have not, it is quite possible that conflicts will arise. However, this is not a consequence solely of breach of the mandatory acceleration event. It follows also from any Enforcement Event. Therefore, this factor is of little assistance in determining the meaning of section 5 of the terms of issue of the CP. The problem identified may not apply to the enforcement of the charges in any event, since enforcement of the charges may well make the obligations owed to holders of CP immediately payable for the purpose of the exercise of the powers under the deed of charge.

In my judgment, section 5 of the terms of issue obliges Golden Key to redeem on 24 September 2007 all its CP in issue on 24 August 2009, being the date it delivered the Acceleration Redemption Notice, other than CP which had matured on or before that date. I would dismiss this appeal though for reasons which differ from those given by the judge and direct a minute of order to be drawn up by counsel.

I agree with Arden LJ that this appeal should be dismissed, and I also agree with her in differing from the judge as to the effect of delivery of an Acceleration Redemption Notice on the repayment of Notes with Maturity Dates after the date of such delivery. Because of the difference from the judge’s conclusion, because I do not accept all the submissions of any of the parties and because of the importance of the issues for creditors of Golden Key, I will set out my own reasons for this conclusion in what follows.

Arden LJ has set out the main provisions of the relevant documents, and the facts, so I can be selective in my references, though I will not entirely avoid repetition.

The central questions are whether, upon the delivery of an Acceleration Redemption Notice in the circumstances of the present case, (a) in general, outstanding USCP Notes with a Maturity Date before the Acceleration Redemption Date become payable on that date instead of on their Maturity Date and, if so, (b) whether that applies (i) to Notes whose Maturity Date is on the same date as that of delivery of the Acceleration Redemption Notice and (ii) to Notes still outstanding whose Maturity Date was before the date on which the Acceleration Redemption Notice was delivered.

The terms of the USCP Notes (which I will call the Terms of Issue) contain one feature which Henderson J found particularly persuasive in favour of the arguments presented on behalf of the Shorts, represented by Parties A and B: see paragraph 97 of his judgment. It is the difference drawn in section 5 between what happens if the Mandatory Acceleration Event which brings section 5 into play is an Insolvency Event and that which happens if it is not an Insolvency Event. In the latter case a period of between 15 and 30 days is to elapse from the date on which the Acceleration Redemption Notice was delivered by the Security Trustee to the Issuer until the Acceleration Redemption Date, on which date the Notes are expressed to become immediately due and payable, whereas in the former case the Notes become due and payable immediately. According to section 7.3 of the CTSA, the post-wind down priority of payments continues to apply until the occurrence of an Acceleration Redemption Date. Section 7.4 applies upon the occurrence of an Acceleration Redemption Date. Section 7.3 provides for the payment of (or provision for) liabilities as they fall due each business day, whereas section 7.4 requires the payment of liabilities in each relevant class pro rata and pari passu. Therefore, it is said, the deliberate delay in bringing section 7.4 into operation in the events which happened should not be overridden by construing section 5 of the terms of the notes as postponing the maturity of liabilities which would otherwise have fallen due during this intermediate period, and would therefore have been required to be paid by virtue of section 7.3 of the CTSA.

The arguments on the appeal invoked many provisions of the long and complicated documents under which Golden Key’s operations were conducted, but it seems to me that this feature is among the strongest arguments in favour of the Shorts. It is also a fair comment, as Mr Phillips submitted on behalf of the Longs, that the potential, however limited, for the Issuer (i.e. the debtor) to choose what date is to be the Acceleration Redemption Date introduces an element of risk, on the judge’s reading, to which it is unlikely that a well-advised Noteholder would have been willing to agree, if it had been appreciated that this might make a difference as to which Noteholders were paid in full and which only in part or not at all.

Like the judge, I take the Terms of Issue as the starting point. We are only concerned with USCP, so I need not consider the Euro Notes. The USCP was only issued in book-entry form, and only discounted, not on an interest-bearing basis, so a number of provisions can be ignored for those practical reasons. I can also ignore the Co-Issuer.

Notes were issued with a stated Maturity Date, which had to be a Business Day, and could not be more than 185 days after the date of issue. Each Note had to be issued with a single fixed Maturity Date, without any option for the Issuer to pre-pay or extend: see the Issuing and Paying Agency Agreement, section 6.1.

The Terms of Issue contain at section 1 various definitions, and, by reference, the other definitions set out in others of the relevant documents, all of which were identified so that Noteholders were aware of them. Section 2 can be ignored. Section 3 deals with payment. Section 3(b) requires the Issuer to pay or cause to be paid all amounts payable in respect of any USCP Note, by wire transfer of immediately available funds on the date such payments are due. As a practical qualification, section 3(c) provides that, if a payment is otherwise due on a day which is not a Business Day, it is to be due on the next succeeding Business Day. That could not, in practice, postpone payment otherwise due on a stated Maturity Date, because the date specified as a Maturity Date had to be a New York Business Day, but it could (and in this case did) postpone payment otherwise due on an Acceleration Redemption Date.

Sections 4 and 5 are set out in the Appendix to the court’s judgment, so I need not set any part of them out here. The word “redeemed” is used several times in those sections. In the first sentence of section 4 it refers to early payment, i.e. payment before the Maturity Date, but references elsewhere in the documents make it clear that it does not only refer to early payment. As an example, section 8.2.4 of the Issuing and Paying Agency Agreement refers to “timely redemption of USCP Notes on their respective Maturity Dates or Acceleration Redemption Dates, as applicable”. Another use of “redemption” in this sense is found in section 7.5 of the CTSA: see paragraph [97] below. Thus, payment in full of the sums due in respect of a USCP Note on the Maturity Date for the Note is properly described as redemption of the Note.

Section 4 of the Terms of Issue prohibits early redemption of any Note, except as required under section 5, and provides that the principal amount of the Note will be immediately due and payable on its Maturity Date. That date is the date specified as such in the Terms and Conditions Annex for the particular Note.

Section 5 is headed Mandatory Acceleration and deals, at least in part, with payment before the Maturity Date. It starts with a sentence whose significance was debated before us: “The USCP Notes shall be redeemed after the occurrence of a Mandatory Acceleration Event.” It then provides for what is to happen if the Security Trustee delivers to the Issuer an Acceleration Redemption Notice, which is notice of the occurrence of a Mandatory Acceleration Event. As I have already mentioned, the consequences differ according to whether the Mandatory Acceleration Event is, or is not, an Insolvency Event. The section in its express terms contemplates (but does not provide for) the possibility that the Security Trustee may not deliver an Acceleration Redemption Notice. For reasons which I will explain, it seems to me that the Security Trustee must serve such a notice. I do not know why the section uses “if” rather than “when”.

A Mandatory Acceleration Event can be one of two things: an Insolvency Event in relation to the Issuer, or a breach of the Mandatory Acceleration Test set out in the Collateral Management Agreement. An Insolvency Event is defined very widely in the Terms of Issue, so as to include voluntary action by the Issuer under applicable insolvency law, or its giving consent to action by others such as the appointment of a receiver, but also failure “generally to pay its debts as they become due”, as well as many other events by way of an insolvency process of one kind or another.

Before I go on to the other provisions relating to a Mandatory Acceleration Event, I should mention two further provisions of the Terms of Issue. At the end of section 5, the Paying Agent is required to give notice to DTC (the holder of the Global Note) not less than 10 days before the Acceleration Redemption Date (where, as here, the Mandatory Acceleration Event is not an Insolvency Event) of the Redemption Amount applicable to each USCP Note. By section 6, headed “Obligation Absolute”:

“No provision of the Agency Agreement under which the USCP Notes are issued shall alter or impair the obligation of the Co-Issuers, which is absolute and unconditional, (except to the extent set forth in sections 7 and 8 below) to pay the principal of and interest on each USCP Note at the times, place and rate, and in the coin or currency, herein prescribed.”

The duties of the Collateral Manager under the Collateral Management Agreement include reporting any breach of the Mandatory Acceleration Test to various bodies concerned, under sections 9.02 and 9.04. The test itself is set out in section 11 of Schedule 4 to that agreement, and is expressly required to be calculated on every Business Day. The judge summarised the test at paragraph 12 of his judgment as follows:

“In outline, it will be satisfied so long as the market value of the Company’s portfolio amounts to at least 92% of the aggregate outstanding face amount of the CP, the Mezzanine Notes and the Capital Notes, together with any liquidity loan facilities entered into by the Company.”

The Collateral Manager must report to the Security Trustee (among others) in writing any breach of the Mandatory Acceleration Test, as soon as it is practicably able to do so having become aware of the breach: section 9.02(c). The occurrence of such a breach, being a Mandatory Acceleration Event, is also an Enforcement Event, as defined in the Master Definitions Annex to the CTSA. As such, by virtue of section 3.3(b) of the CTSA, the Security Trustee is obliged to provide notice of its occurrence “promptly (and in no event later than two Business Days thereafter)” to the Issuer (among others), the notice specifying what Enforcement Event has occurred. Such a notice would be an Acceleration Redemption Notice, as defined in section 5 of the Terms of Issue. That is why, as it seems to me, although section 5 of the Terms of Issue deal with the service of an Acceleration Redemption Notice as if it is optional for the Security Trustee, in fact the Security Trustee is obliged to serve a notice which fulfils in every respect the requirements of an Acceleration Redemption Notice, as to its contents and as to the recipients. In the present case, the notice given by the Security Trustee under section 3.3(b) of the CTSA was also treated as being the Acceleration Redemption Notice. It seems to me that this was correct, and unavoidable.

If (as in the present case) the Mandatory Acceleration Event is not an Insolvency Event as regards the Issuer, but is instead a breach of the Mandatory Acceleration Test, then by paragraph (2) in section 5 of the Terms of Issue the Issuer should give notice to the Security Trustee and to the Paying Agent specifying a date which is no less than 15 days and no more than 30 days after the day on which the Acceleration Redemption Notice was delivered by the Security Trustee to the Issuer. If (as in the present case) it fails to give such a notice, then the default position is as if it had given notice specifying a date 30 days after the day on which it received the Acceleration Redemption Notice. The Issuer is obliged to redeem the USCP Notes in whole (but not in part) on the date specified in the notice, or the default date if no such notice is served, “and the USCP Notes shall become immediately due and payable” on that date, which is referred to as the Acceleration Redemption Date.

By contrast, if the Mandatory Acceleration Event had been an Insolvency Event as regards the Issuer, the Notes would have become immediately due and payable on the date on which the Issuer received the Acceleration Redemption Notice, and the Issuer would be obliged to redeem the Notes on that date.

I have referred in passing to one provision of the Issuing and Paying Agency Agreement, section 8.2.4. That agreement provides for the duties and functions of the USCP Issuing and Paying Agent, and has the form of the Notes, and their Terms of Issue, annexed. Section 8 deals with payment of the USCP Notes. Section 8.1 is concerned in part with presentment of the Notes, but Book-Entry notes do not need to be presented. The section provides that

“Each matured or maturing Book-Entry USCP Note shall be paid on the Maturity Date or Acceleration Redemption Date thereof, as applicable, in accordance with the provisions of Sections 8.3 of this Section 8.”

The phrase “matured or maturing” is used in section 8.2.1 as well, which requires the Paying Agent to pay each matured or maturing Book-Entry Note from funds available for payment in a particular account, and in accordance with the Priority of Payments. Probably “maturing” refers to Notes which have not yet reached their Maturity Date but which fall to be paid earlier because of an Acceleration Redemption Date occurring before their Maturity Date. I have already mentioned section 8.2.4.

Section 8.3.1 is headed “sufficiency of funds”. By section 8.3.1, on a day on which a payment is scheduled to mature on a USCP Note, if the funds in the relevant account are insufficient to make the payment in full, and assuming no Insolvency Event of the Issuer has occurred, the Paying Agent is to notify the Issuer of the amount of the insufficiency by noon, and the Issuer is to tell the Agent by 3pm of the amount which will be made available for the purpose and request its transfer to the relevant account.

By virtue of section 8.3.2, if after giving effect to such a transfer, and to the Priority of Payments, there will not be sufficient funds in the relevant account to satisfy the payments due on the Note, the Paying Agent is to cease paying Notes until the insufficiency is cured or an Enforcement Event has occurred, in which case payments are to be made at the direction of the Security Trustee in accordance with the Priority of Payments. However, that direction to the Agent does not release the Issuer from its obligations in respect of the Notes: see section 6 of the Terms of Issue, and the last sentence of section 8.3.2 itself.

Section 8.4 is identical to section 5 of the Terms of Issue, except that it does not include the first sentence of section 5.

As Arden LJ has described, on 23 August 2007 some $10 million of USCP held by Party A reached its Maturity Date, but was not paid. On the same day, when the required calculation was done, the Mandatory Acceleration Test was found to be breached, and the Issuer gave written notice of that having happened at 16.20, Eastern Standard Time, to the Security Trustee and other relevant bodies. The Security Trustee gave notice under section 3.3(b) of the CTSA, and thereby also an Acceleration Redemption Notice, to the Issuer and others at 9.36, EST, on 24 August. On that day some $210 million of USCP Notes held by Party B reached their Maturity Date, but they too were not paid. The Issuer did not serve a notice specifying a redemption date for the USCP Notes. The default Acceleration Redemption Date was 23 September, but this was a Sunday, so that in practice the payments required on redemption were due to be made on Monday 24 September 2007.

Already on 20 August 2007 the Collateral Manager had notified the Security Trustee, the Issuer and others of the occurrence of a Wind Down Event. Thus, on 23 August, being the first Business Day thereafter, section 7.3 of the CTSA applied, rather than section 7.2 which had applied previously. The question at issue on the appeal depends in part on considering the effect of section 7.3 applying (in accordance with its terms) during the period starting from Confirmation of an Enforcement Event and continuing until the Acceleration Redemption Date. More directly, it depends on whether the effect of section 5 of the Terms of Issue is to alter the date on which Notes are due and payable, with the result that section 7.3, though applicable in terms, does not in practice require the payment of, or provision for, Notes whose Maturity Dates occur during that period, or even for all Notes then outstanding.

Article VII of the CTSA deals, among other things, with distribution priorities. Section 7.2 provides for the pre-wind down priority of payments. It applies on each Business Day before the earliest to occur of Confirmation of a Wind Down Event, Confirmation of an Enforcement Event, and an Acceleration Redemption Date. It deals separately with interest (which I can ignore) and principal in paragraphs (b) and (c). After providing for administrative expenses and the like, it gives priority to interest and principal due and payable on the relevant Business Day in respect of the Commercial Paper, and also requires provision (by way of reserve) for the discount accreting on outstanding Commercial Paper maturing after the relevant date, and also (during a period of Restricted Issue, as subsisted at the relevant time because of the downgrading of the credit rating of the Commercial Paper, which had happened on 17 August), by way of defeasance under section 7.5, for the principal amount of outstanding Commercial Paper. Thus, essentially, Notes falling due for payment on any given Business Day were to be paid in full on that day, and if funds permitted, provision was also to be made for those falling due thereafter.

The occurrence of a Wind Down Event brought section 7.3 into operation, in place of section 7.2. Wind Down Events included a wide variety of occurrences including breaches of a number of tests set out in Schedule 4 to the Collateral Management Agreement, to be carried out regularly by the Administrator. In the present case, the tests which were broken were the Market Value Coverage Test and the Capital Wind Down Test. Under section 11 of the Collateral Management Agreement this occurrence required the Collateral Manager to act in accordance with the Wind Down Management Procedures, set out in Schedule 6 to the Collateral Management Agreement. This was to continue until the earlier of Confirmation of an Enforcement Event and delivery of an Acceleration Redemption Notice by the Security Trustee. If either of those happened, then the Collateral Manager was to act in accordance with directions given by the Security Trustee, and it was open to the Security Trustee to direct the Collateral Manager to manage the funds in accordance with Enforcement Management Procedures set out in Schedule 7 to the Collateral Management Agreement.

Section 7.3 is expressed to apply on each Business Day following the Confirmation of a Wind Down Event or the Confirmation of an Enforcement Event, but prior to the occurrence of an Acceleration Redemption Date. It is this provision which makes it clear that it is intended to apply on each Business Day during the period between service of an Acceleration Redemption Notice and the later Acceleration Redemption Date, where the Mandatory Acceleration Event is not an Insolvency Event as regards the Issuer. To the extent that funds are available on any such day, they are to be applied, pro rata and pari passu, to defease the Commercial Paper by crediting to the Note Defeasance Account the face amount of the Commercial Paper.

The word “defease” is defined (relevantly) to mean to credit to the Note Defeasance Account an amount of money sufficient to pay the face amount of Discount Commercial Paper. Correspondingly, section 7.5 provides for the withdrawal from the Note Defeasance Account, on any date which is the Maturity Date for any Commercial Paper, of the amount necessary to pay the face amount of the Commercial Paper, and to pay that amount to the Paying Agent to be applied in redemption (in whole or in part) of such Commercial Paper. (That use of the word “redemption” shows that it applies to payment in respect of a Note on its Maturity Date.)

Section 7.4 applies upon the occurrence of an Acceleration Redemption Date. Because all relevant Notes are by then already due for payment, it is unnecessary to make provision for the section to be applied on successive Business Days. Subject to provision for expenses and other matters having a higher priority, the funds received or recovered by the Security Trustee are to be applied in the payment of the principal then due and payable on the Commercial Paper until all Commercial Paper has been paid in full. Once that stage has been reached, therefore, all outstanding Notes rank equally for payment, whatever their Maturity Dates may have been, leaving aside the question of Notes whose Maturity Date was before the Acceleration Redemption Date but which have not yet been fully paid.

It may be useful, for comparison, to note what would happen under the documents if an Enforcement Event were to occur which is not a Mandatory Acceleration Event. Enforcement Events include non-payment of sums when due and payable under the Notes or under Tier 1 Mezzanine Notes, and also breaches of various Leverage Tests, as well as material breaches by the Issuer of its obligations under the Security Documents. Upon Confirmation of an Enforcement Event (just as on delivery of an Acceleration Redemption Notice) the Security Trustee becomes exclusively entitled to exercise the rights of the Issuer under the Security Documents (section 3.2) and may take steps to realise the relevant assets for distribution in accordance with the Priority of Payments (section 3.4). It was pointed out that in section 3.2 there is express provision for the case in which there is a conflict between the interests of the Senior Secured Parties (among which are the Noteholders), those of the Mezzanine Secured Parties and those of the Junior Secured Parties: the Security Trustee is to act, in that case, first in the interests of the Senior Secured Parties. There is no provision allowing for any conflict of interests within the class of Senior Secured Parties. For the Longs it is submitted that this shows that all Noteholders (and other Senior Secured Parties) were to be treated alike at this stage, i.e. pro rata and pari passu as a class, not according to priority in time of Maturity Dates.

Thus, the definition of Enforcement Event includes a Mandatory Acceleration Event, but also other events which might not immediately cause a Mandatory Acceleration Event to occur. Once an Enforcement Event has occurred and been confirmed, no further Notes will be issued (or not without the consent of the Security Trustee at the direction of the majority of the Secured Parties): see CTSA section 3.19. However, existing secured obligations will continue to fall due for payment in accordance with their terms. Nothing in the documents affects the date on which such obligations under USCP Notes become payable, apart from the service of an Acceleration Redemption Notice under section 5 of the Terms of Issue. On the other hand, the obligation to carry out the Mandatory Acceleration Test on each Business Day is not affected by the occurrence of an Enforcement Event, and it may be that, for practical reasons, once an Enforcement Event has occurred, a Mandatory Acceleration Event is not likely to be far behind.

The evidence showed that, often, Notes were redeemed on their Maturity Date by being rolled over, that is to say by the issue of further Notes. Part of the Issuer’s problems in August 2007 arose from the fact that, for lack of a suitable market, it could not issue new Notes. If anything, such a problem would be exacerbated when the issue of new Notes was prohibited as a result of the occurrence of an Enforcement Event.

Mr Phillips, for the Longs, submitted that when a Mandatory Acceleration Event had occurred, the Issuer was, essentially, insolvent as regards the Senior Secured Parties, and that the consequences of the service of an Acceleration Redemption Notice should be seen in that light. Mr Zacaroli and Mr Crow, for the Shorts, argued to the contrary and pointed out that the Mandatory Acceleration Test requires asset cover of 92% as against all the Issuer’s secured obligations, whereas in terms of nominal value, the Senior Obligations amounted to about 90% of the secured obligations as a whole, so that the test could be broken even though there was more than enough asset cover for the Notes and other obligations with the same degree of priority. It could also be said that, given the sheer number and variety of things that are included in the definition of an Insolvency Event, a breach of the Mandatory Acceleration Test must be regarded as different, and not amounting to insolvency by itself. They also pointed out that, because the Mandatory Acceleration Test was to be applied in relation to current market values of assets, it could well be broken one day but complied with on the next, due to market volatility. That is no doubt true, but the test is to be applied on each Business Day and, if it is broken on one day, the prescribed consequences follow, whether or not it would be broken again if the same test were done the next day or the following week. There is no question of, for example, waiting to see if it is broken on a given number of successive Business Days. In a volatile market, a position in which the asset cover was just under 92% might change quickly to one in which it was greater, but also to one in which it was much less. The Mandatory Acceleration Test is plainly intended as a monitoring exercise whose breach is significant: it may not mean that insolvency as regards Senior Secured Parties has already arrived, but it must have been regarded as likely to be, by then, a real risk. On the other hand, the fact that the adequacy of the asset cover might improve, as a result of a favourable change in market conditions, allows for the possibility that, following a Mandatory Acceleration Event, Notes and other obligations might be redeemed in full and on time in an orderly and successful manner, a possibility which the documents envisage.

Reliance was placed in argument on some other provisions of the various relevant documents, to which as necessary I will refer in the course of discussion. The provisions already mentioned are the most important of those on which the case turns.

The case for the Appellant Longs is that, once an Acceleration Redemption Notice has been given, all outstanding Notes become subject to redemption on a single date, namely the Acceleration Redemption Date. Plainly that applies to all Notes whose Maturity Date has not arrived before the Acceleration Redemption Date. The issue is whether it applies to those whose Maturity Date is before the Acceleration Redemption Date, and in particular whether it applies to those whose Maturity Date is on the same date as that on which the Acceleration Redemption Notice is served (Party B) or those whose Maturity Date has already occurred before the Acceleration Redemption Notice is served (Party A). If any or all of these Notes are to become redeemable on the Acceleration Redemption Date, it can only be as a result of the application of section 5 of the Terms of Issue. It would have the effect that, notwithstanding that section 7.3 of the CTSA is expressed to apply on each Business Day between the Confirmation of an Enforcement Event and the occurrence of an Acceleration Redemption Date, that section would not have any operation in a case where the Enforcement Event is a Mandatory Acceleration Event, from the date on which an Acceleration Redemption Notice is served. That would not deprive that part of section 7.3 of all effect, since the Enforcement Event may not be a Mandatory Acceleration Event, though as I have said, in practice, there may only be a short interval between the occurrence of an Enforcement Event which is not a Mandatory Acceleration Event, and the occurrence of a Mandatory Acceleration Event. It would, however, attenuate its effect considerably.

The argument in favour of the Longs turns on the language of section 5 of the Terms of Issue, including the feature that I have already mentioned, that otherwise the Issuer would be able to affect the way in which the available funds are to be applied, as between Noteholders, where the funds turn out to be insufficient, by giving notice for a shorter or a longer period within the permitted range. In the first sentence of section 5, reliance is placed on the general words “The USCP Notes”, as meaning all such notes then outstanding. So, it is said, that sentence points to all outstanding Notes being redeemed after the Mandatory Acceleration Event has occurred. All such Notes are to be treated in the same way, and all are to be redeemed after (in the present case) 23 August. Going on into clause (2) in section 5, “the USCP Notes shallbecome immediately due and payable on” the date specified in the Issuer’s notice, or, under the following passage, in default on the 30^th day after delivery of the Acceleration Redemption Notice. Again, it is argued that the entirely general and unqualified phrase “the USCP Notes” means all of them, not just those whose Maturity Date has not arrived by the Acceleration Redemption Date, nor even only those whose Maturity Date has not already arrived on the date of the Acceleration Redemption Notice. Those Notes shall become immediately due and payable on the Acceleration Redemption Date, whether or not, it is argued, they would otherwise have been immediately due and payable on a later date, or on an earlier date, and if the latter whether or not that earlier date has already arrived on the date of the Acceleration Redemption Notice.

At paragraph 93, the judge said:

“In my judgment it is reasonably clear, as a matter of ordinary English usage, that Section 5 is not intended to apply, at the very least, to Notes which reached their maturity date, and therefore became “immediately due and payable” pursuant to Section 4, before the occurrence of a Mandatory Acceleration Event.”

That is supported by the language of section 5: “shall become immediately due and payable”, which suggests that it refers to Notes which are not yet immediately due and payable, and therefore does not easily apply to Notes which were already immediately due and payable, because their Maturity Date had already arrived. The judge went on, at paragraph 94, to reject the idea that a Noteholder who had a vested right to payment, because the Note’s Maturity Date had already arrived, could find that right defeated by the operation of section 5. He said:

“I do not find that a plausible intention to attribute to the parties, particularly as it would lead to the surprising consequence that, assuming availability of funds, an investor whose Notes had matured before the Mandatory Acceleration Event could lose his right to payment in full merely because steps had not been taken to redeem them at the due time, possibly due to some administrative failure.”

Turning to the question of Notes which had not already reached their Maturity Date on the date of delivery of the Acceleration Redemption Notice but where the Maturity Date was before the Acceleration Redemption Date, he said at paragraph 96 that he would favour the reading that such Notes remained payable on their Maturity Dates, and were not postponed to the Acceleration Redemption Date:

“There is nothing in Section 5, on the face of it, to modify the clear principle stated in the second sentence of Section 4; and as in the case of Notes maturing before a Mandatory Acceleration Event, the effect of the alternative construction would again be to postpone an otherwise vested right, not to accelerate a future right. On the other hand, there is obvious force in the point that, at a time when insolvency is likely to be imminent, if not already an actual fact, pari passu distribution is fairer and produces a more commercially sensible result than continuation of a pay as you go regime.”

Then in paragraph 97 he said, as I have already mentioned, that any doubt on the point was, in his judgment, resolved in favour of his preferred reading by the fact that Section 5 of the Notes drew an express distinction between imposing the Acceleration Redemption Date at once, if an Insolvency Event had occurred so as to require mandatory acceleration, and adopting a formula for a delayed Acceleration Redemption Date if the Mandatory Acceleration Event was not an Insolvency Event. This, taken with the fact that section 7.3 of the CTSA is expressed so as to apply after, and therefore notwithstanding, the service of the Acceleration Redemption Notice, if the Acceleration Redemption Date is, under section 5 of the Terms of Issue, deferred rather than immediate, led him to prefer the reading favoured by the Shorts.

At paragraph 98 the judge referred to the argument in favour of pro rata and pari passu distribution in a situation of, or akin to, insolvency. He rejected this argument:

“I accept the submission of counsel for the Shorts that the structure established by the CTSA is one that depends on written notification of defined and (for the most part) clearly ascertainable events in order to bring about a change of operating state. A structure of that sort has the merits of being clear, certain and relatively simple to operate, all of which are in themselves desirable commercial objectives. The point that one might expect to find machinery for pari passu distribution once insolvency is imminent has force, I acknowledge, but (as I have already suggested in paragraph 48 above) less force than in many commercial contexts precisely because the parties have all agreed to sign up to an investment structure which is “insolvency remote”. In those circumstances, it is dangerous to start with assumptions about what the parties must or are likely to have intended, and there is in my judgment no substitute for a close examination of the language of the contractual terms in order to ascertain what their rights may be.”

On behalf of the Longs it had been submitted to the judge, as it was to us, that the decision of this court in Re Whistlejacket Capital Ltd [2008] EWCA Civ 575 was compelling in favour of the Longs’ reading. He rejected that argument on the basis that the documentation in that case was too different from that used in the present case. I agree with him on that. Clause 10.01(c) in that case is quite closely analogous to part of section 5 of the Terms of Issue in this case, but the contractual context in which that clause operated was quite different. It is a perfectly fair comment, as I mentioned at paragraph [74] above, that it seems unlikely that the rights of secured creditors among themselves were understood as capable of being influenced by action of the Issuer, in the choice of the date for which notice is to be given which will be the Acceleration Redemption Date, at a time when the Issuer is no longer otherwise in charge of the situation, because an Enforcement Event has occurred. However, that point can be made without reliance on any analogy from Whistlejacket.

As regards the distinction between the consequences of the two types of Mandatory Acceleration Event, it was suggested that, in the case of an Insolvency Event, there might under New York law (which governs the Terms of Issue) be a doubt, at least, as to whether, after an insolvency procedure has begun, the Issuer could validly give such a notice as is provided for in the case where it is not an Insolvency Event. That may be one of a number of reasons why the Acceleration Redemption Date is not deferred in the case of an Insolvency Event. It does not of itself explain why the Acceleration Redemption Date is deferred in other cases. It was suggested that this was for administrative convenience. The judge summarised Mr Phillips’ submission on this as follows, at paragraph 86:

“Where the Mandatory Acceleration Event is not an Insolvency Event, the Company is given a considerable degree of flexibility in determining when the Acceleration Redemption Date will be: it may fall between 15 and 30 days after service of the Acceleration Redemption Notice by the Security Trustee. This flexibility appears to be for purposes of administrative convenience, and in particular to allow BNYM and DTC to redeem the Notes in an orderly fashion.”

Nothing in the evidence deals directly with this point, but it seems a reasonable explanation. The deferral of the Acceleration Redemption Date does allow for the Paying Agent to be required to give notice to DTC ten days before the Acceleration Redemption Date of the amount due on redemption in respect of each Note, whereas if the Acceleration Redemption Date is immediate such a notice is to be given as soon as practicable after delivery of the Acceleration Redemption Notice (see the last sentence of section 5 of the Terms of Issue). Whether it is obvious or sensible that it is the Issuer that should have the choice of date, or indeed that anyone should have such a choice in a situation in which, for all that the Mandatory Acceleration Event is not an Insolvency Event, the Issuer is in fact insolvent, as regards the Senior Secured Parties, at least in the sense of being unable to pay its liabilities as they fall due, is another matter.

Some reliance was placed on section 8.3.2 of the Issuing and Paying Agency Agreement, showing that the Paying Agent is not to pay a liability if there are not enough available funds. I do not regard that as relevant. In my judgment that only relieves the agent of a duty to pay. The last sentence of the section makes it clear that the Issuer’s obligation to pay is unaffected, as does section 6 of the Terms of Issue. For that reason, I regard the fact that Barclays had made its claim to repayment, which we have to assume is ill-founded, but which in practice precluded payment to any other party on or after 23 August 2007, as a red herring. For the same reason, I regard the provisions of section 8.3.1, to which I have already referred, as relevant only to the obligations of the agent, not to the rights and obligations as between the Noteholder and the Issuer.

For my part, I do not obtain assistance in resolving the questions before us from the first sentence of section 5 of the Terms of Issue. It seems to me that it is introductory and descriptive, and as I have said it is not included in the otherwise identical provisions of section 8.4 of the Issuing and Paying Agency Agreement. The latter feature is no more than a pointer, but I find the terms of the sentence itself too general to be of significance. The Issuer is already obliged to redeem the Notes, since to redeem means to pay the face amount of the Note on its Maturity Date (or, if relevant, the Acceleration Redemption Date). By the time a Mandatory Acceleration Event has occurred, that obligation to redeem, so far as not already satisfied, will fall to be performed after the Mandatory Acceleration Event.

In my judgment, therefore, the first sentence does not create an obligation to redeem, since that obligation already exists, nor does it prescribe when redemption is to take place. The latter is governed by what follows. The section only applies if a Mandatory Acceleration Event has occurred; in that event the Security Trustee must deliver to the Issuer notice of that occurrence, which is an Acceleration Redemption Notice. It is that notice which causes the provisions of the section to operate. How the section applies depends on whether the Mandatory Acceleration Event is or is not an Insolvency Event.

As Arden LJ says at paragraph 42, one possible reading based on the first sentence could be that the critical moment is the occurrence of a Mandatory Acceleration Event, rather than the delivery of the Acceleration Redemption Notice. She concludes at paragraph 53 that this is not the correct reading. I agree. Mr Phillips did not advance that argument as such in his grounds of appeal, and his argument focussed on the combined effect of the occurrence of the Mandatory Acceleration Event and the consequent service of an Acceleration Redemption Notice. If the sentence were to be read as giving substantive effect to the occurrence of a Mandatory Acceleration Event, rather than (as the next sentence does) to the delivery of an Acceleration Redemption Notice, which is notice to the Issuer of the occurrence of a Mandatory Acceleration Event, it seems to me that this would be out of line with the approach of the documentation otherwise, which is to focus on written notice being given of a critical event, rather than on the happening of the event itself. Thus, in the CTSA reference is made in sections 3.1 and 3.2 to Confirmation (itself a carefully and elaborately defined term) of a Wind Down Event, or of an Enforcement Event, and to delivery of an Acceleration Redemption Notice, and in section 7, as already noted, to Confirmation of a Wind Down Event or of an Enforcement Event, and to an Acceleration Redemption Date. This approach is presumably adopted in the interests of clarity and certainty. There is to be no doubt or room for argument about whether something has happened which brings into play a particular obligation: it has happened if (and only when) a specified notice of something has been given (in writing) by one relevant person to another, each being identified.

The part of section 5 which follows the first sentence depends entirely on delivery of an Acceleration Redemption Notice, not on the occurrence of a Mandatory Acceleration Event. In this respect, it matches precisely the obligations in the Issuing and Paying Agency Agreement, section 8.4. I cannot therefore agree that the occurrence of a Mandatory Acceleration Event is by itself of any effect (apart from triggering the obligation to serve notices, including the Acceleration Redemption Notice), despite the reference to it in the first sentence of section 5. What matters is the consequent notice given by the Security Trustee to the Issuer, which is an Acceleration Redemption Notice, and it matters as and when it is given, namely, in the present case, on 24 August 2007.

It may be that the function of the first sentence of section 5 is to make clear the contrast between the provisions of section 4, providing for redemption on, and only on, the Maturity Dates of the respective Notes, and the following provisions of section 5, under which redemption is to happen on the Acceleration Redemption Date, which will be on or after the service of an Acceleration Redemption Notice, instead of on the Maturity Date. Section 8.4 of the Issuing and Paying Agency Agreement is not immediately juxtaposed to an equivalent of section 4 of the Terms of Issue, which may explain why this sentence appears in section 5 of the Terms of Issue but not in section 8.4 of the Issuing and Paying Agency Agreement.

For the Shorts, the point was made that section 5 uses the term acceleration, not postponement, and that, although this is in the context of defined terms, whose effect depends not on the terms used but on the content to which the label refers, nevertheless the choice of label is not altogether insignificant. This, they say, is supported by the fact that section 4 is expressed to be qualified by section 5 only as regards redemption prior to the Maturity Date, not redemption after the Maturity Date. The use of acceleration in the labels – Mandatory Acceleration Event, Acceleration Redemption Notice, Acceleration Redemption Date – and in the heading “Mandatory Acceleration” seems to me a very weak point. Almost certainly the major effect of an Acceleration Redemption Notice will be to accelerate the date on which outstanding Notes with later Maturity Dates are payable. It could also be to postpone the date on which some Notes are payable which have earlier Maturity Dates. I do not find the choice of label illuminating, as compared with the substantive provisions of the section, and with their effect according to different interpretations. The fact that the qualification to section 4 by reference to section 5 is expressed to apply to the first sentence, not to the whole section, has a little more substance, but it is no more than one factor to be weighed up among the various conflicting indications in the documents.

We were also referred to the provision in section 6.1 of the Issuing and Paying Agency Agreement, to which I have already referred, with its prohibition on the Issuer having any option to extend the Maturity Date of a Note. I do not regard that as helpful either way on the points we have to decide. An Acceleration Redemption Notice has whatever effect the documents provide for, but it cannot in any meaningful sense be described as giving the Issuer an option to extend the Maturity Date of any Note. The only matter over which the Issuer can exercise any choice, after service of an Acceleration Redemption Notice, is whether or not to bring forward the Acceleration Redemption Date from what would otherwise be the date, 30 days after delivery of the Notice, and if so by how much, up to 15 days.

There is undoubtedly a tension within the terms of the relevant documents on the point. In particular, on the one hand, section 7.3 of the CTSA leads the reader to expect that the position should be reviewed each Business Day even after Confirmation of an Enforcement Event (which could include a Mandatory Acceleration Event) until an Acceleration Redemption Date, and that, until the Acceleration Redemption Date, payment should be according to priority in time of Maturity Dates, and section 5 of the Terms of Issue draws the distinction already noted between a Mandatory Acceleration Event which has immediate effect, because it is an Insolvency Event, and a Mandatory Acceleration Event which does not, and which takes effect on a deferred date. On the other hand, it does seem surprising that the debtor should be able, by an act or omission at that stage, to prescribe, in effect, which of its creditors will be paid in priority to others if the available funds are insufficient, which is the effect of the Shorts’ submissions and of the judge’s decision.

I have not found this an easy question, and I can understand the logic of the judge’s reasoning. However I am more impressed than he was by the oddity (to put it at its lowest) that, on the judge’s reading, the priority as between Notes which are outstanding when an Acceleration Redemption Notice is served, assuming the Mandatory Acceleration Event not to be an Insolvency Event, can be influenced by an action (or omission) on the part of the Issuer. This is a point not mentioned in terms in the section of the judgment in which the judge explains his conclusion or that in which he records the submission on behalf of the Longs.

On the basis that the reason for section 5 not providing for an immediate Acceleration Redemption Date, where the Mandatory Acceleration Event is not an Insolvency Event, but rather for an Acceleration Redemption Date which occurs up to 30 days later, is to do with administrative convenience, it would be counter-intuitive to find that the deferral of the Acceleration Redemption Date also affects priority as between Noteholders who may not all be paid in full. It would be even more curious to find that the precise date of the Acceleration Redemption Date is (within limits) at the choice of the Issuer, which can therefore (on the judge’s reading) choose which of its creditors is to bear any shortfall of assets first.

I cannot think of any reason why a provision whose only identified purpose is that of administrative convenience should have a substantive effect on priorities as between creditors in circumstances such as those prevailing in the present case. It seems to me all the more absurd, and therefore unlikely to have been intended, that such a provision should have that effect where it is left to the debtor to decide (within a prescribed range) what is the relevant date. That would have the effect that the debtor can decide whether the class of Notes which are to be accelerated to the Acceleration Redemption Date, ranking pro rata and pari passu between themselves, is larger (because the Acceleration Redemption Date is early) or smaller (because it is late), leaving, as the case may be, fewer or more Notes with Maturity Dates unaffected by the Acceleration Redemption Notice, and therefore ranking according to the priority of their respective Maturity Dates. Although on the actual figures it makes no difference, because of the size of the deficiency, Party C’s Notes were in the class which, on the judge’s reading, could either have been accelerated, so as to be made payable pari passu with Notes with later Maturity Dates, such as those of Party D, if the Issuer had given a notice specifying an early Acceleration Redemption Date, or could have been left to rank in priority according to their Maturity Dates, if a later Acceleration Redemption Date had been specified or (as happened) no notice was given at all.

That is the reason why, with respect to the judge, I disagree with the conclusion that he expresses at paragraphs 96 to 98. I would hold that (leaving aside for the moment the position of Notes with Maturity Dates on or before the date on which the Acceleration Redemption Notice is delivered) the effect of an Acceleration Redemption Notice is to cause Notes which are still outstanding to be redeemable on the Acceleration Redemption Date, whether their Maturity Date was before or after that date. I agree that the Acceleration Redemption Notice does not change the Maturity Date of the Notes, but it does affect the obligation to redeem them, by providing that they shall “become due and payable on the Acceleration Redemption Date”, instead of, as would otherwise be the case, being due and payable on the Maturity Date.

That, however, still leaves the important questions, as to what, if any, effect the Acceleration Redemption Notice has on Notes which have already reached their Maturity Date, or on those which reach that date on the same day as that on which the Acceleration Redemption Notice is delivered by the Security Trustee to the Issuer.

The principal argument for the Longs is that section 5 has this effect in relation to all Notes not already redeemed, because it uses the unqualified and all-embracing phrase “the Notes”, meaning all of them. The judge dealt with this point at paragraph 93, already quoted at paragraph [106] above. Subject to the point that, for reasons already outlined, in my judgment what triggers the application of section 5 is not the occurrence of the Mandatory Acceleration Event itself but the delivery of notice by the Security Trustee to the Issuer of that occurrence, i.e. an Acceleration Redemption Notice, I agree with the judge. Notes whose Maturity Date has already arrived before the date on which the Acceleration Redemption Notice is delivered are already due and payable before section 5 comes into play. Clearer language than the general phrase “the Notes” would have been necessary to divest the holders of such Notes of their already accrued right to immediate payment. There is no such language and nothing in the terms or context of the relevant contractual provisions which requires such a reading.

Mr Phillips pointed to the obligation at the end of section 5 of the Terms of Issue to give notice of the Redemption Amount to DTC in respect of all Notes (and correspondingly to all Noteholders if there had been certificated Notes), as showing that all Noteholders are affected by the Acceleration Redemption Notice. I do not regard that point as being of weight. It is a purely ancillary administrative exercise, preparing for redemption (if that was to happen). The fact that, on the reading favoured by the Shorts, and in the particular circumstances of this case, that obligation on the Paying Agent would require notice in respect of some Notes still outstanding which are not redeemable on the Acceleration Redemption Date, because they were already redeemable on Maturity Dates before the giving of the Acceleration Redemption Notice, is really neither here nor there.

Another element in Mr Phillips’ submissions relies on the presence of an express provision in the CTSA dealing with possible conflicts between secured creditors of different levels of priority – the Senior Secured Debt, the two levels of Mezzanine Debt and the Capital Notes – and the absence of any such provision dealing with possible conflicts within the class of Senior Secured Debt. He argued that this showed that the documents did not contemplate that there could be such a conflict, as would exist if, after service of an Acceleration Redemption Notice, Notes of the same level of seniority were not all payable pro rata and pari passu. I note the contrast, but I do not find it persuasive. Conflicts between creditors of different levels of priority might well arise at a number of stages of the performance of the Security Trustee’s functions. The fact that such conflict within a class of Senior Secured Parties was not provided for, whether because it was not foreseen or because it was not thought worth providing for, or for some other reason, does not seem to me to be a useful indication of the true meaning of the substantive provisions.

Mr Phillips told us that the rating agencies, which have a vital role in relation to the obligations of the Issuer, did not draw any distinction in their rating between Notes with different Maturity Dates. It does not seem to me that this proves anything relevant to the proper interpretation of the Terms of Issue, the CTSA and the other documents. We do not know why the rating agencies acted in this way, nor what they knew or understood about the detailed terms of the documents as regards payment in respect of the Notes in the event of insolvency.

He also referred to the possibility that priority of payment for particular Notes might be affected, without the Noteholder being aware of it or, if aware, being able to do anything about it, if further Notes were issued later but with an earlier Maturity Date. This is, no doubt, a possibility on the documents, since the only restriction on the Maturity Date of the Notes is that it must not exceed 185 days from issue. The evidence does not refer to the question as to what period of maturity applied to the Notes in fact issued, nor to whether, in the market circumstances prevailing at any relevant time, it was likely that maturity periods would vary substantially. In those circumstances, while I note the point, I cannot regard it as of any significant weight. Paragraph 43 of the court’s judgment in Whistlejacket was cited in support of this argument, but that dealt with a factually different point, namely ignorance of the position as between different types of Senior Creditor, not within a single group, for example Noteholders in that (or this) case, so it does not provide Mr Phillips with any additional help on this argument.

Mr Phillips’ reading would not fit well with the language of section 5 in its use of the phrase “shall become due and payable” on the Acceleration Redemption Date. Party A’s Notes were already due and payable before section 5 came into operation, on the service of the Acceleration Redemption Notice. I do not place great reliance on this. It would not be impossible to find that an obligation which was already due and payable on a past date is to “become” due and payable on a future date, but it is not a natural reading, and so I find in this language a further indication in favour of Party A.

Mr Phillips also put forward an argument based on the unavailability of funds, which derived not (or not only) from the Issuing and Paying Agency Agreement, but from the CTSA, sections 7.3 and 7.5. He contended that it was not sufficient for the Shorts to show that they had a contractual right to be paid on a given date, and that they also needed to show that, on the given date, they had a proprietary claim in relation to the funds held by the Security Trustee, for which they had to show an immediate right to payment not just by the Issuer but out of the funds. His first submission was that because a separate Note Defeasance Account had not been constituted there could be no right to any payment. The judge rejected this, for reasons given at paragraph 99 of his judgment, essentially that the use of the particular account was a matter of machinery, and failure to set up the required machinery could not defeat otherwise unqualified rights. Equity would treat that as done which ought to have been done. I agree.

However, Mr Phillips’ next argument was that, on that basis, it was necessary to examine with care what it was that equity treated as done, and to see whether, on the facts, it could have been done, because, if not, it would not be right to treat it as having been done. He argued that the Shorts’ claim to a right to payment during the period when section 7.3 of the CTSA applies would depend on a notional withdrawal from the US Operating Account of Available Funds (a defined term) to be credited to the Note Defeasance Account (see section 7.3), and a notional withdrawal from the Note Defeasance Account out of available funds (not a defined term) of the amount needed for payment of the face amount of the Notes, and its notional payment to the Paying Agent to be applied in redemption of the Notes (section 7.5). Available Funds, as defined, means no more than funds standing to the credit of the US Operating Account. But he argued, first, that there were not enough “available funds”, within the meaning of section 7.5, on 23 or 24 August because of the Barclays’ claim, and that in any event there were not enough on 24 August to pay Party B because its Notes could not then be paid in full.

I would reject the argument about the insufficiency of funds on 24 August to pay Party B in full. Mr Phillips’ argument on that seems to me to depend on section 8.3.2 of the Issuing and Paying Agency Agreement, which I do not regard as affecting the rights as between Noteholder and Issuer (and therefore also as between different Noteholders). It also ignores the fact that section 7.5 itself expressly contemplates redemption in whole or in part.

I would also reject the argument about the effect of Barclays’ claim. The fact that an adverse claim has been made by a third party, which for present purposes we have to regard as ill-founded (since otherwise there is, at best, very much less money available for payment among the Noteholders), cannot, in my judgment, affect the otherwise accrued rights of Noteholders. It prevented Party A’s rights from being satisfied at the proper time, but it does not seem to me that it could be right to regard the assertion of such a claim as defeating Party A’s rights (or, in turn, those of Party B) rather than delaying the time when they can be satisfied.

Subject to one other point taken on behalf of the Longs, of more relevance to Party B, which I will mention later, that leaves Party A’s Notes, their Maturity Date and their priority unaffected by the Acceleration Redemption Notice.

What then of Party B, whose Notes had a Maturity Date on the same date as that of service of the Acceleration Redemption Notice? Mr Crow’s argument is that the Maturity Date had already arrived before the actual delivery of the Acceleration Redemption Notice, at 09.36 EST, and that therefore, like Party A, his clients had a vested right to payment which could not properly be regarded as divested by the Acceleration Redemption Notice, which would therefore only apply to Notes with a Maturity Date on or after the next following day.

The judge accepted these submissions, for reasons given at paragraphs 110 to 113 of his judgment. He held that the Notes became due and payable immediately after midnight at the beginning of 24 August, EST, that the Maturity Date comprised the whole of the 24 hours from that moment on, and that, although the Issuer had all day in which to satisfy its obligation to pay, so that not until the following day could Party B say that the Issuer was in default, nevertheless Party B’s right to payment had already accrued before the delivery of the Acceleration Redemption Notice at 9.36 EST, and the principle that the law does not take account of fractions of a day could not be applied to treat the Acceleration Redemption Notice as having been served immediately after midnight, when in fact it was not served until 9.36 am. The last of those points was not challenged in the Longs’ Appellant’s Notice, though the proposition that Notes became immediately due and payable immediately after midnight on the Maturity Date is challenged in the grounds of appeal (paragraph 11).

The arguments for the Longs to the contrary include some which I have already discussed, relevant to Party A as well: the main points are that “the Notes” means that all Notes then outstanding are affected by the Acceleration Redemption Notice, not just those whose Maturity Date has not yet arrived, and the point that there is no right to payment before 3pm (because of section 8.3.1 of the Issuing and Paying Agency Agreement) and that there is no right to payment when there are not enough available funds (because of section 8.3.2). For reasons already given, I do not accept these arguments; these provisions qualify the obligations of the Paying Agent, but not the rights of the Noteholder as against the Issuer.

Mr Phillips also relied on paragraph 63 of the court’s judgment in Whistlejacket, in which a somewhat similar point was discussed, concerning the effect of the giving of notice of a relevant event on obligations under Notes due on the day on which the notice was given. The paragraph is as follows:

“We take the same view in relation to the first series of Notes, due on the day on which the notice of the Insolvency Acceleration Event was given, and for the same reason. If the effect of clause 6.6 were otherwise, this point would be more difficult, and we could see some force in the judge’s view that section 10.01(c) could not substitute a later maturity date in relation to Notes which were already due for payment. On the other hand, since notice to the company of an Insolvency Acceleration Event is likely to be given either on, or immediately before, a day on which some obligation to a class of Senior Creditors arises for payment, it is not obviously sensible that that particular group of Senior Creditors should be regarded as having priority over others. Moreover, it would be odd that the question of priority should depend on whether the notice is given to the company on the day beforehand, or before 10am New York time on the day itself. In the present case, it was known, at least by the Investment Manager and the receivers, before 15 February that notice was likely to be given on that day; notice was given to the Security Trustee before 9am New York time on 15 February. It would seem rather arbitrary that whether the consequent notice is given, in turn, to the company before or after 10am should make a difference as to the priority as between Senior Creditors. Whether the correct reading of the Indenture, in particular section 9.02(h), is that those Notes were already due for payment at 10am New York time, before the notice was received, is not straightforward. Since it does not matter for present purposes, we do not propose to lengthen this judgment still further by expressing a view on it.”

It can be seen from that paragraph itself, and all the more clearly from the context of that judgment as a whole, that the matters relevant there, though in some ways similar to the present issue, were materially very different. In particular, first, it did not in fact affect priority, and secondly there was evidently scope for argument that the Notes did not fall due for payment until 10am New York time, and the relevant notice had been given before that time on the same day. For those reasons, I do not consider that this assists Mr Phillips in relation to Party B.

Mr Phillips’ fall-back point was that the Security Trustee, which had been notified of the breach of the Mandatory Acceleration Test at 16.20 on 23 August, could and should have given notice of this to the Issuer on the same day, in which case, at least, Party B’s Maturity Date would have been after the date of delivery of the Acceleration Redemption Notice, and would, on the argument which I have accepted above, have been postponed to the Acceleration Redemption Date. In support of his main argument, for postponement of all outstanding Notes, he relied on the arbitrariness by which the ranking of Notes such as those of Party B would depend on whether the Security Trustee gave notice at once or the next day to contend that all outstanding Notes were affected by the Acceleration Redemption Notice. The judge rejected that argument for reasons given at paragraph 109. Mr Phillips criticised that reasoning, but it seems to me to be correct.

Leaving that aside, however, he argued that, since the Security Trustee could have served the notice on the Issuer on 23 August, it should be treated as having done so. Under section 3.3(b) of the CTSA, the Security Trustee had to give this notice “promptly and in no event later than two Business Days” after receiving Confirmation of the occurrence of an Enforcement Event. It did so within the time allowed. It seems to me that, even if it were open to an interested party to argue that the notice should be treated as having been given earlier than it was (and I am by no means saying that this is possible), it would have to be on the basis that the Security Trustee was in breach of its obligation under section 3.3(b), because, even though it acted within two Business Days, it did not act “promptly”. That would require a specific allegation to that effect, and relevant evidence, neither of which is present in this case.

Accordingly, it seems to me that the judge was right to hold that Party B’s right to payment in respect of its Notes accrued before the delivery of the Acceleration Redemption Notice, and that Party B is therefore entitled to priority over the Notes with later Maturity Dates, because the provision in section 5 of the Notes which imposes a new payment date, namely the Acceleration Redemption Date, applies only to Notes which had not already become immediately due and payable at the time of delivery of the Acceleration Redemption Notice, as Party B’s Notes had.

For my part, therefore, subject to submissions from Counsel, I would answer the questions in the originating application in the same way as the judge as regards questions 1 and 2, differently as regards question 3, but as for question 4 in the way in which he would have answered it if it had arisen on his reasoning. The correct answer to question 3 could be given by deleting the word “not” from that which he gave at paragraph 107, but I am inclined to think that a better formulation (which can also cover the answer to question 4) would be that the service of a notice of a Mandatory Acceleration Event by the Security Trustee on the Issuer did postpone to 23 September 2007 the date on which all outstanding CP Notes were to be due for payment, except for those whose Maturity Dates fell on or before the date on which that notice was served. In substance, however, despite my difference of view with the judge about the effect of service of an Acceleration Redemption Notice, I would dismiss the appeal.

To my mind this appeal does not raise any question of general importance. It simply depends upon the true construction of the contractual documents, each of which must of course be considered in the context of the transaction as a whole, which must in turn be viewed having regard to its factual matrix or, put another way, against its surrounding circumstances. In short, the ordinary principles of contractual construction apply.

As I see it, the critical provisions are sections 4 and 5 of the Notes, which are set out in the Appendix. I agree that they should be construed in the way proposed by both Arden and Lloyd LJJ. The effect of sections 4 and 5 together is that to ‘redeem’ means to pay the face amount of the Note on its Maturity Date or, if relevant, the Acceleration Redemption Date. Thus, under Section 4, subject to Section 5, a USCP Note was to be redeemed on its Maturity Date because it was on that date that it was “immediately due and payable”. Accordingly, subject to section 5, for the reasons given by Arden and Lloyd LJJ, both Party A and Party B had the right to payment in respect of its Notes before 0936 EST on 24 August 2007.

The question for decision thus depends upon the true construction of Section 5, which is of course entitled “Mandatory Acceleration”. As I see it, that is no more than a shorthand for what follows. The first sentence then simply provides that the USCP Notes shall become due and payable after a Mandatory Acceleration Event. It does not say when after such an Event they will become due and payable. That is the purpose of the remainder of the clause, which, as I see it, provides what we used to call further and better particulars of when the Notes will become due and payable. That depends upon the nature of the Acceleration Redemption Notice or ARN served by the security trustee. Although the clause is drafted as if the security trustee had an option whether or not to serve an ARN, I agree with Arden and Lloyd LJJ that, having regard in particular to clause 3.3(b) of the CTSA, the security trustee had a duty to serve an ARN.

The effect of the ARN would depend upon whether the Mandatory Acceleration Event was an Insolvency Event or not. If it was, the Notes would be due and payable on the date of receipt of the ARN, whereas if it was not they would be due and payable not less than 15 or more than 30 days thereafter, depending upon whether the Issuer gave an appropriate notice. In the absence of such a notice the default position, as here, was 30 days.

In my opinion that is the natural construction of sections 4 and 5 construed in their context and having regard to all relevant circumstances. I am not persuaded that we should give them any other construction. Moreover I agree with Arden and Lloyd LJJ that, given that both Party A’s Notes and Party B’s Notes were due and payable before the ARN was served at 0936 EST on 24 August 2007, there is nothing in section 5 to deprive them of the benefit of Section 4 under which the Notes were due and payable on their Maturity Dates.

In all the circumstances I agree with the answers to the questions in the originating application suggested by Lloyd LJ, subject always to any submissions from Counsel on the point. I also agree that the appeal should be dismissed. As proposed by Arden LJ, Counsel for the parties should agree and submit a draft minute of the order to be made on the appeal.