The Bank Of New York Mellon, London Branch v Essar Steel India Ltd

By a Part 8 Claim issued on 23 July 2018, the Claimant sought declarations against the Defendant as to the amounts due and payable in respect of certain US Dollar 0.25% unsecured notes (the “Notes”) due in 2018, issued by the Defendant, and constituted under the terms of a trust deed dated 5 December 2003 (the “Trust Deed”).

The claim is supported by the witness statements of Mr Nicholas Brocklesby, a solicitor and partner in the firm of Reed Smith LLP, the Claimant’s solicitors. Mr Brocklesby has adduced two witness statements, the first dated 23 July 2018 (“Brocklesby 1”) and the second dated 2 November 2018 (“Brocklesby 2”).

The Defendant has taken no step in these proceedings, and was not represented before the court.

The substantial question before the court is whether the declarations sought by the Claimant should be made. Before that question can be addressed, three anterior questions must be resolved:

Only if these three questions are answered in the affirmative, should I proceed to consider the substance of the Part 8 Claim. Accordingly, I proceed to consider these three, anterior questions, in the following paragraphs.

The Trust Deed is governed by and is to be construed in accordance with English law (clause 18.1). The English courts have a non-exclusive jurisdiction (clause 18.2), and the Defendant has irrevocably submitted to the jurisdiction of the English courts (clause 18.2).

The Claimant is the trustee (“Trustee”) for the Notes under the terms of the Trust Deed.

Although the Noteholders are beneficially interested in the Notes, their interests are held on trust by the Trustee. In the law of trusts, it is axiomatic that the beneficiary under a trust cannot sue in relation to the trust property. It is the trustee who must sue, and he can recover more than merely nominal damages. The trustee will recover for the full beneficial interest and must then account for any recovery to the beneficiaries.

In my judgment, this is the legal effect of clause 5.1 of the Trust Deed.

Clause 6.1 sets out the circumstances in which the Trustee is able to vindicate the rights in the Notes. Essentially, the Trustee is precluded from acting unless directed by Extraordinary Resolution; and is not obliged to act unless indemnified to its satisfaction. If, having been directed to act, and with the benefit of an appropriate indemnity, the Trustee does not act, then (but only then) may the Noteholders themselves institute proceedings. This may be seen as a codification of what is known as the “Vandepitte” procedure, (Footnote: ¹) whereby beneficiaries under a trust may – where a trustee wrongfully fails to sue a third party in relation to trust property – take over the trustee’s claim.

An Extraordinary Resolution sanctioning, authorising, directing, requesting and empowering the Trustee to bring these proceedings was passed at a meeting on 10 April 2018, following a notice of that meeting dated 8 March 2018. As a result, the Trustee was instructed to commence these proceedings.

Accordingly, the Trustee has standing to bring this claim as Claimant. Indeed, according to the terms of the Trust Deed set out above, the Trustee is the only person having the standing to bring this claim.

Clause 18.3 of the Trust Deed provides as follows:

“[The Defendant] irrevocably appoints Law Debenture Corporate Services Limited…to receive, for it and on its behalf, service of process in any Proceedings in England. Such service shall be deemed completed on delivery to such process agent (whether or not it is forwarded to and received by the [Defendant]). If for any reason such process agent ceases to be able to act as such or no longer has an address in England, [the Defendant] irrevocably agrees to promptly appoint a substitute process agent acceptable to the Trustee and shall immediately notify the Trustee of such appointment. Nothing shall affect the right to serve process in any other manner permitted by law.”

The Claim Form in these proceedings, together with supporting documents, were served on Law Debenture Corporate Services Limited by recorded delivery on 23 July 2018. By an email of the same date, the Claimant’s solicitors were informed that “[the Defendant]

In these circumstances, the question arises as to whether service by the Claimant of these proceedings on Law Debenture Corporate Services Limited is good service sufficient to bring the Defendant properly before this court. I shall, in this regard, refer to Law Debenture Corporate Services Limited as the “Service Agent”.

I have no doubt that service on the Service Agent was good and sufficient service. Clause 18.3 constitutes an irrevocable promise as between the Claimant and the Defendant that service on the Service Agent is good service for the purposes of Proceedings in England, which these proceedings are. Clause 18.3 says nothing about the agency relationship between the Defendant and the Service Agent. Rather it is concerned with a promise between the Claimant and the Defendant. Clause 18.3 operates as an irrevocable promise, by the Defendant to the Claimant, to accept service of Proceedings in England in this way. If the Service Agent is served in accordance with clause 18.3, then the Defendant is precluded from contending that good and sufficient service has not taken place. That is the case, even if the Defendant has withdrawn its authority from the Service Agent to accept service on its behalf. (Footnote: ³)

I conclude that the Defendant is properly before the court.

This is not an application for judgment in default of an acknowledgement of service by the Defendant or of a defence. The hearing before me was the trial of the claim in the absence of the Defendant. Since the Defendant has been properly served, the court may proceed with the trial in the absence of the Defendant and give judgment or make an order against the Defendant: see CPR 39.3.

In this case, the only remedy sought by the Claimant is that of a declaration. Specifically, the Claimant invites me to make the following declarations (as set out in the draft order prepared by the Claimant):

“1.

The following amounts are due and payable in respect of the [Notes] issued by the Defendant and constituted under the terms of a Trust Deed dated 5 December 2003 between the Defendant and the Claimant…

(i)

principal outstanding in the amount of US$31,580,000 under the [Notes];

(ii)

interest at 0.25% per annum (at a daily rate of US$216.301), on the principal amount outstanding from 31 March 2017 up to 2 August 2017, in the amount of US$26,821.32;

(iii)

interest at 0.25% per annum (at a daily rate of US$216.301), on the principal amount outstanding from 3 August 2017 to and including the maturity date of the [Notes] of 31 March 2018, in the amount of US$51,912.24;

(ii)

interest at 0.25% per annum (at a daily rate of US$216.301), on the principal amount outstanding from 1 April 2018 to and including the 13 November 2018, in the amount of US$49,100.33.

2.

The total amount due and payable, in relation to the [Notes] as at 13 November 2018 is US$31,707,833.89.”

The court’s jurisdiction to grant declaratory relief derives from section 19 of the Senior Courts Act 1981. By CPR 40.20 the court may grant declaratory relief, whether or not any other remedy is claimed. However, the 2018 edition of Civil Procedure (“Civil Procedure 2018”) notes at §40.20.2 that claims for declarations alone are unusual, and that generally declarations are sought and granted together with other forms of relief.

The power to grant declaratory relief is discretionary. (Footnote: ⁴) When considering the exercise of the discretion, in broad terms, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are other special reasons why or why not the court should grant the declaration.⁵ More specifically:

I turn, then, to the question of whether the declarations sought by the Claimant should be made. I have come to the conclusion that they should not be. This is for the following reasons:

For these reasons, therefore, I consider that it would be inappropriate to make the declarations sought by the Claimant and I decline to do so. I should make clear, however, that my refusal has nothing to do with any concern on my part about the substance of the declarations sought or the basis of the Claimant’s claim against the Defendant.