Bank of New York Mellon v GV Films Ltd

This is an application by the Bank of New York Mellon (“the Bank”) for summary judgment against GV Films Limited (“GV Films”) in respect of two bond issues. These were accelerated after alleged events of default. After the issue of proceedings, the Bank says that the amounts due under the bonds in any case fell due under certain mandatory redemption provisions. An application for permission to amend was made together with a further application for summary judgment in relation to the amended claim. It was convenient to deal with all points arising at a single hearing, and the defendant did not oppose the application for permission to amend. The result is that the Court has to consider whether the defendant has a real prospect of successfully defending the claim under two broad heads. The first is whether the Bank did validly accelerate payment under the bonds on the basis of the events of default alleged. If it did not validly do so, the Bank’s alternative case is that it is entitled to summary judgment anyway on the basis of the mandatory redemption provision (and a related put option).

The facts are as follows. The Bank is a US bank with a London branch. GV Films is an Indian company based in Chennai (Madras). In 2006, there were two bond issues by GV Films, each subject to English choice of law and jurisdiction, and in respect of each of which the Bank was trustee. The first was an issue of US$4,500,000 2¼% convertible bonds due 2011 (“the Dollar Bonds”), the Trust Deed being dated 20 April 2006. The second was an issue of €9,000,000 zero coupon unsecured foreign currency convertible bonds due 2012 (“the Euro Bonds”), the Trust Deed being dated 23 October 2009. The evidence is that there is effectively one holder of the Dollar Bonds and one holder of the Euro Bonds. The action is brought by the Bank as trustee at the direction of the bondholders.

I will have to consider the evidence in relation to the alleged events of default in more detail in due course, but in summary, in about October 2007, that is to say a year or so after the bond issues, GV Films commenced proceedings in the High Court of Judicature at Madras for sanction of a Scheme of Arrangement proposing a “de-merger” of its business. This would have involved part of its assets and liabilities being transferred to two new companies. It is common ground that neither the trustee nor the bondholders were notified of the application. GV Films’ view was that the consent of the bondholders was unnecessary since the scheme did not involve the transfer of all or substantially all the assets of the company. The bondholders disagreed, and subsequently intervened in the proceedings in order to oppose the granting of the Court’s sanction for the de-merger. By a judgment given on 4 December 2008, Mrs Justice Chitra Venkataraman refused sanction for the proposed Scheme of Arrangement. By notice of appeal dated 18 December 2008, GV Films has appealed against that decision. I am told that the appeal has not presently been heard.

By letter dated 23 February 2009, the Bank notified GV Films of the events of default specified in that letter in the case of the Dollar Bonds. By letter dated 5 March 2009, the Bank notified GV Films of the events of default specified in that letter in the case of the Euro Bonds. The alleged events of default all concerned in one way or another the proposed Scheme of Arrangement. The letters required GV Films to remedy the alleged events of default so far as they were capable of being remedied. By further letters dated 26 May 2009, the Bank gave notice accelerating repayment of the bonds.

This is the basis for the claim in its original form. Proceedings were issued on 29 May 2009, and a summary judgment application followed shortly thereafter. (Because GV Films had not acknowledged service the Bank would in fact have been entitled to enter default judgment, but it wanted a reasoned judgment). It appears that the hearing of the application was delayed by the fact that GV Films commenced proceedings in the Madras High Court seeking an injunction against the Bank from taking any steps to call the bonds. That was contrary to the jurisdiction agreements in the Trust Deeds, and on 15 September 2009, in the English High Court, Mr Justice Field granted an anti-suit injunction restraining the proceedings (which I should record has been complied with by GV Films). The Court of Appeal refused permission to appeal on the papers on 11 November 2009. There had in the meantime been an application by the Bank to amend and seek summary judgment in respect of the alternative case which I have referred to above, and which was made on 5 November 2009. The result is that the issues for determination on this application resolve into three alleged events of default as originally relied on the Bank, together with the Bank’s alternative case on the basis of the mandatory redemption provision and a related put option (which although only contained in the Euro Bonds, are said to have effect in relation to the Dollar Bonds by reason of cross default provisions).

Before coming to the detailed arguments, I should set out in a little more detail the facts as they appear from the evidence, since it is impossible otherwise to appraise the parties’ respective contentions. The evidence consists of three witness statements of Mr Sanjay Jobanputra, who works for the Global Corporate Trust Division of the Bank, and two witness statements of Mr Steven Morris, who is the Defendant’s solicitor. Mr Jeffrey Gruder QC, who has appeared for GV Films, has emphasised that there were genuine commercial reasons for the proposed Scheme of Arrangement. It was not an attempt to make away with the company’s assets. Nevertheless, as the proposal on any view diminished the company’s assets, it would clearly be potentially of concern to the bondholders. The Petition was filed with the Madras High Court some time in October 2007. Though the proposed scheme was embarked upon openly, the consent of the bondholders was not sought. On 29 November 2007, the Madras High Court ordered a meeting of the equity share holders, which took place on 24 January 2008. The proposed Scheme of Arrangement was approved by the shareholders’ meeting, and the next step was to obtain the sanction of the Court. The Bank appears to have become aware of the proposed scheme in January 2008. It emailed GV Films on 31 January 2008 drawing attention to condition 7.1 of the Euro Bonds Terms and Conditions, which contain terms prohibiting mergers, or the transfer of all, or substantially all of the issuer’s assets without the bondholders’ consent. GV films replied on 4 February 2008 to the effect that counsel had advised that the bondholders’ consent was not necessary.

On 15 February 2008 Lovells LLP, who are the Bank’s solicitors, wrote to GV Films on behalf of the Bank saying that, “the Trustee has received expressions of concern from certain holders of the bonds relating to the proposed de-merger of the Issuer into three entities, and requests for additional information. Despite a number of requests, the Issuer has not provided adequate information to the Trustee or the Bondholders”. There was a request for information under various different heads. This request was clearly a reasonable one in the circumstances, and the contrary is not suggested. On 19 February 2008, GV Films responded to Lovells providing information, and enclosing a substantial package of documents. The letter records the company’s opinion that it had provided all material information relevant to the bondholders with respect to the de-merger. It is an important part of its case that it did in fact do so by way of this letter. The package included among other things the notice convening the meeting of the equity shareholders on 24 January 2008, which by that time of course had taken place.

The parties met in London at Lovells’ offices on 5 March 2008 to try to resolve their differences. On 14 March 2008, Lovells wrote to GV Films referring among other things to the legal fees that the Trustee was incurring. It stated that fees incurred to date were £15,000, and asked for £50,000 on account. This request does not appear to me to be an unreasonable one in the circumstances, though as will be seen, under the terms of the Trust Deeds, GV Films could not be required to provide funds on account of fees—its liability was to pay fees actually incurred. There was a detailed response from GV Films dated March 25 2008, to the effect that it would reimburse all legitimate and reasonable expenses that might be incurred by the Trustee. Again, that was not an unreasonable response, but it is clear that relations between the parties soon became very difficult. On 9 April 2008, the Bank wrote to GV Films under the heading “Events of Default”. The letter maintained that there had been a failure to provide information in breach of GV Film’s obligations, it being asserted that “these breaches are not capable of remedy”. The Trustee and bondholders, it was said, reserved their position as to the effect of the proposed Scheme of Arrangements. The letter makes it clear however that the bondholders’ view was that the proposed de-merger would be prejudicial to them in respect of the continuing ability of GV Films to service its debt obligations under the bonds.

On 16 April 2008, GV Films responded refuting the concerns that had been expressed, providing the further information that had been requested, and asking for an estimate of costs because any remittance would be subject to the approval of the Reserve Bank of India. Lovells responded by email on 18 April 2008 to the effect that it would be difficult to foresee at that point what the costs would be, but asking for funds to be provided without further delay. On 21 April 2008, GV Films responded to the effect that the company would be happy to reimburse the actual sum charged in respect of a legal opinion regarding the de-merger proposal, but stating that the company had already obtained an opinion from Indian counsel, and would “reimburse your charges so long as it confirms with the opinion given to us by the law firm here”. If not, “our liability to reimburse to you any costs would be subject to orders of Court that might ultimately resolve the issue. We sincerely hope that in all fairness you would not expect us to finance you for commencing litigation against us”. The Bank declined to give the requested confirmation, and on 5 May 2008, GV Films responded to the effect that the matter was now sub judice, and that “we have been advised that it is not necessary to reimburse any further expenses that you may incur on this. However, we are willing to consider reimbursement of any expenses that have already been legitimately incurred by you in this behalf”.

The Bank sent invoices to GV Films dated 19 May 2008 in the sum of $3,062.50, and on 22 May 2008 in the sum of £37,794.44. No bill from the Bank’s lawyers showing how these sums were made up was enclosed. GV Films then suggested a further meeting, but the waters appear to have been muddied when one of the bondholders demanded £100,000 in fees. However, that was then modified to a demand that the outstanding bills be settled, which the Bank says is a reference to those sent on 19 and 22 May 2008. Certainly, the evidence shows that the Bank continued to ask for payment of these bills, but by email of 17 October 2008, GV Films made it plain that it would not settle the bills pending disposal of the case by the Madras High Court.

As I have explained, by order of 4 December 2008, the Court dismissed the petition in the light of the bondholders’ objections. In a full and careful judgment, Venkataraman J held that when compared to the assets of the company prior to the de-merger, what would be transferred under the scheme would be practically all or substantially all of the assets of the company. The assets left with the de-merged company would be negligible. The contention of the company that it retained a major part of the assets was not, she said, supported by any material. For the reasons she gave, the Judge held that the scheme was not in compliance with the provisions of India’s Companies Act 1956, and the Scheme of Arrangement consequently did not receive the Court’s sanction. However, as I have said, by notice dated 18 December 2008, GV Films has appealed against that decision. It is against that background that the Bank’s letters of 23 February and 5 March 2009 notifying GV Films of events of default, and the letters dated 26 May 2009 giving notice accelerating repayment of the bonds came to be sent.

The terms of the Trust Deeds differ, but both contain a provision for acceleration of the bonds on the occurrence of specified events of default. In the case of the Dollar Bonds, the relevant provision is condition 11 of the Terms and Conditions. This provides that:

“If any of the following events (each an ‘Event of Default’) occurs the Trustee at its discretion may, (but shall not be obliged to), and if so requested in writing by the holders of at least 25% in principal amount of the Bonds than outstanding, shall (subject always to the Trustee having been indemnified or provided with security to its satisfaction), give notice to the Issuer that the Bonds are, and they shall immediately become, due and payable....”

In the case of the Euro Bonds, the relevant provision is condition 11.1 of the Terms and Conditions which provides that:

“The Trustee at its discretion may (but shall not be obliged to), and if so requested in writing by the holders of not less than 25 per cent in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall (subject to being indemnified and/or secured to its satisfaction), give notice to the Issuer that the Bonds are, and they shall accordingly thereby become, immediately due and repayable at their Accreted Principal Amount or in the case of Bonds where there has been a default in payment of the balance of the subscription monies under Condition 2.2 the Issuer Principal (subject as provided below and without prejudice to the right of the Bondholders to exercise the Conversion Right in respect of their Bonds in accordance with Condition 7) if any of the following events (each an ‘Event of Default’) has occurred....”

I shall take each of the three events of default relied on in the same order in which they were advanced in oral argument, but begin by noting the point made by Mr Stephen Phillips QC for the Bank, that the Bank need only establish one ground to the necessary standard to be entitled to summary judgment on the claim.

Legal costs

The Bank’s case is that GV Films was liable to pay its legal costs on demand, and failed to do so. It relies on clause 10.3 of the Dollar Bonds Trust Deed which provides that:

“The Company [GV Films] will on demand by the Trustee pay or discharge all costs, charges, liabilities and expenses incurred by the Trustee in the performance of its functions under, and in any other manner in relation to, this Trust Deed and the Conditions including, but not limited to, expenses incurred seeking appropriate legal or financial advice to discharge its duties in accordance with the Conditions … in connection with any action or legal proceedings brought or contemplated by the Trustee against the Company to enforce any provision of this Trust Deed, the Conditions or the Bonds.”

The Bank also places reliance on two other clauses. By clause 10.4, GV Films is obliged to indemnify the Trustee in respect of all liabilities and expenses paid or incurred by it in the carrying out of its functions, and against any liability, cost or expense paid or incurred by it arising out of or in relation to or in connection with the exercise of its functions. By clause 11.37, GV Films must bear any expenses incurred by the Trustee in engaging any lawyer.

The terms of the Euro Bonds Trust Deed are materially identical, and I need not set them out. The Bank’s case is that there has been a breach of such obligations, resulting in an event of default. The event of default that is said to have resulted in the case of the Dollar Bonds is that defined in condition 11(b) of the Dollar Bonds Terms and Conditions, namely:

“The Issuer defaults in performance or observance of or compliance with any of its other obligations set out in the Bonds or the Trust Deed which default is incapable of remedy or, if it is capable of remedy, is not remedied within 15 days after written notice of such default shall have been given to the Issuer by the Trustee (acting at the written direction of Bondholders holding not less than 25% of the principal amount of the Bonds and then outstanding);”

The event of default that is said to have resulted in the case of the Euro Bonds is that defined in similar but not identical terms in condition 11.1.3 of the Euro Bonds Terms and Conditions, namely:

“the Issuer does not perform or comply with one or more of its other obligations in the Bonds or Trust Deed which default is incapable of remedy or, if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied within 15 days after written notice of such default shall have been given to the Issuer by the Trustee;”

The letters of 23 February and 5 March 2009 alleging Events of Default by way of “failure to pay under indemnity” state that the “Trustee has made repeated claims for payments of its fees, costs and expenses. The Issuer has failed to make payment”. The letter required GV Films to remedy the Events of Default to the extent that they were capable of remedy within 15 days. The letters of 26 May 2009 accelerating the bonds state that the breaches capable of remedy (of which it is not disputed that the payment of legal costs was one) have not been remedied. It is common ground that no payment has in fact been made in respect of the Bank’s legal costs.

The parties’ contentions were as follows. The Bank argues that once it shows that legal costs have been incurred in the performance of its functions as trustee, the amounts claimed by way of legal costs become payable on demand under clause 10.3 of the Dollar Bonds Trust Deed, and its equivalent in the Euro Bonds Trust Deed. It is no answer, it is submitted, to say that the amount claimed by way of costs may have been overstated. Provided there is something due, there is no requirement to show that the legal costs claimed are reasonable. The Bank only has to make demand, and the borrower must pay. The position, it is submitted, is equivalent to a demand for repayment under a debenture, in respect of which is has been held that there is no need for the creditor to specify the precise amount of debt in the demand (Bank of Baroda v Panessar [1987] 1 Ch 335).

GV Films case is that it was, and indeed is still, willing to reimburse all legitimate and reasonable expenses accompanied with proper narratives and explanations. These have never been vouchsafed. It is accepted that advice was taken from DSK and Lovells, but the Bank, it is submitted, is not entitled to demand a sum in respect of fees without explanation or proof of reasonableness. The concern of GV Films, it is said, was that it was in effect being asked to finance litigation by the bondholders against itself. The bondholders having taken it upon themselves to intervene in the Indian Court proceedings, it was for that Court to rule on the question of whether it was, or was not, necessary for the consent of the bondholders to be obtained. Accordingly it is submitted, any advice to be taken by the Bank would be otiose and a waste of money. GV Films has met its obligations to make payments when due under the bonds, has been willing to pay reasonable legal fees and expenses, but submits that it is impossible from the information provided to discern precisely what the charges relate to, how many hours were worked, and the charge out rate. In summary, a requirement of reasonableness should be read into the contractual provisions. Reliance is placed on Gomba Holdings (UK) Ltd v Minories Finance Ltd [1993] 1 Ch 171.

In oral argument, Mr Gruder further submitted that since Notice of default under condition 11(b) is given by the Trustee acting at the written direction of the bondholders, a failure to pay legal costs due to the Trustee itself would not lead to an event of default. He further argued that although the condition in terms deals with a default in “compliance with any of [the Issuer’s] other obligations set out in the Bonds”—other that is than non-payment of principal or interest which is dealt with in condition 11(a)—the condition is subject to the de minimis principle, and the failure to pay costs must be a material one. A failure to pay is not in itself repudiatory, it was submitted, and only a repudiatory or a really serious breach will qualify as an event of default. In this respect, reliance was placed on Rice v Great Yarmouth Borough Council, unreported, CA, 30 June 2000, and Peregrine Systems Ltd v Steria Limited [2004] EWHC 275 (TCC).

My conclusions in relation to this part of the claim are as follows. Starting with the last point first, as a matter of construction it is in my view clear that a failure to meet the Trustee’s legal costs as required by the Trust Deed is a breach of obligation within the meaning of condition 11(b), and therefore capable of giving rise to an event of default. There is in my view no further requirement as regards materiality, or that the failure to pay should be shown to be repudiatory or really serious. In any case, I accept the submissions of Mr Phillips QC for the Bank that the obligation imposed on the issuer to pay legal costs incurred by the trustee is an important one. When necessary, the trustee of a bond issue has to be able to take appropriate legal advice with confidence that the costs will be reimbursed in accordance with the provision of the Trust Deed. The extent of the obligation depends on the correct construction of the contractual term in question, and whether there has been a breach of the obligation depends upon the facts. I doubt that a trustee would in normal circumstances regard it as unduly onerous to provide details of legal expenses it was seeking to pass on to the issuer (taking account of privilege if appropriate) if such a request was made. But I accept the Bank’s submissions that the commercial nature of the transaction is such that a prolonged inquiry as to the reasonableness of the costs incurred is not practicable, and for that reason reject the suggestion that there is an implied term that a demand for reimbursement of legal costs is only valid if the costs incurred are reasonable.

In the present case, as set out above, the obligation was on demand to pay or discharge all costs, charges, liabilities and expenses incurred by the Trustee in the performance of its functions under, and in any other manner in relation to, the Trust Deed, and similar provisions applied under the indemnity and engagement of lawyer clauses. The case put forward by GV Films that these obligations have not been broken appears to me on the evidence to be unarguable. The sums in question were claimed by the Bank on 19 May 2008 in the sum of $3,062.50, and on 22 May 2008 in the sum of £37,794.44. There is no suggestion that these expenses were not incurred, and the evidence shows that GV Films was aware at least by the time of the email exchanges in June 2008 that the first invoice related to fees incurred to the Indian law firm, DSK, and the second related to Lovells’ fees. As the Bank submitted, there has never been any suggestion that those sums were unreasonable. The position which was in fact taken by GV Films was that it was not prepared to pay such costs, because they were subject to the proceedings in the Madras High Court. But these related to objections by the bondholders, whereas the Bank was seeking payment of its own costs as trustee. In any case, by the time of the letters of 23 February and 5 March 2009 notifying events of default, the proceedings had been determined adversely to GV Films, albeit subject to an appeal. Even at that stage, had payment of the outstanding invoices been made within 15 days, this complaint would have fallen away. However payment was not made. There can be no real doubt in my view that both the taking of legal advice and the sums charged were reasonable, given that the issuer of the bonds was proposing to transfer assets out of the business thereby potentially affecting its covenant to repay. Accordingly, I accept the Bank’s submission that on the facts, GV Films has no real prospect of successfully defending the claim in respect of this issue.

The Indian Petition

Among the Events of Default specified in the Dollar Bonds is that headed “Insolvency” contained in condition 11(f). This applies among other things if the Issuer is declared insolvent. But the Bank relies on wider language that applies if the Issuer:

“…takes any proceedings under any law for a readjustment or deferment of its obligations or any part of them … except … for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation on terms approved by the Trustee or by an Extraordinary Resolution of the Bondholders….”

In the case of the Euro Bonds, the equivalent provisions are not identically drafted. It is an Event of Default under condition 11.1.4 if the Issuer:

“…proposes or makes any agreement for the deferral, rescheduling or other readjustment of all or substantially all of (or all of a particular type of) its debts (or of any part which it will or might otherwise be unable to pay when due) … except for the purpose of and followed by a Merger (as defined in Condition 12) (i) in accordance with, and complying with the provisions of Condition 12 or (ii) on terms approved by an Extraordinary Resolution of the Bondholders….”

As I have indicated above, it was not these provisions that were originally in play between the parties. The Bank at an early stage raised condition 7.1 of the Euro Bonds Terms which prohibits a merger of the issuer, or the transfer of all, or substantially all of its assets without the bondholders’ consent. However that merger, or more precisely de-merger, has not to date materialised, since the Madras High Court did not approve it, so condition 7.1 has not been broken. (GV Films has however, as I have said, appealed against that decision.) By its letters of 26 May 2009, the Bank asserted that the bringing of proceedings in India for the sanction of the proposed Scheme of Arrangement itself amounted to an event of default within the default provisions, and was not capable of remedy.

The arguments between the parties on this point have concerned the true construction of these provisions. If they apply, it has rightly not been suggested they are not capable of remedy. For GV Films, it is submitted that they relate to events occurring during insolvency or bankruptcy. GV Films was and is not insolvent or unable to pay its debts—that incidentally is not in dispute. In particular it is said that the de-merger proceedings in the Madras High Court were not proceedings for the “readjustment or deferment” of GV Films’ obligations or any part of them. In the context in which these words appear in the conditions, it is submitted that they refer to compounding with creditors or entering into Chapter 11 (or its equivalent in other jurisdictions) or, in the case of an individual an Individual Voluntary Arrangement (or its equivalent). Condition 11(f) of the Dollar Terms is titled in bold “insolvency” and when construed ejusdem generis, this is clearly the subject matter of both conditions relied upon.

For the Bank, it is submitted that the proposed scheme of arrangement contemplated a complete readjustment of the assets and liabilities of GV Films by the transfer of the assets and liabilities of two parts of its business to two new companies, GV Studio City Ltd and GV New Media Ltd but leaving the unsecured debt arising under the Bonds with GV Films. The provision in the case of the Dollar Bonds applies if GV Films “…takes any proceedings under any law for a readjustment or deferment of its obligations or any part of them…”. The provision in the case of the Euro Bonds applies if GV Films “…proposes or makes any agreement for the deferral, rescheduling or other readjustment of all or substantially all of (or all of a particular type of) its debts…”. The Madras High Court held that when compared to the assets of the company prior to the de-merger, what would be transferred under the scheme would be practically all or substantially all of the assets of the company. On the facts, it is submitted, there has clearly been an event of default under these provisions.

In my judgment, that is a correct submission. As regards the effect of the title of condition 11(f) of the Dollar Bonds conditions, clause 1.3 of the Trust Deed states that headings are to be ignored in construing their provisions (there is no title in the case of the equivalent provision applicable to the Euro Bonds). But that aside, I would not accept the submission that the provisions in question apply only in the context of insolvency. The conditions deal with a number of events, of which insolvency events are one, but not the only one. GV Films’ obligation as issuer to repay the bonds is equally capable of being affected by a Scheme of Arrangement which would transfer assets away to newly formed companies. In terms of the wording of the provisions in question, my conclusion is that by its October 2007 Petition, subsequently approved by its shareholders, GV Films took proceedings for a readjustment of its obligations except for the purpose of a reconstruction on terms approved by the trustee or the bondholders. Equally it thereby proposed an agreement for the readjustment of all or substantially all of (or all of a particular type of) its debts except for the purpose of a merger on terms approved by the bondholders. There were in consequence events of default under both bond issues, and GV Films has no real prospect of successfully defending the claim in respect of this ground either.

Provision of information

In respect of both series of bonds, GV Films is obliged to send certain information, documents, etc., to the Bank as Trustee. In the case of the Dollar Bonds, the obligation is contained in clause 9.6 of the Trust Deed, by which GV Films is obliged to:

“...send to the Trustee in (or translated by a certified translator into) the English language a summary of or a copy of all notices, statements, reports, circulars and documents which are issued (or which under any legal or contractual obligation should be issued) to the holders of its Shares or its creditors generally as soon as practicable (but not later than 30 days) after their date of issue and make available to the Agents (without cost to the Agents) as many further copies or translations as they may reasonably request in order to satisfy requests from Bondholders from time to time....”

In the case of the Euro Bonds, the obligation is contained in clause 9.6 of the Trust Deed, by which GV Films is obliged to:

“...send to the Trustee in (or translated into) the English language a summary of or a copy of all notices, statements and documents which are issued (or which under any legal or contractual obligation should be issued) to the holders of its Shares or its creditors generally as soon as practicable (but not later than 14 days) after their date of issue....”

In summary therefore, GV Films has to send to the Trustee copies of documents which are issued to its shareholders or creditors generally. Failure to comply with these provisions is an Event of Default as defined in condition 11(b) of the Dollar Bonds Terms and Conditions and condition 11.1.3 as defined in the Euro Bonds Terms and Conditions. I have set these out above in the section of the judgment dealing with legal costs. They provide that to be an Event of Default, the breach in question must be incapable of remedy or, if it is capable of remedy, must be remedied within 15 days of written notice.

I have also set out the material facts above, and need not repeat them. In summary, the Petition was filed with the Madras High Court sometime in October 2007. The shareholders’ meeting took place on 24 January 2008. On 15 February 2008, Lovells wrote to GV Films on behalf of the Bank requesting information under various different heads. On 19 February 2008, GV Films responded providing information, and enclosing a substantial package of documents. The letter records the company’s opinion that it had provided all material information relevant to the bondholders with respect to the de-merger. Its case is that by this letter of 19 February 2008, all relevant information was provided, and any breach was thereby remedied.

The parties’ contentions are as follows. GV Films submits, and the Bank accepts, that there must be a subsisting event of default in order for the bonds to be accelerated. The Bank however submits that its decision as to whether an event of default is capable of remedy is, under the relevant provisions, “conclusive and binding”. It submits that, having made it clear by the letters of 26 May 2009 that the failure to provide information was incapable of remedy that is the end of the matter. In any case, it submits that the failure to supply the documents requested cannot be remedied, because by the time they were supplied, events under them had already taken place. For its part, GV Films submits (relying on The Product Star (No 2) [1993] 1 Lloyd’s Law Reports 397, 404 per Leggatt LJ, and subsequent authority) that it would be unreasonable, arbitrary and capricious to determine as irremediable in May 2009 a breach which was in fact remedied over a year before.

GV Films also submits that the Bank had to decide within a reasonable time of default whether it would rely on the failure to provide the information as an event of default (Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] Bus LR 931, per Rix LJ, at [74]). The principle is not in dispute, but the Bank responds that, in the circumstances of this case, it did not allow an unreasonable period of time to elapse, where the decision of the Madras High Court was given in December 2008, there was thereafter an appeal, and the letters of 23 February and 5 March 2009 followed soon afterwards. GV Films also argued that the action of the bondholders in contesting the Madras High Court proceedings amounted to a waiver of breaches that had been remedied by February 2008. The acceptance of interest was also said to amount to a waiver. The Bank responded that the bondholders merely acted to protect their position, and this could not possibly be seen as a waiver. Nor was the acceptance of interest inconsistent with the preservation of its right to treat the timely failure to provide information as an event of default.

There is a further issue on the facts relating the issue of GDRs (Global Depositary Receipts) by GV Films between 31st March 2007 and 30th June 2007. The Bank has raised this as a further case of a failure to provide information. In response, GV Films relies on a letter to the Bank dated 3 March 2009 in which it said that the Annual Report for the year 2005-2006 included a notice dated 17 June 2006 of the Annual General Meeting to be held on 11 July 2006. This report, it is said, was supplied to the Bank and was also couriered to it on 29 July 2006. The notice of the Annual General Meeting refers to the proposed issue of GDRs, which was approved by the shareholders. Pursuant to this approval, GDRs to the value of US$40 million were issued, and no other approval from shareholders was required. The Bank says that the exact position regarding the GDRs is unclear. But Mr Gruder QC told me on instructions, that no documents other than these were issued to the company’s shareholders or creditors, and accordingly that on the facts there had been no breach in this respect.

It is common ground that the only document which GV Films could be required to send to the Trustee under clause 9.6 of the respective Trust Deeds, and which was not sent in February 2008, was the petition to the High Court at Madras asking the Court to order a meeting of shareholders to sanction the scheme. The Petition was not in fact specifically requested in Lovells’ letter of 15 February 2008, or as I understand it subsequently. An undated copy from GV Films’ lawyers’ file was handed in at the hearing. The document is in the form of a summons which does not appear to add any further information to that supplied to the Bank on 19 February 2008.

I do not understand it to be in dispute that GV Films was in breach by failing to send information about the proposed scheme of arrangement to the Bank until February 2008, and in my view, it clearly was in breach. But it did at that stage, albeit belatedly, provide all relevant information by the letter of 19 February 2008. The omission of the Petition does not in my view alter that conclusion. At least for summary judgment purposes, I would not accept the Bank’s submission that the breach could not be remedied because events referred to in the documents supplied had already taken place, nor that its decision in that regard is necessarily conclusive even where it is plain that the breach has in fact been remedied. The relevant obligations have to do with the sending of information rather than the underlying events, which (where relevant) are dealt with elsewhere in the terms of the Trust Deeds. In my view, GV Films has an arguable case that these breaches were remedied, and were no longer subsisting in February and March 2009 when the Bank sought to rely on them as events of default. On the facts, it is further arguable that there was no breach in relation the GDRs. Accordingly, I consider that GV Films is entitled to defend the claim on this ground.

I have held that as regards two of the three alleged Events of Default, GV Films has no real prospect of successfully defending the claim. It being common ground that the Bank need only make good one Event of Default, it follows that the Bank is entitled to summary judgment on its original claim.

I have set out above how the Bank’s alternative claim came to be pleaded. It being common ground that it only arises if the bonds were not validly accelerated, in the light of my findings on the original claim, it is not strictly necessary to reach a finding as to whether or not the Bank is entitled to summary judgment on its alternative claim. The argument was in any event a good deal briefer on this claim, but in case it should be relevant, I will express my conclusions on it.

At the time of issue, the Euro Bonds were initially only 34% subscribed (in the sum of €3,060,000). There were two ways in which the remainder could be subscribed—subject to certain conditions GV Films could call on the bondholders to subscribe by issuing an Issuer Subscription Notice under condition 2.1.1, or the bondholders could elect to subscribe by issuing a Bondholders’ Subscription Notice under condition 2.1.1. The final date upon which GV Films was entitled to call on the bondholders to subscribe the remaining 66% was 23 October 2009 (which is defined as the “Mandatory Subscription Date”). However condition 9.2.2 of the terms also provided for “Mandatory Redemption” on 23 October 2009. Condition 9.6.1 gave bondholders a put option giving the right to require the issuer to redeem the bonds on that date.

The question is as to the true construction of those provisions, in the context of the agreement as a whole. There are no commensurate provisions in the Dollar Bonds, the Bank relying on the cross default provisions in that respect. The factual background is that GV Films says that it served an Issuer Subscription Notice on 10 March 2009. Accordingly it argues that by 10 March 2009, the obligation on the part of the bondholders to pay the 66% principal amount outstanding by the Mandatory Subscription Date of 23 October 2009 or within 30 days thereof (see condition 2.2.1(b) had crystallised.

The Bank relies on the wording of condition 9.2.2 which is as follows:

“The Issuer shall redeem all the [Euro] Bonds of a holder on 23 October 2009 at their Accreted Principal Amount in the event such Bondholder has not exercised the Bondholder’s Subscription Right or Conversion Right in respect of such Bond; PROVIDED THAT, any such redemption in respect of Bonds held by defaulting Bondholders as specified in Condition 2.2.3(c) shall only be redeemed on the Maturity Date by the Issuer at the Issuer Principal.”

The Bank further relies on the put option contained in condition 9.6 of the Euro Bonds Terms and Conditions, by which each Euro Bond bondholder had the right to require GV Films to redeem all or part of such bondholder’s Euro Bonds on (among other dates) 23 October 2009. Condition 9.6.1 is as follows:

“Each Bondholder shall, subject to Condition 9.11, have the right (“Issuer Put Right”) at such Bondholder’s option, to require the Issuer to redeem all or part of such Bondholder’s Bonds on the 23 October 2009 and/or 23 October 2010 and/or 23 October 2012 (each an “Issuer Put Date”) at their Accreted Principal Amount as at the relevant Issuer Put Date (the “Issuer Put Price”).”

The Bank says that it served an Issuer Put Notice on 4 September 2009, and confirmed it on 13 October 2009. GV Films responded on 24 October 2009 by issuing a notice purporting to convert the bonds into shares, but the Bank says that this notice was invalid.

GV Films’ argument is that there are three potentially competing rights which are capable of crystallising on or before 23rd October 2009: (1) the Issuer’s Subscription Call Right under Condition 2.1.1, (2) the Mandatory Redemption under Condition 9.2.2, and (3) the Bondholder Put Right under Condition 9.6. The timing of the exercise of these rights, it is submitted, is crucial. GV Films having served an Issuer Subscription Notice on 10th March 2009, the obligation on the part of the bondholders to pay the principal amount outstanding takes precedence over any obligation on the part of GV Films to redeem under condition 9.2.2. Likewise, the Bondholder Put Right under condition 9.6.6 was not purportedly exercised until 4th September 2009. This was 6 months after GV Films exercised the Issuer Subscription Right under 2.1.1 which therefore (it is submitted) takes precedence. Any other construction it submits would lead to an absurdity.

For the Bank, it is submitted that none of the holders of the Euro Bonds have exercised the Bondholder’s Subscription Right or the Conversion Right. It follows, it is submitted, that on the plain words of condition 9.2.2, GV Films was obliged to redeem the Euro Bonds in any event on 23 October 2009, and has not done so. Its argument is simply that the condition only operates to prevent the obligation to redeem arising on 23 October 2009 where the bondholders have exercised either their subscription right or their conversion right, neither of which happened. It has sought to argue that (contrary to GV Films’ submissions) this interpretation does not entirely negate the Issuer’s Subscription Call Right under condition 2.1.1(e), because on the true construction of the provisions, there was a window after service of a notice by GV Films for the bondholders to subscribe on 23 October 2009 in which the bondholders could chose to do nothing (in which case the mandatory redemption provision would apply) or exercise their conversion right (in which case they did not have to pay up the remaining 66% in order to be entitled to convert, but became obliged to pay the 66% required by GV Films’ notice under condition 2.1.1).

How these complex and interlocking provisions fit together is on any view hard to discern. The court will readily decide construction questions on financial transactions of this kind on a summary judgment application, but it is not always appropriate to do so. The argument of GV Films on this issue is that where the issuer has validly called for the balance of the bonds to be subscribed on 23 October 2009, the agreement cannot be construed in a way that obliges mandatory redemption by the issuer on the same date. This argument applies similarly to mandatory redemption on that date by way of exercise of the Bondholder Put Right. The Bank may be correct in its interpretation of the provisions, but I do not think it can be said that GV Films has no real prospect of successfully defending on this issue. Accordingly, had it been relevant, I would have given GV Films permission to defend on the alternative summary judgment claim.

There is however a second point raised by GV Films in relation to the Bondholder Put Right which I should deal with. Condition 9.6.2 provides that:

“To exercise its rights to require the Issuer to redeem its bonds, the Bondholder must deliver a written irrevocable notice of the exercise of such right (“an Issuer Put Notice”) to the Issuer (with a copy of the Trustee and Principal Agent), in the then current form obtainable from the specified office of any Agent, together with the Certificate evidencing the Bonds to be redeemed by not later than 10 days prior to the Relevant Issuer Put Date.” (underlining added)

The purpose of the provision is clearly to ensure that if the bonds are represented by physical certificates, these are returned to the issuer, so that there is no risk of it paying twice. However Mr Jobanputra explains in his third witness statement that there never were any certificates in the case of the Euro Bonds, because they are, and always have been, held in the Clearstream System as contemplated by the condition 3.1 of the Euro Bond Terms and Conditions by which:

“The Bonds will initially be represented by the Global Certificate deposited with the Bank of New York Depository (Nominees) Limited, being a nominee for the Common Depository for Euroclear Bank SA/NV, as operator of the Euroclear System (the “Euroclear”) and Clearstream Banking société anonyme (“Clearstream, Luxembourg”). Except in the limited circumstances described in the Global Certificate, owners of interests in Bonds represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of Bonds. The Bonds shall be issuable in bearer form.”

It is common ground that the only certificate that there is in respect of these bonds is the Global Certificate deposited with Bank of New York as nominee for Clearstream. As Mr Jobanputra explains, a Global Certificate enables securities to be dealt in without the transfer of physical instruments. In such cases, the Global Certificate provides for the exercise of put options as follows:

“The Bondholder’s put options in Condition 9.4 and 9.5 may be exercised by the holder of this Global Certificate giving notice to the Principal Agent of the principal amount of Bonds in respect of which the option is exercised and presenting this Global Certificate for endorsement or exercise within the time limits specified in such Conditions.”

GV Films says that because this provision refers to put options in conditions 9.4 and 9.5, but not 9.6, it follows that the Bondholder Put Right is excluded from its ambit, with the result that the Global Certificate must be delivered to GV Films, rather than presented to the Principal Agent (which in this case is the Bank’s London Branch). In fact, the put options are contained in conditions 9.5 and 9.6, and I agree with the Bank that this is simply a mistake in the drafting of the Global Certificate, which must be intended to cover conditions 9.5 and 9.6 (condition 9.4 deals with redemption for change of control). In any event as Mr Phillips QC pointed out, there could be a number of bondholders, each exercising their rights at different times. It would not make commercial sense to construe the Bondholder Put Right as requiring delivery of the Global Certificate to the issuer, and I reject that construction of the contractual documentation. Condition 9.6.2 should be read as requiring delivery of the certificate evidencing the bonds, if there is one, but as having no application to the Global Certificate.

The Bank is entitled to summary judgment on its originally pleaded claim. I am grateful to the parties for their assistance, and will hear them as to any consequential orders.