Bank of New York Mellon v Sterling Biotech Ltd

This is an application for summary judgment by the claimant, Bank of New York Mellon, against the defendant Sterling Biotech Limited. I am not trying the action, but before I can give judgment I have to be satisfied that the claimant has shown that there is no real defence to the action.

The claimant is a professional and highly experienced trustee in relation to commercial bond issues. In this case there are bonds by Sterling Biotech, a Canadian pharmaceutical company. The terms are set out in a Trust Deed dated 15 May 2007 and are in conventional form. The issue is for $250 million and for reasons that do not matter that total sum reduced. The bonds were due to be redeemed by Sterling Biotech on 16 May 2012. The amount due at the maturity date was just over $183 million and nothing has been done by the company to redeem those bonds or pay them off. Notice of default was given on 17 May 2012. There was service of a statutory demand in India followed by a winding up petition in the Bombay High Court brought last September.

There has been a certain amount of coming and going (as one reads it from the witness statements and the skeleton arguments) and until only a day or so ago the application for summary judgment was being proceeded with on the trustee's understanding that it had sufficient holder support to oblige it to bring proceedings. The 30 percent holder who was responsible for that notified the parties on 11 April that in effect it had changed its mind and wanted an adjournment of the present hearing. The trustee is not therefore proceeding any more on that basis, but is continuing having decided that this action should be pursued in light of its obligations; crucially those at 11.27 of the Trust Deed which require that the discretion exercised by the trustee to bring proceedings will involve the trustee having regard to the general interests of the bond holders as a class and shall not have any regard to any interest arising from circumstances particular to individual bond holders.

The defendant in a defence which was not prepared by those now representing it makes a number of points. The defendant/respondent contends that the applicant has no power to pursue the proceedings because the trustee gives the applicant power to take enforcement action only where such action is in the general interest of the bond holders as a class and the evidence before the court demonstrates that the respondent has a real prospect of succeeding in showing that the steps the applicant is taking will not result in any benefit to bond holders in general. There are behind that two issues which the defendants contend should in effect be seen as (to use an old-fashioned phrase) triable issues. The first is the question of law surrounding Fitton v Holt(?). The defendant contends that on its interpretation of that case the court is in effect required to review whether the proceedings are or are not in the interests of the bond holder as a class; at least where they are, as is contended by the defendant, manifestly contrary to the general interests of the bond holders as the claimants.

The reasons put forward for the proceedings not being in the interests of the bond holder as a class relate to the fact that these proceedings are said to be part of a strategy along with two winding up petition against the respondent in the Bombay High Court. It is said that the obtaining of a substantive judgment will not be in anybody's interests as the bond holders themselves appear to recognise and that the obtaining of a judgment and possibly even a winding up order will make matters worse for the bond holders not better.

As I see it, there needs to be no trial as regards the question of law because given the facts of this case the court can proceed, on this application, on the basis that the defendant is right and the claimant is wrong. That of course is only an assumption made for the purposes of this hearing. It seems to me even if that were the case there would be no real prospect of the defendants being able to establish that the proceedings were manifestly contrary to the general interests of the bond holders as a class. The trustee has a duty to have regard to the general interests of the bond holders as a class, whether or not some bond holders, for example as in this case, have a change of view or possibly may have been bought off.

It is a recurrent theme in commercial and insolvency litigation that people unable to pay their debts warn those seeking to get repaid that the bringing of recovery action will make things worse not better. The only distinction said to arise here is that the trustees have not responded to what the defendant Sterling Biotech has to say about that. But there is a reason for that, which is that these submissions have not been put forward in any convincing detail.

Bearing in mind we have a experienced professional trustee with no axe of its own to grind, advised by solicitors of the highest standing who to my certain knowledge have experience of this area going back at least four decades, it seems to me impossible to say that the defendant's claims can be made out when all the trustees seek to do is to obtain a judgment making certain what until now has been undisputed but not explicit.

It is clear from what I have been saying that in my judgment there is virtually nothing in the defendant’s argument. However, as counsel for Sterling Biotech has said, the evidence is that 48 percent of the bond holders do not want the matter to go forward and there is no indication that a single bond holder does.

In those circumstances, it seems to me that I should adjourn this application for a short period on conditions. First, there will be a recital in the order which gives effect to this adjournment that the company has admitted, as it has through its leading counsel, that the sums are due and payable. Secondly, the defendant will within some very short period disclose to the claimant any documents relating to any arrangements which have been made between the bond holders because if there has been some buying off or if there is any evidence of buying off known to the defendant it should make that available. It does not seem to me there is a need for adjournment for more than a couple of weeks or so and on that occasion, should it be necessary, I will give a more coherent judgment than I have given so far.