Reliance Rail Pty Limited v Permanent Custodians Limited

1. [1]

   HIS HONOUR: The plaintiffs wish to refinance a very large amount of debt that they have incurred. The fundamental questions for decision are whether they are able to do so without the consent of all their creditors; and, if so, upon what conditions. If those questions are answered in favour of the plaintiffs, there are a number of subsidiary, although still very important, questions, that arise.

2. [2]

   The matter has considerable urgency. It was brought on for hearing very quickly. The parties cooperated to agree upon the issues for decision. They produced a court book that comprised the relevant documents. They furnished detailed and complex written submissions. Counsel spoke to their submissions, in some cases at length.

3. [3]

   There are no disputed factual questions to be decided. The only issues are issues of construction of the voluminous documents. To shorten both these reasons and the time needed for their production, I shall refer to Counsel’s submissions only to the extent that it is necessary to give a proper understanding of the agreed issues.

Background

1. [4]

   The plaintiffs agreed to design, manufacture, commission and make available to Rail Corporation of New South Wales 78 electric train sets for use on the Sydney rail network, and associated maintenance and other facilities. To do that, the second plaintiff (Finance) undertook to borrow, by a combination of bonds and bank debt, $2.256 billion dollars. The bonds comprised $1.8 billion dollars of “Senior Bonds” and $100 million of “Junior Bonds”. The Senior Bonds, together with the bank debt, constituted “Senior Debt”.

2. [5]

   The Senior Bonds were issued in ten tranches. The first two tranches were CPI indexed Instalment Bonds (“Instalment Senior Bonds”), which were expressed to mature on 26 December 2035. The third to tenth tranches were non-CPI indexed Bullet Bonds (Bullet Senior Bonds), which matured, tranche by tranche, over dates from 26 September 2018 to 26 September 2023.

3. [6]

   The Junior Bonds were non-CPI indexed Bullet Bonds, issued in two tranches each maturing on 26 September 2023.

4. [7]

   The Instalment Senior Bonds contained no provision for early repayment. The Bullet Senior Bonds and the Junior Bonds did contain provisions for early repayment, limited as to the time for doing so.

5. [8]

   The obligations of Finance in respect of the whole of the Debt were guaranteed by the first plaintiff (Rail) and the third plaintiff (Holdings).

6. [9]

   The documentation for the debt facility is extremely substantial and extremely complex. In the usual way of things, the documents interlock to a considerable extent. They make liberal use of defined terms. The definitions are in some cases contained within the particular document in which a defined term is used, and in other cases located in another document. It is not uncommon, when reading a clause in one document, to be required to go to two other documents to find the meaning of a particular defined term.

7. [10]

   The key documents (in the order in which they appear in the court book) are the Common Terms Deed, the Senior Intercreditor Deed, the Senior Bond Trust Deed, the Junior Bond Trust Deed, and the Pricing Supplement for each tranche of the bonds. The Pricing Supplements are given effect by the Senior and Junior Bond Conditions which form part of, respectively, the Senior Bond and Junior Bond Trust Deeds. Each Pricing Supplement sets out the specific terms applicable to the tranche to which it relates.

The parties

1. [11]

   The plaintiffs are, as I have indicated, those who are responsible, either as borrower / issuer (Finance) or guarantor (Rail and Holdings) for the Debt.

2. [12]

   The first defendant (PCL) is the trustee for Senior and Junior Bondholders. It has been appointed, pursuant to UCPR r 7.6, to represent Bondholders who are not otherwise parties to the proceedings. PCL is also the “Intercreditor Agent”. In that capacity, it is the attorney under power of each “Creditor” (the Bondholders are all Creditors).

3. [13]

   The second defendant (BNY) is the security trustee.

4. [14]

   PCL and BNY neither support nor oppose the grant of relief.

5. [15]

   The third and fourth defendants (respectively, Dexia and FMS) claim to hold an economic interest in about 45% by value of the Senior Bonds. Those economic interests are said to be held through bare trusts, referable in each case to bonds held by Austraclear Limited in its capacity as Central Securities Depository.

6. [16]

   Each of Dexia and FMS acknowledges that it is not a Creditor (nor, a fortiori, a Secured Creditor), a Senior Bondholder or a Senior Beneficiary. However, each has asserted that it may “take steps to become” a Senior Bondholder: presumably, by collapsing the bare trusts through which each holds its claimed interest.

7. [17]

   Dexia and FMS oppose the grant of relief.

8. [18]

   The fifth and sixth defendants also claim to hold substantial economic interests in the bonds. They support the plaintiffs’ claims for relief.

9. [19]

   The seventh and eighth defendants are the “Financial Guarantors” of the debt incurred by Finance pursuant to the bonds. They too support the plaintiffs’ claims for relief.

The issues in dispute

1. [20]

   Because the proceedings required an urgent hearing, the court did not require the defendants to file and serve Commercial List Responses. However, the parties were required to, and did, prepare a joint statement of issues. That statement was in five parts. The first part set out a number of definitions of terms used in it. The second part set out the issues to be decided. Those issues are framed by reference to the plaintiffs’ prayers for declaratory relief. The third part of the joint statement of issues set out the agreed facts. The fourth part set out propositions of law relied upon by the plaintiffs and the fifth part set out propositions of law relied upon by Dexia and FMS.

2. [21]

   From that document, the issues to be decided are as follows:

3. [22]

   In the result, for reasons that I explain briefly below [1] , the sixth, seventh and eighth of those issues were not pressed.

Approach to construction of commercial contracts

1. [23]

   There is no dispute as to the approach that the court must take in seeking to construe commercial contracts. The principles have been settled authoritatively in recent decisions of the High Court, including in Electricity Generation Corporation v Woodside Energy Ltd [2] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [3] . The following principles emerge from those decisions:

   1. (1)

      rights and liabilities under a contract are decided objectively, by reference to its text, context and purpose. The meaning of a provision in a commercial contract is that which a reasonable business person, with an understanding of the relevant factual matrix, would have given it. The inquiry requires consideration of the language used, the circumstances addressed by the contract and the commercial purpose or objects that it sought to achieve.

   2. (2)

      The starting point in construction is the language of the contract. Where its meaning (in the sense of legal effect) is plain, that is the meaning that it bears, and evidence of surrounding circumstances cannot contradict that meaning.

   3. (3)

      Where there are constructional choices (including because of latent or patent ambiguity), it may be necessary to have recourse to external events and circumstances, including to identify the commercial purpose or objects of the contract, or its genesis. However, that inquiry is limited to events, circumstances and other things that are objective; that were known to the parties; and that assist to identify background or purpose.

   4. (4)

      The court should seek to give a commercial contract a commercially sensible and workable meaning, based on the assumption (unless the contract itself plainly falsifies the assumption) that the parties intended to produce a commercial result by their bargain. In approaching that task, the court should seek to make all provisions of the contract work together, and should seek to avoid an outcome whereby particular provisions are deprived of any real effect.

2. [24]

   When construing the terms of a contract which is part of a series of interlocking contracts dealing with the same subject matter, the court may (and, generally, should) attempt to see how the particular contract fits into the overall scheme [4] . Again, consistency of operation is important, and if possible an approach to construction that avoids inutility should be preferred.

3. [25]

   The significance of external circumstances (assuming it is permissible to have reference to them) may vary according to the nature of the contract with which the court is concerned. In particular, where the court is dealing with a contract intended to create long-term relationships and to govern those relationships over many years, the significance of matters external to the contract is much diminished, and the language of the contract assumes even greater importance [5] . The reason is obvious: people relying on or who are affected by contracts of this kind may have only the text to guide them, and may be ignorant of external circumstances.

4. [26]

   The parties’ submissions paid careful attention to the principles that I have just outlined. They engaged in lengthy, detailed and extremely subtle textual analysis. It is well-nigh impossible to summarise those submissions, and for reasons I have indicated, undesirable to reproduce them at anything like the length that would be necessary to give a real flavour of what Counsel argued. Accordingly, in these reasons, I shall set out only the barest outline of the submissions before moving to decide the particular issue. And in deciding each issue, I shall deal with what seems to me to be the crucial point, and, so far as possible, leave unresolved the numerous alternative or subsidiary submissions on which counsel relied.

First issue: right to redeem the Senior Bonds?

1. [27]

   The first issue raises the proper construction of cl 7.4 of the Senior Intercreditor Deed, considered in the context of other relevant provisions of that deed and other documents. The issue is raised by prayer 2 of the third further amended summons, and is reflected in the joint statement of issues.

2. [28]

   Mr Darke of Senior Counsel, who appeared with Mr Lawrance and Ms Bathurst of Counsel for the plaintiffs submitted that cl 7.4 should be construed according to its terms. Those terms, he submitted, made it quite plain that the plaintiffs did have a right to refinance the Senior Debt or the Debt (as the case may be). He submitted that unless cl 7.4 were given this construction, it would be left without any real work to do.

3. [29]

   Mr Jackman of Senior Counsel, who appeared with Mr Thomas of Counsel for Dexia and FMS, submitted that cl 7.4 should not be so construed. He noted that the parties had made express provision for rights of redemption in the Senior Bond Conditions [6] , and submitted that by implication, the rights arising from or by reference to that express stipulation were the only rights of redemption that the plaintiffs should have. He submitted that it would be anomalous if a free-standing provision in a related agreement were to be construed as giving an entirely separate right of redemption.

4. [30]

   Mr Jackman sought to demonstrate that there were circumstances in which cl 7.4 could be given work to do even on his submission as to what were the limits of its operation. Mr Darke rejoined that the suggested work was illusory, and that the clause had no real function unless it was construed as he submitted it should be.

5. [31]

   Clause 7 of the Senior Intercreditor Deed deals with “Permitted Financings” (although the headings of clauses and subclauses are not to be taken into account as aids to construction, they do nonetheless indicate usefully the subject matter with which each deals). “Permitted Financings” is a defined term. The primary definition is found in the Common Terms Deed, which refers to the definition in the Senior Intercreditor Deed. The effect is that “Permitted Financing” are those permitted by cl 7 of the latter Deed.

6. [32]

   Clause 7.1 contains a “general negative pledge”. Its effect is that the “Obligors” (which include Rail, Finance and Holdings) may not incur “Financial Indebtedness” other than “Permitted Indebtedness”.

7. [33]

   Clauses 7.3, 7.4 and 7.5 set out some circumstances in which Financial Indebtedness may be “raised”. I set out cl 7.4:

8. [34]

   It is the second part of that clause – relating to “the Debt” – that is relevant. “Debt” is defined to mean both Junior Debt and Senior Debt. As a result, cl 7.4 applies to the plaintiffs’ desire to refinance the Junior Bonds as well as the Senior Bonds. Unsurprisingly, the Senior Debt includes (although it is not limited to) both the Instalment Senior Bonds and the Bullet Senior Bonds.

9. [35]

   Clause 3.2 of the Senior Bond Trust Deed required the “Borrower” (Finance) to pay in accordance with the requirements of, and otherwise to comply with the conditions of, each Senior Bond. I set out that clause:

10. [36]

    Schedule 1 to the Senior Bond Trust Deed contains the “the Senior Bond Conditions”. Clauses 1.1, 1.5 and 1.6 are of some relevance. I set them out:

11. [37]

    Clause 5 of those conditions dealt with the topic of “Redemption”. I set out that clause, so far as it is relevant:

12. [38]

    The Pricing Supplement for each of the two tranches of Instalment Senior Bonds describes them as follows:

13. [39]

    The particulars of each stated, in Item 6, that instalments were payable on 26 December, March, June and September in each year, commencing with the first instalment due on 26 December 2006; and in item 7, that the final instalment was due on 26 December 2035.

14. [40]

    Item 10 specified the way in which each instalment (said to comprise “components of interest and principal”) was to be calculated, and item 11 stated that there were to be 117 instalments (of interest and principal).

15. [41]

    Item 12 specified how the “Bond Payout Amount” for each Instalment Senior Bond was to be calculated, in the event that such a calculation was required for any purpose.

16. [42]

    The Pricing Supplements for each of the Bullet Bonds (both Senior and Junior) described the bonds as:

17. [43]

    Item 5 specified that the bonds “may be redeemed at the option of the Issuer [Finance]… in whole or in part… on the Interest Payment Date falling on 26 September [year]… and any Interest Payment Date thereafter.

18. [44]

    Item 8 specified the Interest Payment Dates, and Items 9 and 10 specified the first and final Interest Payment Dates. The date specified in Item 10 was said to be “subject to the exercise of the call option pursuant to condition 5.4 of the [Senior or Junior] Bond”.

19. [45]

    At a level of some generality, cl 7 of the Senior Intercreditor Deed is concerned with the (limited) circumstances in which the Obligors may incur Financial Indebtedness, and the purposes for which they may do so. Presumably, the parties intended cl 7.4 to have some work to do. The plain purposes of cl 7.4, as they appear from its language, are:

    1. (1)

       to give the Obligors some power to raise Financial Indebtedness;

    2. (2)

       to specify the purposes for which it might be raised; and

    3. (3)

       to specify the conditions on which it could be raised without the approval of Creditors.

20. [46]

    In a structural sense, cl 7 commences with a general prohibition. That prohibition is then followed by what were no doubt understood to be specific exceptions. Clause 7.2 deals with obligations to refinance Debt that has matured. Clause 7.3 deals with refinancing part of the Senior Debt. Clause 7.4 deals with refinancing either all of the Senior Debt or all of the Debt. Clause 7.5 sets out other circumstances in which the Obligors may refinance Senior Debt (namely, with the consent of the Intercreditor Agent).

21. [47]

    The prohibition in cl 7.1 is on “incurring” a debt whereas, in cls 7.3, 7.4 and 7.5, the permission (if that is the correct way to view it) that is given is expressed in terms of “raising” debt (and the language of “raising” debt occurs in subsequent clauses). It is not immediately obvious why, the general prohibition being on the incurring of debt, the limited exceptions should not have been specified using the same verb. Nonetheless, that is but one of the many curiosities of the documentation with which I am concerned.

22. [48]

    The next point to note, turning specifically to the language of cl 7.4 (and for present purposes, I am dealing with the second half, the refinancing of all Debt), is that the conditional permission that it gives is not simply permission to raise Financial Indebtedness. It is permission to raise Financial Indebtedness for the specified purpose. That repeats the pattern of cl 7.3 and the first half of cl 7.4. Thus, it seems to me, the words “without the approval of any Creditor” mean that the Obligors may raise Financial Indebtedness, provided they comply with the three conditions set out in the subsequent paragraphs, if they are doing so for the specified purpose, without that approval.

23. [49]

    It is more than a little difficult to understand why the Obligors would be given permission to act for that purpose, unless they were also to have the power to give effect to that purpose. I shall return a little later in these reasons to the submissions as to the utility (or lack of utility) of cl 7.4, on the opposing constructions that were advanced.

24. [50]

    Obviously enough, there would be no need to resort to cl 7.4 if all Creditors agreed to the raising of Financial Indebtedness. Thus, one would think, the parties intended the clause to have work where that consent was not forthcoming. It empowers the Obligors to proceed without consent, but only if they could satisfy the three conditions specified in paras (d) to (f).

25. [51]

    The expression “Financial Indebtedness” is defined in the Common Terms Deed. The definition is lengthy, but it is necessary to set it out:

26. [52]

    Likewise, the expression “Finally Paid” is defined, although this time (through the medium of a cross-reference given in the Common Terms Deed) in the Security Trust Deed. Again, the definition is lengthy:

27. [53]

    The defined term “Finally Paid” picks up the concept of “Secured Money”. A cross-reference in the Security Trust Deed directs one to something called the Global Deed of Security (I have not hitherto mentioned it) which sets out yet another lengthy definition:

28. [54]

    In terms, the concept of a Creditor’s being “Finally Paid” has nothing to do with Dexia and FMS, because as I have noted they are not, and do not claim to be, Creditors (either as Secured Beneficiaries or otherwise).

29. [55]

    Nonetheless, Final Payment can only occur, in respect of any Secured Beneficiary, when that Beneficiary confirms to BNY that all money owing to it “has been fully and finally repaid” and that all commitments owing to it have been “cancelled or reduced to zero” (which it agrees to do as soon as it has been paid). It follows, as a matter of common sense at least, that a Beneficiary will not be Finally Paid until everything owing to it has been paid, so that it can cancel and reduce to zero the commitments owed to it.

30. [56]

    To jump ahead for a moment: by cl 8.2 of the Common Terms Deed, the Obligors agree to indemnify each Secured Beneficiary against all manner of losses and “Costs”. The sources of the losses required to be indemnified include the early (more accurately, untimeous) repayment, redemption, discharge or payment of any scheduled payment, and specifically include amounts in respect of “break costs” (this is not a defined term, but its content is sufficiently obvious to render further explanation unnecessary).

31. [57]

    Thus, the requirement that a Creditor be Finally Paid includes a requirement that the amount of any cl 8.2 (of the Common Terms Deed) indemnity be satisfied as part of the process of final payment. It is not difficult to see that the ascertainment of the amount required to procure that any particular Creditor be Finally Paid might be both lengthy and complex.

32. [58]

    It is very difficult to see what function cl 7.4 has if it does not authorise the plaintiffs to raise money for the purpose of paying out all Debt, and to do so without the consent of Creditors if necessary. If the clause does not do that, its function is limited to the point where, in reality, it is otiose.

33. [59]

    Mr Darke submitted that cl 7.4, construed as Mr Jackman would have the court do, had no work to do. Mr Jackman submitted, initially, that the clause could operate to permit the raising of Financial Indebtedness for two purposes. The first of those purposes was to pay everyone when repayment of the Debt had been accelerated (presumably, on default). The second was to repay residual long-term Debt once (for example) the Bullet Bonds and bank loans had been repaid.

34. [60]

    The obvious point, as to the former suggested purpose, is that if Creditors had accelerated repayment of the Debt, they would hardly be likely to withhold consent to the raising of Financial Indebtedness to enable repayment to happen. And as to the second suggested purpose, as Mr Jackman accepted [7] , consent would still be required unless all the Debt had matured. If consent is required then the clause does nothing more than recognise the simple fact that parties to a contract may vary it; at the most, the contract being under seal, the variation might likewise need to be under seal. As Mr Jackman agreed [8] , “you don’t need cl 7.4 to tell you that”.

35. [61]

    At one point, I think, Mr Jackman seemed to accept that the clause might lack utility [9] :

36. [62]

    Mr Jackman returned to the topic of utility a little later in his submissions. He noted, correctly, that there were some tranches of the bank debt that could be repaid early without consent. Nonetheless, he submitted, it would be open to those banks to withhold their consent to the raising of Financial Indebtedness for the purposes set out in cl 7.4 (and this applies to either part of that clause). Thus, he submitted, cl 7.4 was intended to overcome the possibility that the holders of repayable tranches of debt might use their position to frustrate a refinancing of either all Senior Debt or all Debt.

37. [63]

    The short answer to that submission appears to me to be that if this were what the parties had intended to achieve, cl 7.4 was an extraordinarily prolix and complex way of doing so, and very fewer words could have been used with much less elaborate ceremony. I accept, as Mr Jackman submitted, that the presumption against surplussage is not strong, particularly when one is considering lengthy interlocking commercial contracts (see Big River Timbers Pty Ltd v Stewart [10] ). Nonetheless, the simplicity and extremely limited application of the suggested utility do not sit at all easily with the complexity of the drafting employed.

38. [64]

    Of course, as Mr Jackman submitted, the proposition that a contractual provision lacks utility is the end, not the beginning, of the process of construction. Equally, however, in attempting to ascertain the meaning of a contractual provision by a process of construction, the court should attempt to arrive at a construction which does give the provision meaning and effect.

39. [65]

    I accept that the Senior Bond Trust Deed contains, in cl 5 of Schedule 1 (the Senior Bond Conditions) detailed provisions relating to redemption; specifically, in cl 5.4, early redemption at the option of “the Borrower”. However, that provision for early redemption is only available, in respect of any particular tranche, where the Pricing Supplement for that tranche says so.

40. [66]

    I accept also that, as was submitted for Dexia and FMS, there is no general right to prepay and redeem a security unless the contract says so. That point was made by Mason J (with whom Barwick CJ and Gibbs, Stephen and Aickin JJ agreed) in Hyde Management Services Pty Ltd v FAI Insurances Ltd [11] . The relevant provisions of the documents with which I am concerned must be construed against the background of that position under the general law. However, I do not regard that as dispositive.

41. [67]

    In my view, the documents create, relevantly (I omit reference to or consideration of cls 7.3 and 7.5 of the Senior Intercreditor Deed), three separate rights of redemption.

42. [68]

    The first relevant right, is the specific right to redeem all or part of tranches of the Bullet Bonds, upon the conditions set out in cl 5.4 of the Senior Bond Conditions (there was an equivalent provision relating to the Junior Bonds). That clause, read in conjunction with Item 13 of the Pricing Supplements, states the conditions on which redemption might be effected and how the price to be paid upon redemption is to be ascertained.

43. [69]

    The second and third relevant rights are those given by cl 7.4 of the Senior Intercreditor Deed. One is concerned with the refinancing of all Senior Debt. The other is concerned with the refinancing of all Debt. Again, the clause specifies in each case both the conditions on which that refinancing may be effected and (through the complex and interlinked chain of definitions) how the amount to be paid must be ascertained.

44. [70]

    The position of Creditors is protected in two ways. First, a cl 7.4 refinancing can only occur if they are paid everything owing to them, including any amount owing by reason of the indemnity (which in turn includes a wide variety of items of “loss, liability and costs” and extends to “break costs”). The second protection is that any restrictions upon redemption attaching to any tranche of Debt must have been “satisfied or waived”. In that way, the first issue is linked to the second. A conclusion that a right to refinance exists does not mean that it can be exercised. It is to the relevant conditions – specifically, that in para (f) – that I now turn.

Second issue: conditions on which redemption may be effected

1. [71]

   It is tempting to resolve this issue by saying that the conditions are those specified in paras (d) to (f) of cl 7.4. However, that answer does not deal with the real dispute between the plaintiffs on one hand and Dexia and FMS on the other, which was as to para (f). Specifically, the dispute was whether the bonds in question (being the two Instalment Senior Bonds and the eight Bullet Senior Bonds) had restrictions upon their redemption.

2. [72]

   The real debate concerned the requirement, in para (f), for any “restriction upon… redemption” to be “satisfied or waived”. Mr Jackman submitted that there were restrictions on redemption, arising from:

   1. (1)

      the general law position as to absence of any right to redeem early absent express contractual provision;

   2. (2)

      the absence of any express permission in relation to the Instalment Senior Bonds, coupled with the requirement to repay principal and interest by 117 instalments over 29 years; and

   3. (3)

      the limited right of redemption in respect of the Bullet Senior Bonds, coupled with the requirement to pay interest on the specified dates up until the earlier to occur of redemption pursuant to the call option or the maturity date of the bonds.

3. [73]

   Mr Darke submitted that those provisions of the bonds did not constitute relevant restrictions on redemption. He pointed to the fact that the whole purpose of cl 7.4 (as the plaintiffs said it should be construed) was to enable the plaintiffs to repay all the Senior Debt or all the Debt (as the case may be) without the approval of any Creditor.

4. [74]

   Whichever way one approaches the problem, strange consequences result. I start by observing that there is some internal tension in cl 7.4 (focusing only on the second part – the chapeau to paras (d) to (f), and those paragraphs). The chapeau authorises the refinancing of all Debt “without the approval of any Creditor” if the three specified conditions are met. However, the third of those conditions (para (f)) itself contemplates that there may need to be “the need for an approval from a Creditor”, to the removal of “a restriction upon… redemption”, before the Obligors can refinance.

5. [75]

   The Senior Intercreditor Deed forms part of a complex web of interlocking documentation. The parties must have been aware of the provisions of all the documents by way of which the capital raising was effected. Thus, they must have been aware that the bonds to be issued comprised:

   1. (1)

      Instalment Senior Bonds, the Pricing Supplements for which included no provision for early redemption and contained a requirement for amortisation by payment of the specified number of instalments of principal and interest over the specified period of years; and

   2. (2)

      Bullet Bonds, both Senior and Junior, which had only a limited right of early redemption and which otherwise required the payment of interest on the specified dates up until maturity.

6. [76]

   Thus, the parties must be taken to have understood that the consent of Bondholders to early redemption would be required (with the exception, in the case of the Bullet Bonds, of redemption pursuant to the call options exercisable in the last two years of their respective terms).

7. [77]

   I should note that there was a most arcane debate as to the order of priority between the terms of the Senior Intercreditor Deed and the terms of the Senior Bond Trust Deed. Clause 1.5 of the latter provided for an order of priority of interpretation that made no reference to the former (and the same applies, with appropriate changes, to the Junior Bond Trust Deed). So far as I was taken to them, every other transaction document contains an order of priority that gives the Senior Intercreditor Deed paramountcy.

8. [78]

   Mr Darke submitted that the omission of this provision from the Senior and Junior Bond Trust Deeds was inadvertent, and could be cured by a process of construction (relying on authorities such as Fitzgerald v Masters [12] and Bank of Queensland v Chartis Australia Insurance [13] ). Mr Jackman submitted that the absence of reference to the Senior Intercreditor Deed in the priority provisions of the two Bond Trust Deeds could not be said to be inadvertent; and that construing those deeds to insert, or as if they contained, that reference went beyond anything authorised by the authorities on which Mr Darke relied. It is not necessary to resolve that debate, particularly since neither Mr Darke nor Mr Jackman contended that its resolution one way or the other would have any dispositive effect.

9. [79]

   If cl 7.4(f) is construed as Dexia and FMS submit it should be, the result must be to render meaningless the “right” to refinance by raising Financial Indebtedness without approval. That is so, because any holder of Instalment Senior Bonds, or of Bullet Bonds where the call option had not become exercisable, could prevent any refinancing simply by refusing their consent to redemption. In circumstances where the parties must have understood that, because of the nature of the bonds, a refinancing could not proceed unless they were redeemed early, that would be a surprising outcome.

10. [80]

    The solution, so it seems to me, is to read the words “restriction upon its redemption” in para (f) as referring only to a positive restriction – a restriction imposed by the express language of a relevant Debt Financing Document. So read, they would not extend to catch a negative restriction – one implied from the pre-existing state of the law coupled with the absence of an express right to redeem. Thus, in para (f), the example of a “restriction” appearing from the words “the need for approval from a Creditor” should be read not to extend to approval to the early redemption of bonds held by that creditor, in circumstances where there is no positive or express statement of a prohibition on early redemption.

11. [81]

    I accept that this process of construction involves some rewriting of cl 7.4(f). However, the alternative is to conclude that the parties gave the Obligors a right to proceed “without the approval of any Creditor”, and then gave any Bondholder Creditor the power to frustrate the exercise of that right. In circumstances where the vast bulk of the Debt – in excess of 84% – comprised bonds, and where all those bonds (on Mr Jackman’s submissions) imposed restrictions on early redemption, that would be a most unbusinesslike outcome.

12. [82]

    It follows, in my view, that the conditions to be satisfied, in order for the Obligors to be entitled to refinance the Debt without approval, do not include a requirement that Dexia and FMS consent to the early redemption of the bonds in which they claim an equitable interest, or that those who hold the legal interest in those bonds give such a consent.

Third issue: what must be paid upon a cl 7.4 refinance?

1. [83]

   It is common ground that, if early refinance is permitted (and I have concluded that it is), the amount payable includes at least:

   1. (1)

      in the case of Instalment Senior Bonds, their Par Amount as defined (it is not necessary to go to the definition);

   2. (2)

      in the case of Bullet Senior (and Junior) Bonds, their outstanding principal plus any accrued but unpaid interest at the date of redemption; and

   3. (3)

      in each case, any other Redemption Amount specified in or determined in accordance with the relevant Pricing Supplement.

2. [84]

   The question dividing the parties is whether, in addition, any amount owing by way of indemnity under cl 8.2 of the Common Terms Deed must be paid.

3. [85]

   Mr Darke submitted that the only amounts payable are the amounts required to redeem the bonds; those amounts referred to at [83] above. He submitted that nothing would be payable under cl 8.2 until demand were made either by PCL acting as Intercreditor Agent or by any other Secured Beneficiary. Mr Darke submitted that this would not leave the Bondholder without remedy, because it would still have access to its security for the purpose of enforcing payment of any indemnity amount that might be demanded.

4. [86]

   Mr Jackman submitted that, because cl 7.4(d) (of the Senior Intercreditor Deed) contemplated that all Creditors would be Finally Paid upon the first raising of Financial Indebtedness that cl 7.4 authorised, it was necessary, as well, that any cl 8.2 (of the Common Terms Deed) indemnity amount be paid.

5. [87]

   It is convenient to point out now that the Common Terms Deed included a clause, 1.7, dealing with “Priority of Interpretation”. The Senior Intercreditor Deed was to be paramount in the event of any inconsistency; two other documents were then specified; and the Common Terms Deed was fourth in order. Thus, to the extent that there is any inconsistency between the Senior Intercreditor Deed and the Common Terms Deed (or any other agreement that is relevant for the purposes of the third issue), the terms of the Senior Intercreditor Deed must prevail.

6. [88]

   I set out cls 8.2 and 8.3 of the Common Terms Deed:

7. [89]

   The operation of cl 7.4(d) must require, at least as a matter of practicality, that all Creditors be “Finally Paid” at the same time when the “Financial Indebtedness” is first raised. I have set out the definition of “Finally Paid” at [52] above, and the definition of “Secured Money” at [53] above.

8. [90]

   The Global Deed of Security defines “Chargor” to include each of the plaintiffs individually; together; in their own rights; and in their capacities (where applicable) as trustees of trusts.

9. [91]

   It seems to me to follow necessarily that no Creditor will be Finally Paid until, among other things, all amounts that are payable, owing but not currently payable, contingently owing, unpaid, or reasonably likely in the future to fall within any of those categories have been paid [14] . Amounts that may become payable under the cl 8.2 indemnity must fall within the definition of amounts contingently owing, or reasonably likely in the future to be contingently owing, by the Obligors, to any Creditor who is a Secured Beneficiary. Secured Beneficiaries include Senior and Junior Creditors [15] , and thus include anyone other than an Obligor who makes Financial Indebtedness available to the Obligors in respect of the bonds issue and bank debt [16] .

10. [92]

    I accept that an Obligor has no obligation actually to make a payment under the cl 8.2 indemnity unless and until demand is made. However, when one takes into account the very wide definition of Secured Money, it is not necessary that demand should have been made for an amount that would become owing on demand, or that could foreseeably become due on demand, to count towards Secured Money.

11. [93]

    I referred earlier [17] to what I said was the practical effect of cl 7.4(d). That clause requires the amount of the Financial Indebtedness raised to be sufficient to ensure that all Creditors are Finally Paid at the same time. It may be that, as Mr Darke submitted, the clause does not expressly state that the money must be so applied; that all Creditors must in fact be Finally Paid when the Financial Indebtedness is first raised. But it seems to me that that is the inevitable effect of the clause.

12. [94]

    One of the requirements to be satisfied before it can be said that a Creditor (at least, a Creditor who is a Secured Beneficiary) is Finally Paid is that the Creditor should confirm to the Security Trustee that all the Secured Money owing to it has been fully and finally repaid. It is unlikely in the extreme that a Secured Beneficiary would give any such written confirmation unless the payment had been made (and made “fully and finally”). No doubt, this could happen as part of an exchange of documents for cash upon settlement. Nonetheless, as a matter of practicality at least, the state of being “Finally Paid” cannot exist unless payment in full, finally and in fact has been made.

13. [95]

    It follows, in my view, that in addition to the amounts that, it is common ground [18] , are required to be payable upon a cl 7.4 refinance of the total Debt (assuming, against Dexia and FMS, that cl 7.4 does so operate), any amounts that are payable by way of indemnity pursuant to cl 8.2 of the Common Terms Deed must be paid as part of that refinancing.

14. [96]

    Mr Jackman submitted that this was an “unsurprising” and commercially sensible outcome. He submitted that if there were to be a refinancing, all Creditors must be paid everything owing to them as part of that refinancing, so that they would not be “exposed to the credit and counterparty risk that otherwise may arise…” [19] . I agree.

Fourth and fifth issues: Bullet Junior Bonds

1. [97]

   These issues raise the same questions of construction, vis à vis the Bullet Junior Bonds, as were raised by issues 1 and 2 vis à vis the Bullet Senior Bonds. There is no discernible difference in the relevant documentation. It follows in principle that these issues should be answered in the same way as issues 1 and 2 were answered.

2. [98]

   No Junior Bondholder sought to make submissions at the hearing. As I have noted [20] , PCL has been appointed to represent Junior Bondholders. PCL did not put submissions in opposition to the grant of declaratory relief. It may therefore be said that there was no true contradictor to the plaintiffs’ prayers for declaratory relief in respect of the Junior Bonds. The evidence satisfies me that the Junior Bondholders have been notified of the proceedings, including as to the relief claimed in respect of the Junior Bonds, and have had an opportunity to appear and put submissions should it be desired.

3. [99]

   In those circumstances, and bearing in mind that the issues of construction are essentially the same (with appropriate changes to references to documents) as those raised by issues 1 and 2, I think it safe to proceed upon the basis that the submissions put for Dexia and FMS upon issues 1 and 2 should be taken as stating all that could be put in opposition to the grant of the declaratory relief that underpins issues 4 and 5. In saying that, I should make it clear that the submissions for Dexia and FMS were restricted to the issues that concern them, and expressly eschewed any submission on the relevant contractual terms relating to issues 4 and 5.

Sixth, seventh and eighth issues

1. [100]

   These issues, and the underlying prayers for declaratory relief, were not pressed. In part (as to the sixth issue), that reflected the acceptance by Dexia and FMS that they are not Secured Beneficiaries, are not Senior Bondholders (in each case, as defined in the documents) and thus not presently able to make any claim on the cl 8.2 indemnity [21] .

2. [101]

   As to the seventh and eighth issues, Mr Darke accepted that they were not presently ripe for determination. He had sought, in effect by way of preliminary discovery, production of documents from Dexia and FMS that, he said, were necessary to give content to those issues. In the result, bearing in mind the urgency with which a decision is required, the relevant parties (the plaintiffs, Dexia and FMS) took the view that the summons could be dismissed so far as the underlying prayers for relief were concerned, on the basis that Dexia and FMS would not submit that any estoppel (including “Anshun” [22] estoppel) would be raised against the plaintiffs should they later agitate the same prayers for relief [23] .

Ninth issue: amendments to cl 8.2 of the Senior Intercreditor Deed

1. [102]

   Clause 8 of the Senior Intercreditor Deed deals with amendments to the Debt Financing Documents. Clause 8.2 deals with “Permitted Amendments”. The plaintiffs wish to amend cl 8.2 to achieve two purposes:

   1. (1)

      to remove their liability to pay what may be called, with sufficient accuracy for present purposes, amounts that in the event of a refinancing could be described as “break costs”; and

   2. (2)

      to ensure that someone who only becomes a Secured Beneficiary after 19 July 2017 has no right of indemnity, in the event of a refinancing, for any break costs incurred (again, inaccurate but sufficient).

2. [103]

   The text of cl 8.2 and the proposed cl 8.2A, showing both the existing text and the amendments (indicated in the usual way by striking-through and underlining) that the plaintiffs wish to make, is as follows:

3. [104]

   Leaving aside the requirement for approval of the Intercreditor Agent, the power of amendment given by cl 8.2 requires “the instructions of the Relevant Majority”. That term is defined in the Senior Intercreditor Deed as follows:

4. [105]

   Although that definition itself is replete with defined terms, I do not think that it is necessary to go to any further definitions; the effect is clear enough.

5. [106]

   The questions argued were, in very broad outline:

   1. (1)

      whether there was an issue to be quelled by the grant (or refusal) of declaratory relief;

   2. (2)

      whether it was appropriate to grant declaratory relief in the absence of all Secured Beneficiaries; and

   3. (3)

      whether, as a matter of substance, the plaintiffs were entitled to the relief sought.

6. [107]

   The second question disappeared at the end of the hearing when, at the request of the plaintiffs and without opposition, I ordered that PCL be appointed to represent the interests of all Secured Beneficiaries who were not otherwise parties to the proceedings. I made that order because, among other things, I was satisfied that all potentially affected Senior Beneficiaries had been notified of the proceedings and the issues, and had not sought to intervene to argue to the contrary of the plaintiffs’ position in respect of the ninth issue.

7. [108]

   The first and third questions turn on the ability of the Financial Guarantors to give instructions on behalf of Creditors. That directs attention to cl 3.2 of the Senior Intercreditor Deed. So far as it is relevant, that clause reads:

8. [109]

   Nothing turns on cl 2.7 for present purposes.

9. [110]

   In case it is not clear from cl 3.2, cl 3.1 makes it obvious that Financial Guarantors are the Controlling Parties only for Debt to which their Financial Guarantees apply. It is not necessary to set out cl 3.1.

10. [111]

    Mr Jackman submitted that the plaintiffs had neither pleaded nor proved that the Debt constituted by the cl 8.2 (of the Common Terms Deed) indemnity was Debt to which the Financial Guarantees applied. On the contrary, he submitted, it was plain that the two Financial Guarantees that were in evidence (those given by the seventh and eighth defendants) did not apply to any cl 8.2 indemnity amounts.

11. [112]

    Thus, Mr Jackman submitted, the issue was not factually ripe for determination.

12. [113]

    Mr Jackman submitted further, that a declaration ought not be made because it raised part only of a wider issue, and thus was in effect incomplete. He noted that the plaintiffs had sought initially to amend to seek blanket declarations as to the power of the Financial Guarantors and PCL as Intercreditor Agent to make the direction and give the consent that the plaintiffs sought. Leave to do that was refused. Leave was given only to raise issue 9. That is to say, the leave was limited to what might be called the “unanimous decision” question. Mr Jackman submitted, in effect, that the amendment issues ought not be dealt with piecemeal.

13. [114]

    Alternatively, and going to the merits of the proposed declaration, Mr Jackman submitted that the Relevant Majority required a Unanimous Decision. Thus, he submitted, even if the court were to deal with the merits of the proposed declaration, it should be refused.

14. [115]

    As to the first point, Mr Darke submitted that the area of dispute was clearly marked out. He accepted that the Financial Guarantors did not guarantee so much of the Debt as constituted amounts (if any) payable under the indemnity in cl 8.2 of the Common Terms Deed. However, he submitted, that did not matter. What was at stake was the power of the Financial Guarantors to give instructions on behalf of the Creditors whose Debt they guaranteed.

15. [116]

    In those circumstances, Mr Darke submitted, there would be utility in dealing with the question even though it would leave for a later day the remaining issues relating to the proposed amendment, leave to raise which had been refused.

16. [117]

    As to the merits, Mr Darke submitted that a Unanimous Decision was not required. That was so, he submitted, because the changes would not come within cl (a)(iii)(B) of the definition of Relevant Majority.

17. [118]

    In my view, it is not appropriate to entertain the application for declaratory relief. I agree with Mr Jackman’s submission that the plaintiffs have neither pleaded nor proved the factual basis on which they say the Financial Guarantors have the authority to give the relevant instruction. It is necessary for those matters to be pleaded and proved, to understand both how (if at all) the power of amendment arises and what are the precise factual circumstances in which (if it does) it arises.

18. [119]

    I have said already that “Debt” includes amounts that are or may become due under the indemnity contained in cl 8.2 of the Common Terms Deed. In my view, that conclusion reinforces the proposition that, to give proper content to the relief that is the subject of the ninth issue, all material facts must be pleaded and proved.

19. [120]

    That is enough to dispose of the ninth issue. However, it is appropriate to record my tentative conclusion that in any event a Unanimous Decision would be required. There are two reasons for this. The first is that I find it very difficult to understand to understand how the proposed changes would not fall within paragraph (a)(iii)(B) of the definition of Relevant Majority. The second is that even if they did not, the width of para (a)(ix) of the definition could catch them. Whether or not that proves to be the case could well turn upon, among other things, the facts proved that are said to ground the issue that the declaration is proposed to quell.

20. [121]

    It follows that the declaration the subject of the ninth issue, which is the declaration sought by prayer 4D of the third further amended summons, ought not be made.

Conclusion and orders

1. [122]

   The plaintiffs succeed, to the extent that I have indicated. The parties should bring in short minutes of order to give effect to these reasons.

2. [123]

   That leaves the question of costs. My present view is that each party who seeks some order as to costs should serve and provide to my Associate within some time to be limited written submissions setting out the orders sought and the reasons why they are sought, and that submissions in reply should be served and delivered to my Associate within some further time to be limited. Thereafter, my present view is that questions of costs should be decided on the papers.

3. [124]

   I direct the parties to bring in short minutes of order to give effect to these reasons, and stand the proceedings over to Monday 28 August at 10:00am before me for the making of orders. If the parties are able to agree before then on the form of orders to be made, they may approach in chambers.