(back to preceding text)

    32.  The third premise must be accepted. Indeed, on 7 January 2005 Elektrim served on the Trustee a Notice of Arbitration that (a) challenged the Trustee's declaration that the suspension of Mr Rymaszewski, as well as certain other subsequent events, constituted Events of Default; (b) claimed a declaration that the Trustee was not entitled to accelerate the Bonds on the basis of any of these alleged Events of Default; and (c) claimed damages in respect of, among other things, the Trustee's declarations of Events of Default.

    33.  As to the fourth premise, your Lordships have no means of judging, any more than had the Vice-Chancellor or the Court of Appeal, the extent of the risk that a tribunal of fact, whether a court or an arbitrator, might disagree with the conclusions of Peter Smith J and hold that the suspension of Mr Rymaszewski did not constitute an Event of Default and that a valid notice of acceleration in reliance on the suspension as an Event of Default could not be given. The Trustee is entitled under Condition 12 to be "indemnified to its satisfaction" before it gives the notice of acceleration and, unless it is certain that a challenge by Elektrim to the validity of the notice would fail, the Trustee is entitled to be indemnified on the footing that the challenge might succeed. I would, therefore, be prepared to accept the fourth premise.

    34.  The issue, however, is what, on a worst case scenario, the consequence of a successful challenge by Elektrim to the notice of acceleration might be. It is common ground that the Trustee is entitled to an indemnity at least sufficient to cover the legal costs incurred by the Trustee in an unsuccessful defence of the notice. Your Lordships have not been addressed as to the sufficiency for that purpose of the indemnity that has already been offered by Concord. The critical issue is whether the Trustee is at risk not simply of incurring a liability in costs but also of a liability to Elektrim in damages for loss caused by the giving of an invalid notice. It is, or should be, common ground that the Trustee cannot reasonably insist on an indemnity to cover the latter risk unless the risk is more than a merely fanciful one.

    35.  The Trustee's printed case, expanded upon by Mr Howard in his submissions to your Lordships, identified four possible causes of action in damages that might face the Trustee. These were:

(i) breach of an express or implied term of the contract;

(ii) breach of a tortious duty of care;

(iii) conspiring with the bondholders to cause Elektrim injury by unlawful means; and

(iv) interfering by unlawful means with Elektrim's business.

I must deal with each of these suggested causes of action in turn but in relation to each it is necessary to keep in mind that the Trustee does not have to, and does not, contend that the cause of action would lie. The Trustee simply contends that it is reasonably arguable that the cause of action might lie. I agree that that is the correct approach.

    36.  Breach of contract: The act that would have to constitute the breach of contract is the giving of an invalid notice of acceleration, or, perhaps, having regard to the claims apparently made in the arbitration, the unjustified assertion of the occurrence of an Event of Default. There is nowhere in the Trust Deed any express undertaking by the Trustee not to do either of those things. So a suitable implied term would have to be read into the Trust Deed.

    37.  Various tests for the implication of terms into a contract have been formulated in various well-known cases. In particular, a term will be implied if it is necessary to give business efficacy to the contract (The Moorcock [1889] 14 PD 64 at 68). The proposed implied term cannot satisfy this test. The Trust Deed works perfectly well without the implied term. It is open to Elektrim to challenge the existence of an alleged Event of Default or the validity of a notice of acceleration. If the challenge succeeds neither the alleged Event nor the invalid notice will be of any contractual significance. I am in respectful and complete agreement with Jonathan Parker LJ on this point (see para.71 of his judgment). The implied term is not necessary to give business efficacy to the Trust Deed. Nor are any of the other tests that have from time to time been formulated for the implication of terms into a contract any more apt. In my opinion, it is not reasonably arguable that the unjustified assertion by the Trustee of an Event of Default or the giving by the Trustee of an invalid notice of acceleration exposes the Trustee to the risk of being found liable in damages for breach of contract.

    38.  Negligence: The relationship between Elektrim and the Trustee is a contractual one. If there is no contractual duty of care owed by the Trustee to Elektrim in relation to the assertion of an Event of Default or the giving of a notice of acceleration, and in my opinion there is not, I find it very difficult to understand how it could be arguable that the Trustee owed a tortious duty of care. But, in any event, an action against the Trustee for damages based on a breach by the Trustee of a tortious duty of care would, in my opinion, be hopeless. Peter Smith J held that the suspension of Mr Rymaszewski was a breach of Condition 10(d) that was "materially prejudicial" and that the Trustee was entitled to certify to that effect "without any further enquiry or investigation". The Trustee did so. The Trustee's obligation to give the notice of acceleration thereupon (subject to the indemnity point) arose. In these circumstances it is not remotely arguable that the Trustee's actions in declaring there had been an Event of Default and giving the notice of acceleration could be categorised as negligent.

    39.  Conspiracy to cause Elektrim injury by unlawful means. This tort was not raised in either of the courts below as a possible vehicle for a damages claim by Elektrim against the Trustee. Your Lordships do not, therefore, have the advantage of knowing what the Court of Appeal would have thought about the proposition. In my opinion, however, the possibility of the Trustee being found liable in damages in a conspiracy action can properly be described as fanciful. First, the tort of conspiracy requires proof of an intention to cause injury to the victim. No such intention could be suggested here. It is evident that the Trustee's concern has been to discharge its obligations to the bondholders. It went to Peter Smith J to elucidate what the extent of its obligations were. To categorise its conduct in following through the conclusions of Peter Smith J as conduct done with the intention of causing injury to Elektrim seems to me grotesque. Moreover, there is the problem of "unlawful means". What are the "unlawful means" that the Trustee will have employed? Mr Howard's answer is that the giving of an invalid notice of acceleration might be held to constitute "unlawful means" notwithstanding a bona fide belief by the Trustee in the validity of the notice. This proposition, too, I would reject as unarguable. A landlord, in the bona fide belief that his tenant has committed a breach of covenant, may give notice to the tenant to remedy the believed breach and, if the notice is not complied with, may serve a forfeiture notice and institute proceedings for possession. The tenant can challenge the forfeiture and deny that any breach of covenant has occurred. This challenge may succeed. But I have never heard it suggested that the bona fide giving of the invalid notice could, without more, found a cause of action against the landlord for one of the economic torts. I would reject as unarguable the contention that Elektrim could get off the ground a claim for damages against the Trustee based on the conspiracy tort.

    40.  Interference by unlawful means with Elektrim's business: The objections to this tort are much the same as those I have referred to when considering the conspiracy tort. The giving by the Trustee of a notice of acceleration believed by the Trustee to be valid could not, in my opinion, constitute unlawful means. An invalid notice to quit served by a landlord in the bona fide belief that it is valid does not, in my opinion, expose the landlord to a cause of action in tort for interference by unlawful means with the tenant's business. Nor here.

    41.  Mr Howard's written Case (para.80) placed reliance on statements to the contrary which he said were to be found in leading textbooks on banking law.

    (1)  Paragraph 3404 of Butterworths Encyclopedia of Banking Law is headed "Wrongful acceleration and cancellation". The text reads

"Where the bank wrongfully cancels a facility, the bank may be liable in damages … The borrower may ignore the acceleration. However, if the acceleration is public, the bank may be liable for substantial damages …"

This passage does not assist. It is dealing with a case where the bank had entered into a contractual commitment to allow a certain level of borrowing. If, in breach of that commitment, the bank withdraws the facility the bank is, of course, at risk of liability in damages for breach of contract.

(2)  Chapter 11 of Commercial Law and Commercial Practice (2003) discusses Material Adverse Change Clauses (MAC clauses). The author, Professor Richard Hooley, refers at page 307 to the situation in which an MAC clause is invalidly invoked:

"What if the bank relied on the MAC clause, refused to lend or declared an event of default, and was later held to have got it wrong?"

At page 327, Professor Hooley makes this comment:

"… the Bank may rely on the MAC clause to declare an event of default, terminate its commitment to make further advances and accelerate repayment of the loan. In each case, should the bank get it wrong, and find itself in breach of the loan agreement, it will be liable to the borrower for such damages as are necessary to put the borrower in the position that it would have been in if the advance had been made or continued within the terms of the agreement. There is a risk that substantial damages may be awarded against the bank."

Just so. The author is speaking of a contractual liability where the acceleration, the withdrawal of the facility, deprives the bank's customer of a borrowing facility to which the customer has a contractual entitlement. This goes nowhere towards establishing a tortious liability.

(3)  Finally, reference is made to the International Law Financial Review (1998) where the following passages are to be found:

"The MAC event of default can have more serious consequences for a borrower, because it permits lenders to terminate lending commitments permanently and to accelerate the maturity of loans" (p 17)

and

"For the lenders, an incorrect determination under some circumstances could result in a large damage award" (p 19)

Here, too, it is clear that the author is referring to a damages award for breach of a contractual lending commitment.

    42.  None of these academic authorities advances the Trustee's case that it is at risk of a successful tort claim by Elektrim. Indeed the reverse is the case. If any of the learned authors had thought that the invalid invocation of an MAC clause might give rise to a tortious claim in damages by the borrower against the bank, or other lender, it is to be expected that there would have been some mention of such a claim. But there is none.

    43.  In my opinion, it is not reasonably arguable that the giving by the Trustee of a Condition 12 notice of acceleration based upon the Event of Default held by Peter Smith J to have been constituted by the suspension of Mr Rymaszewski could give rise to a tortious cause of action in damages by Elektrim against the Trustee. I would, therefore, dismiss the Trustee's cross-appeal.

    44.  In considering the possibilities of a tortious claim in damages by Elektrim against the Trustee I have been assuming that the proper law of the tort would be English law. This seems to me a realistic assumption for clause 29.1 of the Trust Deed and Condition 19 of Bond Terms say that the Trust Deed and the Bonds are governed by English law. It was suggested by Mr Howard, rather faintly I think, that a tort claim might be governed by the law of a foreign country in which Elektrim had suffered the damage. He had Poland particularly in mind as Elektrim SA and Elektrim Finance are Polish companies and carry on business in Poland. Mr Howard said that the civil liability of the Trustee to Elektrim under the Polish law of tort might be quite different from its liability, or non-liability, under English law and suggested that it was reasonable for the Trustee to seek an indemnity against the uncertainties of an action brought against it in Poland. The Trustee's fear of liability under the law of Poland, or some other foreign law, was not mentioned at all in the courts below. No evidence at all was adduced as to the causes of action in damages that might under Polish law or any other foreign law be available to Elektrim. I quite accept that the Trustee could not be expected to show that a cause of action in damages under some identified foreign law would clearly lie but it could at least be expected to show sufficient differences between the foreign law and English law to give some substance to the expressed fear that such a cause of action might lie. In the circumstances, and in the absence of any evidence to the contrary, your Lordships are, in my opinion, bound to presume that there is no significant difference for present purposes between the law of Poland, or the law of any other country in which Elektrim might suffer damage, and the law of England.

    45.  In the result I would allow Concord's appeal, set aside paragraphs 2 to 4 of the order of the Court of Appeal and declare that the Trustee (subject to receiving a satisfactory costs indemnity) is forthwith obliged to give a Condition 12 notice to Elektrim that the Bonds are accelerated. If there is any outstanding issue as to the costs indemnity to which the Trustee is entitled, the parties must apply at first instance. The parties may make written submissions as to the costs in the courts below and before your Lordships.

LORD WALKER OF GESTINGTHORPE

My Lords,

    46.  I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Scott of Foscote. I am in full agreement with it. I too would allow the appeal, dismiss the cross-appeal and make the order which Lord Scott proposes.