While English courts have wide powers to give guidance to trustees, they’re generally reluctant to exercise their discretionary jurisdiction to make a declaration unless there’s a real dilemma requiring their intervention.
The recent High Court decision in The Bank of New York Mellon, London Branch v Essar Steel India Limited  EWHC 3177 is consistent with this trend, and might prompt corporate trustees to tread more carefully when applying for declaratory relief
The Declarations Sought by the Note Trustee
The Bank of New York Mellon, London Branch (the note trustee) recently sought declarations in Part 8 proceedings as to the amounts due and payable by Essar Steel India Limited (the issuer) under certain US$ notes (the notes).
The notes and the relevant trust deed were governed by English law. The issuer was subject to ongoing insolvency proceedings in India and took no part in the present proceedings. Even though the issuer was in default under the notes, there was no dispute as to the terms of the trust deed or the issuer’s obligations under the trust deed.
The note trustee sought declarations confirming that a total of more than US$31 million was due and payable by the issuer under the notes.
The Court Was Not Prepared to Make the Declarations Sought
The judge briefly considered three preliminary questions prior to dealing with the substantive matter in the case:
- Did the note trustee have standing to bring the claim?
After a brief consideration of the terms of the trust deed and the extraordinary resolution of noteholders requesting and empowering the note trustee to bring the proceedings, the judge concluded that the note trustee had standing to bring the claim.
- Was the issuer properly before the court?
While the issuer itself did not take part in these proceedings, it had appointed a process agent to receive service of process in England under the terms of the trust deed. Unbeknown to the note trustee, the issuer had terminated its relationship with the process agent.
However, in the view of the judge, this did not prevent the service on the process agent from being good and sufficient service, given that the appointment of the process agent was irrevocable.
- Was it appropriate to make the declarations sought by the note trustee?
The judge emphasised the discretionary nature of declaratory relief. In exercising the court’s discretion to grant declaratory relief, the court had to take into account “justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are other special reasons why or why not the court should grant the declaration” (referring to Finance Service Authority v Rourke  CP Rep 14). The judge decided that making such declarations was inappropriate here.
Despite the finding that the issuer was properly before the court, it was relevant that its contentions regarding the declarations sought by note trustee would not be heard. While this was not the fault of the note trustee, it was incumbent on the court to have a “conservative mindset” against the granting of a declaration, bearing in mind the line of cases requiring both sides of the argument to be put before the court in a claim for declaratory relief.
In particular, the judge referred to the principle in Wallersteiner v Moir  1 WLR 991 that the court should not make declarations of right either on admissions or in default of pleading.
The judge considered the insolvency proceedings initiated against the issuer in India and noted that there were some disputes with the Indian insolvency professional (who was not a party to these proceedings) regarding the note trustee’s claim for interest and its standing as trustee.
In the absence of evidence that the sought-after declarations would not adversely affect the insolvency proceedings in India, in the view of the judge the possibility that there would be such an effect, amounting to an improper interference in a foreign process, pointed against the making of the declarations.
It is interesting to note that Part 8 proceedings are unlikely to involve a substantial dispute of fact, and generally do not allow for oral evidence or disclosure. In fact, evidence submitted in this claim was restricted to two witness statements adduced by the note trustee’s solicitors.
To the extent that the note trustee could have provided expert evidence to demonstrate whether or not the Indian insolvency proceedings would be affected by the declarations sought, use of Part 8 proceedings might have disadvantaged the claim for declaratory relief.
Additionally, the utility of making the declarations sought was considered, with the judge pointing to the absence of a real and present dispute between the parties that would be resolved by the making of the declaration. While the fact that the issuer was in default under the notes was acknowledged, this was not a case where the issuer would pay if the declarations sought were made.
As such, it was concluded that the declaration would not alter or resolve the position as against the issuer.