Journal of International Banking & Financial Law/2010 Volume 25/Issue 10, November/Articles/Contingent
Payments - (2010) 10 JIBFL 583
Journal of International Banking and Financial Law
(2010) 10 JIBFL 583
1 November 2010
Contingent Payments
Jonathan Lawrence
K&L Gates LLP
www.klgates.com
© Reed Elsevier (UK) Ltd 2010
The Law Debenture Trust Corporation PLC (The Trustee) v Elektrim SA and Another [2010] EWCA 1142
(Court of Appeal, Civil Division) (Arden, Longmore and Patten LJJ) (22 October 2010)
Elektrim SA ('Elektrim') appealed against a High Court decision ordering Elektrim to pay the Trustee a sum in
excess of EUR 150m as damages for breach of the conditions of EUR 510m bonds due 2005 (the 'Bonds')
issued by Elektrim Finance BV (the 'Issuer') and guaranteed by Elektrim. The Trustee cross-appealed
against the same order seeking an increase in the award. A contingent payment to the bondholders was negotiated and agreed as a quid pro quo for the bondholders to vary the original terms of the Bonds in order to
rescue Elektrim from insolvency.
The construction which Elektrim now relied on was incompatible with the basis of that agreement and would
completely frustrate the purpose of the contingent payment provisions. The contingent payment was payable
even though the Bonds had not already been redeemed. Elektrim's submission on liability was that the obligation to appoint investment bankers to determine the fair market value of its assets and to make the contingent payment did not arise unless the Bonds had been redeemed in full by a December 2005 maturity date.
Elektrim's argument failed as the specific language in the sub-paragraph of a condition was being interpreted
by Elektrim in a way which was not justified by the overall structure and language of the bond conditions or
the trust deed.
The amount of the contingent payment was partly dependent on the valuation of certain shares. The Court of
Appeal endorsed the High Court judge's approval to the valuation method used. It did not follow that merely
because the court had to assess what a third party would be likely to have done that the case must be regarded as a 'loss of chance' case and a percentage of damages must be awarded. Instead the court had to
assess what a banker would have concluded as to the valuation of certain shares. That may not be easy but
if something of value had been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share was likely to
be.