Neutral Citation Number: [2007] EWHC 1380 (Ch)
Case No: HC07C00763
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15 June 2007

Before :

MR JUSTICE LEWISON
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Between :

	THE LAW DEBENTURE TRUST CORPORATION PLC	
Claimant	
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	(1) CONCORD TRUST
(2) ACCIONA S.A.
(3) ELEKTRIM S.A.
(4) VIVENDI HOLDINGS I CORP 	

Defendants	

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Mr Robert Miles QC and Mr Andrew Clutterbuck (instructed by Simmons & Simmons) for the Claimant
Miss Sue Prevezer QC and Mr Edmund King (instructed by Bingham McCutchen (London) LLP) for the First and Second Defendants
Mr Richard Millett QC (instructed by  Barlow Lyde & Gilbert LLP) for the Third Defendant

Hearing dates: 6, 7, 8 June 2007 
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Judgment

Mr Justice Lewison: 
Background
The PAK shares
The issues
The relevant clauses in the contractual documents
The Trust Deed
The bond conditions
The security administration agreement
The general structure of the documents
Should the securities be released?
The principle
What does the security secure?
Is Elektrim entitled to redeem the security before the bonds have been redeemed?
What obligations were intended to be secured by the PAK shares?
Did Elektrim pay everything that had accrued due on 26 October 2006?
Has there been a valid tender?
Redemption where there are contingent liabilities
Partial redemption
Conclusion
Have the bonds been redeemed?
Has interest stopped running and, if so, when?
Does Elektrim have a claim relating to the PAK shares?
Should the Trustee distribute?
How much should the Trustee retain?
The new Vivendi claim
Conditions on distribution
How much does Elektrim owe?
The bondholders’ resolution

Background
1.	The Law Debenture Trust Corporation plc is the Trustee of €510,000,000 2% Bonds (“the bonds”) issued by Elektrim Finance BV and guaranteed by Elektrim S.A. (“Elektrim”) pursuant to a supplemental Trust Deed dated 15 November 2002 (“the Trust Deed”). The bonds are in registered form and are held through the two principal clearing systems of eurobonds, Euroclear and Clearstream. The bonds were due for redemption on 15 December 2005. The bonds are governed by bond conditions. Elektrim gave security for the performance of its obligations; and the securities are held under a Security Administration Agreement.
2.	The Trustee declared an event of default under the bonds in February 2004. However, the Trustee refused to accelerate the bonds and the bondholders began proceedings to compel it to do so. Ultimately the House of Lords gave judgment in favour of the bondholders in April 2005.
3.	There were other events of default under the bonds and finally, on 18 January 2005, the Trustee gave notice of acceleration to Elektrim. Elektrim disputed this and the Trustee began proceedings.
4.	In February 2005, the Trustee seized certain funds known as the Mostostal Funds pursuant to its security rights.  The Mostostal Funds amounted to €8,880,941.37 held in the Security Account.
5.	On 16 September 2005, Hart J gave summary judgment in favour of the Trustee against Elektrim, declaring that certain events of default had occurred; that the bonds fell due and payable on 18 January 2005 in the principal amount of €444,036,495.88; that interest was owing under the Trust Deed on this principal amount as at the date of the order in the amount of €32,548,959.76, and that the Trustee was generally entitled to its costs under the Trust Deed. The total amount of principal and interest declared to be due was €476,585,455.64.
6.	However, by Hart J’s Order, Elektrim was only ordered to pay the sum of €471,419,079.54 rather than €476,585,455.64. The difference between the two figures, €5,166,376.10, reflects the credit given in the order for the sums seized from the Security Account (after taking into account the Trustee’s costs and expenses and other adjustments), in the expectation that these proceeds would be applied by the Trustee towards the discharge of principal and interest owing to the bondholders. However, the Trustee did not in fact apply the €5,166,376.10 towards repayment of the interest due on the bonds as envisaged by Hart J’s order; but rather, the Trustee retained this amount on account of future liabilities pursuant to Clause 11.1(A) of the Trust Deed because Elektrim had not paid the Trustee’s invoices in respect of its costs and expenses. The Trustee did this despite requests from the bondholder Group for it to make a full or (at a minimum) a partial distribution of these monies as envisaged by the order. 
7.	On 26 October 2006, in the face of a bankruptcy petition brought by the Trustee in Poland, Elektrim paid the Trustee the sum of €525 million. As a consequence, the petition was withdrawn on 27 October 2006.  The €525 million was paid by Elektrim to the Trustee without any agreement between the parties about the amount required to redeem the Bonds about what was to happen to the outstanding litigation in Poland and elsewhere or about payment of the Trustees’ costs and expenses (unpaid or future).
8.	Elektrim’s principal asset was its shareholding in a Polish telecommunications company known as PTC. A company called Vivendi has been in dispute with Elektrim and with Deutsche Telekom AG (“DT”), a major German media company, for several years about the PTC stake.  Vivendi alleges that it has invested over €2bn under various agreements and is entitled, through a Polish company which it controls, known as ET or Telco, to the PTC stake.  Elektrim and DT, on the other hand, allege that Elektrim was entitled to the PTC stake and that, by virtue of various awards of a Vienna arbitral tribunal, Elektrim is obliged to transfer the stake to DT.  The sum of €525m in the hands of the Trustee, and paid by Elektrim in the face of the bankruptcy petition, represents part of a larger payment made (or part made) by DT to Elektrim as the consideration for the PTC stake. The battle for control of the PTC stake has been fought in numerous proceedings, including arbitrations in Vienna, Switzerland and London, and Court proceedings in Poland. Vivendi has also taken proceedings against DT in the United States, accusing it of racketeering and seeking triple damages. There is no sign of these various disputes coming to an end.  Indeed on the eve of the most recent hearing before me yet a further action was begun in Miami, Florida by a Vivendi subsidiary.
9.	On 1 December 2006, the Trustee sent Elektrim a letter setting out the amounts which it claimed were due and unpaid as at 26 October 2006. It stated that as at 26 October 2006, approximately €530,182,021.40 had been due and owing, and that the Trustee held approximately €4,200,000.00 in the Security Account plus interest of €216,597. The calculations did not take into account the interest due on the unpaid costs or the further costs incurred by the Trustee as at 1 December 2006. According to the Trustee, if one takes into account the interest due on unpaid costs, as at 26 October 2006 there was a shortfall of €1,557,920.55.
10.	Since 26 October 2006, the Trustee has not distributed any of the monies in its hands to the bondholders despite their requests to do so.  Vivendi has from time to time asserted claims against the Trustee. However, at an earlier hearing in May 2007 I decided that those claims, in so far as they were intelligible, were fanciful; and did not represent a bar to a distribution of monies by the Trustee to the bondholders. It is common ground that Vivendi’s latest claim is also without merit.
11.	In addition, Elektrim’s requests for the release of the securities have been refused by the Trustee (supported in this by the bondholders). The security currently consists of individual pledges, mortgages and receivable assignments governed by Polish law (and at one time included a pledge over the Mostostal Shares, which has since been released) but which are also subject to an English law Security Administration Agreement. The Security is granted to Citibank NA (“Citibank”) as Security Agent. As such, Citibank acts on the Trustee’s instructions. 
12.	On 9 February 2007, in a letter to the bondholders, the Trustee threatened to release the security (irrespective of the position on distribution) unless it was protected against the risks of retaining it by a bondholder indemnity or by a court order. Accordingly, the Trustee currently holds the monies in an interest bearing account, and Citibank retains the security under the bonds. 
13.	Since 26 October 2006, the Trustee has continued to incur costs and expenses to which it claims entitlement on a full indemnity basis. As mentioned above, its entitlement (post 26 October 2006) is challenged by Elektrim. As regards costs generally, with the exception of two invoices in September 2004, Elektrim has paid nothing against invoices submitted by the Trustee in respect of its costs and expenses. The Trustee claims that as at 17 May 2007 there was a shortfall of €17,153,703.54 and in addition, the Trustee claims that it is entitled to a retention of €17.5 million in respect of on-going and outstanding costs. 
The PAK shares
14.	This claim has been raised at a very late stage. In summary it is as follows. Elektrim are or were a shareholder, in Patnow Adamow Konin SA (“PAK”).  The  majority shareholder is the Polish State Treasury.  Elektrim says that its PAK shares were never intended to be security for Elektrim’s obligations as guarantor of the bond debt under the Trust Deed and Bond Conditions, but were intended only as security for Elektrim’s contingent liability to make a Contingent Payment under clause 2.3 of the Trust Deed and under condition 6(k) of the Bond Conditions. They say that the bond conditions made it clear that Elektrim’s obligation to make the Contingent Payment was secured only by the security described in condition 8(a)(vi) of the Trust Deed, that is to say the PAK shares.  Under condition 8(a)(vi), the bond conditions provided that the PAK shares would be provided as security “subject to and immediately upon obtaining any required approvals…”  The permission of the Polish State Treasury was required, as the other principal shareholder, in order that the PAK shares could be pledged to the Trustee (and to Citibank, its Security Agent). That permission was therefore a condition precedent to the grant of valid and binding security over the PAK shares by Elektrim for Elektrim’s Contingent Payment obligation.  
15.	The PAK share certificates were lodged by Elektrim’s former management with Messrs Wardynski and Partners, the Trustee’s Polish lawyers, in November 2002, as part of Elektrim’s debt restructuring arrangements in anticipation of the requisite grant of permission by the Polish State Treasury. However, on 19 May 2003 the Polish State Treasury refused to grant Elektrim permission for the pledge. Elektrim did not at that time ask for the return of the share certificates, and so the Trustee, through its Polish lawyers, retained possession of the PAK share certificates.  In August 2003 representatives of Elektrim attended at Wardynski’s offices and took photocopies of the share certificates. Elektrim did not at that stage ask for the return of the certificates either.
16.	In 2005 Elektrim brought proceedings before the District Court in Konin, which is the local Court where PAK is resident, seeking the cancellation of what Elektrim’s management said were lost share certificates, thereby enabling new shares (or share certificates) to be issued to Elektrim.  The share certificates in question were those still retained by the Trustee’s Polish lawyers. The Trustee was not told of this application and only found out about it well over a year later. The Konin Court gave judgment on 15 March 2005 (“the Konin judgment”) and granted Elektrim’s application, in effect cancelling the old shares and approving the issue of new shares. For as long as the Konin judgment stands, the old share certificates are worthless.  In June 2005, Elektrim transferred the newly issued PAK shares to Embud s.p. z.o.o. (“Embud”), a subsidiary of Elektrim. On 8 November 2005, the Trustee applied to intervene in the Konin proceedings in order to have the Konin judgment set aside, the effect of which would be to annul the issue of the new PAK shares and the cancellation of the old PAK shares, thus reinstating the validity and value of the old PAK shares.  That intervention action is still pending.
17.	On 29 September 2005, the Trustee also began proceedings by way of actio pauliana in the Warsaw Regional Court against Embud to set aside the transfer of the PAK shares by Elektrim to Embud. Elektrim was not a party to this application. actio pauliana is the Polish equivalent of an application to set aside a fraudulent conveyance. The Trustee also applied for an attachment in respect of Embud’s interest in the PAK shares. The basis of the claim for an attachment was that the Trustee required additional security for its claim for repayment of the bonds following the judgment of Hart J dated 16 September 2005 which had not at that time been satisfied. Hence it was a creditor of Elektrim and entitled to pursue the application. On 20 October 2005, the application was granted by the Warsaw court, which accepted the possibility that the PTC shares might not be available to satisfy any judgment obtained by the Trustee and that the Trustee could therefore look to the PAK shares as security for their claim for repayment of the bonds.  The Trustee then applied to the Warsaw court to seize the (old) PAK shares. The Warsaw court granted that application on the basis that it was a temporary order pending trial. On 26 or 27 October 2005 the court bailiffs seized the (old) PAK shares which had been deposited with the Trustee’s Polish lawyers.  Elektrim paid the Trustee the €525 million one year later in 2006.  Notice of the order was served both on Elektrim and Embud informing them of their right to apply to set aside the order. No application to set aside the order has been made. The actio pauliana continues.
18.	Elektrim alleges that by its actions the Trustee has converted the PAK shares. Although it does not claim to have suffered a loss to date, it says that it is on the point of concluding a deal with the Polish government to transfer the PAK shares to it in return for a very substantial sum (“hundreds of millions of euros”). Its current position is that the Trustee must now deliver up the PAK shares and abandon the actio pauliana it began in September 2005, and procure the Warsaw court to comply with its instructions to that effect.  If the Trustee does not do so, then Elektrim will have no choice but to commence proceedings against the Trustee for delivery up and/or damages.  Should the Trustee’s tardiness in delivering the PAK shares to Elektrim result in Elektrim losing the opportunity to finalise the transaction with the Polish government, then Elektrim will sue the Trustee for what Elektrim considers will be very substantial damages (hundreds of millions of Euros) for conversion.  Elektrim, therefore, has a presently accrued cause of action for conversion and the right to either delivery up of the PAK shares or their present day value, and a potential claim for further damages if the Trustee fails immediately to deliver up (or pay their value) with the consequence that the deal with the Polish State Treasury cannot be completed. 
19.	However, Elektrim also says that its claim against the Trustee is no bar to a distribution to the bondholders, because the Trustee is not entitled to be indemnified against that claim; and in any event it can avoid any real liability by handing back the PAK shares immediately. 
The issues
20.	The issues that I now have to decide are:
i)	Whether there was redemption of the Bonds on payment by Elektrim of €525 million to the Trustee on 26 October 2006;
ii)	Whether the Trustee was on 26 October 2006 and/or is now obliged to release to Elektrim the security given by it under the Trust Deed;
iii)	Whether the Trustee was on 26 October 2006 and/or is now obliged to distribute the monies (less any sums retained or applied pursuant to iv) below) to the bondholders;
iv)	Whether the Trustee is entitled to apply the monies (i) to discharge costs, expenses and remuneration already incurred and (ii) to provide a retention against future and/or contingent liabilities (including Elektrim’s claim for damages against the Trustee), and if so, in what amounts; and whether Elektrim remains liable to pay the costs of the Trustee incurred since 26 October 2006; 
v)	Whether interest continues to accrue on the Bonds and/or has accrued since 26 October 2006 and if so, at what rate; and
vi)	Whether a resolution passed by the bondholders directing the Trustee to pay the bondholder Group’s costs in priority to any payments made to the bondholders generally was validly passed. 
21.	Other issues have now fallen away.
The relevant clauses in the contractual documents
The Trust Deed
22.	Clause 1.1 contains definitions, of which the following are material:
“bondholders”	“…the several persons whose names are entered in the register of holders of the Bonds as the holders thereof which expression shall, while any Global Certificate remains outstanding, mean in relation to the Bonds represented thereby each person who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of the Bonds …	
“outstanding” 	“…all the Bonds issued other than
(A) those Bonds which have been redeemed pursuant to these presents and (B) those Bonds in respect of which the date for redemption in accordance with the Conditions has occurred and the redemption moneys (including premium (if any) and all interest payable thereon) have been duly paid to the Trustee or to the Principal Paying and Transfer Agent and…..remain available for payment against presentation of the Bonds. …	
“repay” “redeem” and “pay”	“…each include both the others and cognate expressions shall be construed accordingly”	
“these presents”	“this Trust Deed and the Schedules and any Trust Deed supplemental hereto … and the Bonds and the Conditions…”	

23.	Clause 1.2 (C) says that references to “principal amount outstanding” are to be interpreted in the manner set out in Condition 1 (a).
24.	 Clause 2.2 contains the covenant to repay. The Issuer covenants that it will:
“… on the due date for the final maturity of the Bonds provided for in the Conditions, or on such earlier date as the same or any part thereof may become immediately due and repayable thereunder, pay or procure to be paid unconditionally to or to the order of the Trustee or to such account as the Trustee may direct in Euro in immediately available funds the Adjusted Principal Amount (“Principal”) as the Conditions may require of the Bonds repayable on that date and shall in the meantime and until such date (both before and after any judgment or other order of a court of competent jurisdiction) pay or procure to be paid unconditionally to or to the order of the Trustee … the Interest Amount … on the principal outstanding of the Bonds…
PROVIDED THAT
(A) …
(B) in any case where payment of Principal … is not made to the Trustee … on or before the due date, interest shall continue to accrue on the principal amount outstanding of the Bonds (both before and after any judgment or other order of a court of competent jurisdiction) at the rate aforesaid (or, if higher, the rate of interest on judgment debts for the time being provided by English law) up to and including the date on which the Trustee determines the date on and after which payment is to be made to the bondholders in respect thereof as stated in a notice to the bondholders in accordance with Condition 16 (such date to be not later than 30 days after the day on which the whole of such Principal amount … together with an amount equal to the interest which has accrued and is to accrue pursuant to this proviso up to and including that date has been received by the Trustee…”
25.	Clause 2.3 provided for the payment of a Contingent Payment, which was an amount related to the value of Elektrim’s assets at a future date. 
26.	Clause 3.8 said that the bonds were to be substantially in the form set out in Part II of the First Schedule.
27.	Clause 5 contains a covenant by the Issuer and the Guarantor to comply with the “provisions of these presents”; and also says that the Conditions are to be construed as one document with the Bonds. Clause 7.1 also contains a covenant by the Guarantor that it will procure compliance by the Issuer with all the Issuer’s obligations under the Bonds and the Trust Deed.
28.	Clause 10.1 required the Trustee to take proceedings if requested to do so by the bondholders but only if indemnified. Clause 10.2 said that:
“Only the Trustee may enforce (i) by written instructions .. the security created .. by, and contained in, the Pledge Agreements or (ii) the provisions of these presents. No bondholder shall be entitled to proceed directly against the Issuer or the Guarantor to enforce the performance of any of the provisions of these presents unless the Trustee having become bound as aforesaid to take proceedings fails to do so within a reasonable period and such failure is continuing.”
29.	Clause 11 provides:
“All moneys received by the Trustee under these presents and/or under the Security Documents shall be held by the Trustee upon trust to apply them…
(A) first in payment or satisfaction of all amounts then due and unpaid under Clauses 16 and/or 17 (J) to the Trustee;
(B) secondly in or towards payment pari passu and rateably of all Principal, premium (if any) interest and any other amounts then due and unpaid in respect of the Bonds; and
(C) thirdly in payment of the balance (if any) to the Issuer or Guarantor…”
30.	Clause 16.1 entitled the Trustee to remuneration; and clause 16.2 entitled it to additional remuneration following an event of default. In the absence of agreement, the additional remuneration was to be fixed under clause 16.4 by a merchant bank acting as an expert.
31.	Clause 16.5 required the Issuer to pay or discharge all Liabilities properly incurred by the Trustee, including legal and other expenses paid or payable by the Trustee in connection with “any action taken or contemplated … for enforcing, or resolving any doubt concerning, or for any other purpose in relation to, these presents.” Amounts payable by the Trustee to the Security Agent also count as Liabilities. Clause 16.6 provided for amounts payable under clause 16.5 and Clause 17 (J), and the Trustee’s remuneration, to carry interest at two per cent above The Royal Bank of Scotland base rate.
32.	Clause 17.1 (A) entitled the Trustee to act on the advice of lawyers and other professionals; and said that the Trustee “shall not be responsible for any loss occasioned by so acting”.
33.	Clause 17.1 (J) provides:
“Without prejudice to the right of indemnity by law given to trustees, the Issuer and the Guarantor shall indemnify the Trustee … against all Liabilities to which it … may be or become subject or which may be incurred by it… in the execution or purported execution of any of its … trusts, powers, authorities and discretions under these presents or … in respect of any other matter or thing done or omitted in any way relating to these presents.”
34.	Clause 27.1 required Elektrim to provide security for its obligations under “these presents” subject to the proviso that its obligation to make the Contingent Payment “is secured only” by the security identified in Condition 8 (a) (vi).
35.	Clause 29 says that “these presents” are governed by English law.
36.	Part I of the First Schedule to the Trust Deed contains the form of global certificate for the bonds. It incorporates the bond conditions, and says that interest is payable on the principal amount outstanding annually in arrears in accordance with the bond conditions and the trust deed.
The bond conditions
37.	The introduction to the bond conditions says that the conditions “are subject to” the detailed provisions of the Trust Deed. Condition 1 (a) defines “the principal amount outstanding” of the bonds as meaning the Increased Principal Amount of the bonds, as reduced from time to time as a result of pro rata redemptions under condition 6 (l). 
38.	Condition 6(a) of the Bond Conditions, headed “Final Redemption”, provides: 
“Unless previously purchased or redeemed as herein provided, the Bonds will be redeemed at the Adjusted Principal Amount together with accrued interest on December 15, 2005 (“the Repayment Maturity Date”). The Bonds may not be redeemed at the option of the Issuer or the Guarantor other than in accordance with this Condition 6. Although no further principal or interest will remain owing on the Bonds after redemption in full of the Bonds at the Adjusted Principal Amount together with accrued interest, the Bonds will remain in existence and retain a right to receive the Contingent Payment (if any) on the Contingent Payment Date in accordance with Condition 6 (k).”
39.	Condition 6 (b) gave the Issuer the option, on notice, to redeem part of the bonds on a pro rata basis. Condition 6 (k) referred to the Contingent Payment and said that it was an obligation of the Guarantor rather than the Issuer. It also said that the Guarantor’s obligation to make the payment “is secured only by the security described in paragraph (vi) of Condition 8 (a) below”. Condition 6 (l) dealt with partial redemption. It said that so long as the bonds were in global form “partial redemptions shall be made in accordance with the relevant procedures of Euroclear and Clearstream, Luxembourg.”
40.	Condition 7 (a) provides:
“The payment of principal, interest and the Contingent Payment (if any) will be made in euro by credit or transfer to the registered euro account of the bondholder (or to any other account to which euro may be credited) or by cheque in euro mailed to the registered address of the bondholder if it does not have a registered account.”
41.	Condition 7 (c) provides that a bondholder’s registered account means the account maintained by or on behalf of it, details of which appear on the Register. 
42.	Condition 8 (a) of the Bond Conditions provided for the giving of security:
 “to secure all obligations of the Guarantor in respect of the Bonds, the Bond Trust Deed, the Security Administration Agreement and the Deed of Delegation (provided however that the Guarantor’s obligation to make the Contingent Payment in accordance with Condition 6 (k) is secured only by the security described in paragraph (vi) below).” 
43.	It went on to describe the security which, included, in paragraph (vi):
“subject to and immediately upon obtaining any required approvals … first ranking ordinary and registered pledges over the Guarantor’s equity interests in PAK (including any PAK shares acquired by the Guarantor after the Restructuring Date).”
44.	Condition 8 (i) says that all security granted with respect to the Bonds shall be released “upon redemption in full of the Bonds” subject to provisos including the proviso that if the Guarantor had not disposed of the pledged PAK shares “the security over the pledged PAK Shares shall not be released until the Contingent Payment Date”.
45.	Condition 12 provided that, following the giving of a notice on the occurrence of an event of default, the Bonds would become immediately due and repayable at their relevant redemption value.
46.	Condition 13 repeated that no bondholder could sue the Issuer or the Guarantor unless the Trustee had failed to do so.
The security administration agreement
47.	Article 1.1 of the Security Administration Agreement defines “Final Redemption” as: 
“the redemption of the Bonds in accordance with Condition 6(a) or, if earlier, the date on which the Bonds are redeemed in full ….”
48.	Article 7.8 of the Security Administration Agreement provides:
“Immediately upon completion of Final Redemption, the Trustee shall instruct the Security Agent to release the remainder of the Security Estate to Elektrim …”
The general structure of the documents
49.	Before coming to the specific issues, I should say something about the general structure of the documents and the extent to which the general law impinges on them.
i)	The documents, and in particular the Trust Deed and the bond conditions, are designed as a package and must be construed as a whole. This is reinforced by the definition in the Trust Deed of “these presents”; and clause 5 of the Trust Deed.
ii)	Although the Trust Deed creates contractual obligations, it also creates a trust.
iii)	Elektrim is the obligor as far as many of the contractual obligations are concerned, but it is also a beneficiary under the trust: see clause 11.1 (C) of the Trust Deed.
iv)	Although the coupon interest on the bonds was 2 per cent, interest at the higher rate of the judgment rate (8 per cent) begins to be payable as soon as the bonds are not repaid on the due date. Where (as here) there has been at least one event of default, that date is the date of the earliest notice of acceleration following an event of default. The liability to pay interest at the higher judgment rate is not dependent on the existence of a judgment. The date of the earliest valid notice of acceleration is also the contractual date on which the bonds became repayable in full; and the contractual date for the redemption of the security.
v)	The amount on which interest at that rate is payable is “the principal amount outstanding of the Bonds”. 
vi)	Interest at the judgment rate on that amount ceases to be payable only when the Trustee determines a date for payment to the bondholders (and is payable up to the determined date of payment). 
vii)	In receiving money, the Trustee acts as principal and not as agent for the bondholders; so that payment to the Trustee cannot be equated with payment to the bondholders.
viii)	All monies received by the Trustee are impressed with the trust created by clause 11.1 of the Trust Deed. All monies received by the Trustee can therefore be properly described as the trust fund.
ix)	A trustee is, under the general law, entitled to an indemnity out of the trust funds for his expenses and liabilities as trustee. He has a lien on the fund for this purpose; and he cannot be required to distribute the fund to the beneficiaries if and to the extent that the fund is required to satisfy his right to indemnity. A trustee’s right to a lien and to retain part of the trust fund extends to contingent liabilities: X v A [2000] 1 All ER 490. Where the amount of the liability is unknown the amount of the retention should be calculated on the basis of what is, on reasonable (but not fanciful) assumptions in favour of the trustee, the worst case scenario: Concord Trust v The Law Debenture Trust Corporation plc [2004] EWHC 1216 (Ch). The rights of the Trustee under the general law are recognised and preserved by the opening words of clause 17.1 (J) of the Trust Deed. It was not suggested that these principles cease to apply where, as here, the Trustee holds other security for its indemnity; and indeed the Concord case was concerned with this very trust deed.
x)	Under condition 8 (i) of the bond conditions all security granted with respect to the bonds is to be released “upon the redemption in full of the Bonds”. There is no contractual provision for partial release of the securities on partial redemption of the bonds.
xi)	It is common ground that the contractual date for repayment (and hence the contractual right to redeem) passed without payment having been made or tendered. It is also common ground that an equitable right to redeem the securities survived the passing of that date. 
50.	The legal structure created by the documents is partly that of a relationship between borrower and creditor, partly that between mortgagor and mortgagee and partly that between trustee and beneficiary. These relationships do not always sit happily together. 
Should the securities be released?
The principle
51.	Mr Millett QC accepts that under the terms of the contractual arrangements, the securities would be released only when the bonds had been redeemed in full. However, he says that the contractual arrangements can no longer be implemented, because the bonds became repayable in full on the earliest valid notice of acceleration and the monies were not then paid. It follows, therefore, that Elektrim’s right to redeem is the equitable right to redeem. The Trustee relies on the statement of principle relating to the equitable right to redeem encapsulated by Dillon L.J. in Re Rudd and Son Ltd (1986) 2 BCC 98,955:
“under the equitable right [of redemption] the mortgagor could only redeem if it paid off all the moneys which were secured by the mortgage, including contingent liabilities or future liabilities already incurred but not presently payable, if on the true construction of the mortgage they are secured on the property by the mortgage.”
52.	Mr Millett accepts this statement of principle, but says that it applies only to what is due to the Trustee in its capacity as mortgagee. It is not, he says, a requirement of the equitable right to redeem that Elektrim should redeem the bonds in full. Thus if there is money in the hands of the Trustee, which the Trustee has not paid down to the bondholders because it is exercising its rights as Trustee to make retentions from the trust fund, that is no concern of Elektrim’s, which is entitled to have its securities retransferred to it. 
53.	In my judgment the equitable right to redeem cannot be used so as to relieve the mortgagor of obligations that he would have had if he had exercised his legal right to redeem. The essence of the equitable right to redeem is that the mortgagor is allowed to perform his contract, but late. Apart from time stipulations, I do not consider that the court, in the exercise of its equitable jurisdiction, can or should rewrite the contractual terms of redemption in favour of the mortgagor (ignoring, for this purpose, special rules relating to clogs on the equity of redemption). To do that would in effect allow the mortgagor to benefit from his own breach of contract. So the first question I must answer is: what liabilities are secured by the security?
What does the security secure?
54.	The Trustee says that condition 8(a) of the Bond Conditions shows that the security granted pursuant to the Trust Deed is security not only for the bonds.  This is confirmed by the terms of the Security Administration Agreement. The security also secures Elektrim’s liabilities to the Trustee in its own right, and therefore extends to the obligations to the Trustee to meet the Trustee’s costs under its indemnity, and to pay the Trustee’s remuneration. Under clause 17 .1 (J) of the Trust Deed the Trustee’s costs indemnity extends expressly to contingent liabilities. But even leaving aside the contractual rights, the Trustee says that it is clear on general principles that it has the right to make retentions for such liabilities; and to the extent such retentions are made the amount available for payment to the bondholders is plainly reduced.
55.	The starting point is clause 27.1 of the Trust Deed. That required Elektrim to provide security for all its obligations under “these presents”. That expression was defined to include the Trust Deed, the bonds and the conditions. So the security secures all Elektrim’s obligations under those documents. Under clause 16.5 the Issuer must pay or discharge all Liabilities properly incurred by the Trustee. That obligation is guaranteed by Elektrim under clause 8 of the deed. In addition, under clause 17.1(J) Elektrim itself must indemnify the Trustee against all liabilities “to which it may be or become subject to”. It is, I think, common ground that these two clauses include contingent liabilities. Accordingly, in my judgment, the security secures not only accrued liabilities, but also contingent liabilities which may be incurred by the Trustee and against which Elektrim is obliged to indemnify it.
Is Elektrim entitled to redeem the security before the bonds have been redeemed?
56.	Since Mr Millett accepts that, as a matter of contract, the security could not be redeemed before the bonds were redeemed; and since I have held that the court cannot or should not rewrite the conditions for redemption in the exercise of its equitable jurisdiction, it follows that Elektrim in not entitled to redeem the security before the bonds are redeemed. I will return to the question whether the bonds have been redeemed.
What obligations were intended to be secured by the PAK shares?
57.	Mr Millett argued that the PAK shares were intended to secure Elektrim’s obligation to make the Contingent Payment and nothing else. Elektrim’s obligation to make the Contingent Payment was an obligation imposed on Elektrim as principal debtor rather than as guarantor. The words of the obligation requiring the provision of security were that: “the Guarantor’s obligation to make the Contingent Payment in accordance with Condition 6 (k) is secured only by [the PAK shares]”. In my judgment Mr Millett’s argument involves reading those words as if they had said: “only the Guarantor’s obligation to make the Contingent Payment in accordance with Condition 6 (k) is secured by [the PAK shares]”. This necessarily involves transposing the word “only” so that it refers not to the PAK shares, but to Elektrim’s obligation to make the Contingent Payment. Such a transposition would, in my judgment, fundamentally alter the meaning of the clause and is not a permissible construction. The meaning of the clause is, in my judgment, that all the securities secured all Elektrim’s obligations as guarantor; but that the PAK shares were intended to secure Elektrim’s obligations both as guarantor and also as principal debtor to make the Contingent Payment.
58.	However, the availability of the PAK shares was dependent on obtaining all necessary consents: that is, the consent of the Polish treasury. Consent was not obtained. Consequently the PAK shares never became security for anything.
Did Elektrim pay everything that had accrued due on 26 October 2006?
59.	The Trustee calculated that the difference between the amount due on 26 October 2006 and the amount actually paid by Elektrim was €1,557,920.55. The bulk of the shortfall was made up of the Trustee’s costs. These were described in the Trustee’s letter of 1 December 2006 as being:
“€6,786,091.69 being the sum of (a) Law Debenture’s invoiced fees and costs not paid and (b) Law Debenture’s fees incurred but not yet invoiced as at approximately 26 October 2006…”
60.	This figure for costs was admitted in Elektrim’s evidence until a very late witness statement served on Elektrim’s behalf sought to challenge part of the figure. I refused permission to withdraw the admission. Had it been necessary I would have given summary judgment for the amount of the accrued costs claimed following the approach taken by Hart J in The Law Debenture Trust Corporation plc v Elektrim Finance B.V [2005] EWHC 1999 (Ch).
61.	 I find therefore that as at 26 October 2006 there was a shortfall between sums that had accrued due, and which were secured by the security, and the amount actually paid by Elektrim of €1,557,920.55. It follows that when Elektrim made its payment it did not discharge all that was then due.
62.	Mr Millett says that, assuming (as I have found) that there was an underpayment in October 2006, the Trustee should have told Elektrim how much was still owing so that Elektrim could either have paid what was owing or could have secured the amount then owing. He says, and I agree, that a mortgagor is entitled to ask the mortgagee how much is owing so that he can (in most cases) pay what is owing and redeem the mortgage.
63.	This proposition gives rise to two questions. First, when Elektrim was told how much the Trustee said was owing, did it make a valid tender of what was claimed to be due? Second, is the position affected by the fact that the security was given not only in respect of accrued liabilities but also in respect of contingent liabilities?
Has there been a valid tender?
64.	Mr Millett argued that Elektrim had made a valid tender of all that was due under the mortgage, with the consequence that it was entitled to redeem and the further consequence that interest stopped running. The basis of this submission was that Elektrim’s solicitors had written to the Trustee’s solicitors on 18 January 2007 saying:
“On your client’s own figures, there is a shortfall of Euros 982,021 40. Should this be the only figure in dispute between our clients, we are instructed to inform you that our clients are willing to pay this sum into an escrow account pending resolution of the final figures, in return for your clients agreeing to redeem all security.”
65.	It is common ground that a valid tender must be unconditional; although it will not be invalidated because it reserves to the tenderer the right to tax the mortgagee’s costs and to review his account: Fisher & Lightwood on Mortgages 12th ed para 47.43.
66.	In my judgment an offer to pay into an escrow account is not an unconditional tender. The point of an unconditional tender is that the mortgagee can put the money tendered into his pocket. The essence of an escrow account is that the money remains in that account until such time as the escrow condition is fulfilled. It is therefore a conditional payment par excellence. In fact what the offer amounted to was the provision of alternative security (i.e. the funds to be paid into the escrow account) and was not a tender at all. I therefore reject Mr Millett’s submission that there has been a valid tender of what has accrued due.
Redemption where there are contingent liabilities
67.	I have already quoted from the judgment of Dillon L.J. in Re Rudd and Son Ltd. Later in his judgment he returned to the question of redemption. Having construed the mortgage in that case in a particular sense so as to include contingent liabilities, he said:
“This would have the result that the mortgagor cannot redeem the mortgage while there are contingent liabilities to the bank, without making provision to the satisfaction of the bank for those liabilities.”
68.	Nicholls L.J. also considered the question of redemption, but with a slightly different emphasis. He said:
“The consequence of this construction is that the mortgagor may find itself unable to redeem its property for an indefinite period, until it becomes known whether a contingent liability will become a present liability or not. So be it.”
69.	Sir George Waller agreed with both judgments.
70.	The difference between Dillon L.J. and Nicholls L.J. appears to be that in the former’s view the mortgagor is entitled to redeem if he makes provision for contingent liabilities to the satisfaction of the mortgagee; while in the latter’s view he is not entitled to redeem at all, unless and until it is known what the accrued liabilities are. Because of Sir George Waller’s agreement with both judgments, there is a majority of the Court of Appeal supporting each of the possible consequences. In the present case, however, this difference does not matter, because the Trustee is willing to allow Elektrim to redeem if it makes provision for the contingent liabilities to its satisfaction.
71.	Either way, however, Elektrim is not, in my judgment, entitled to redeem its securities unless and until it has made provision for contingent liabilities to the satisfaction of the Trustee. The existence and extent of the contingent liabilities is to be assessed on the basis of what is, on reasonable (but not fanciful) assumptions in favour of the Trustee, the worst case scenario. I might add that if the contingent liabilities do not materialise into actual accrued liabilities, then Elektrim will be entitled to the return of its money under clause 11.1 (C) of the Trust Deed.
72.	There is one qualification to this conclusion to which I will return. For the same reasons that have led me to conclude that the terms of redemption in equity should not be more favourable to the mortgagor than the contractual terms (apart from time limits), so, in my judgment, they should not be more favourable in equity to the mortgagee than the contractual terms. If, therefore, the contractual terms of redemption allow the mortgagor to redeem before contingent liabilities have been satisfied, then he can redeem on those terms in equity. 
Partial redemption
73.	Mr Millett also submitted that it was unfair for the Trustee to retain the entirety of the security (worth, he said, hundreds of millions of Euros) to secure an accrued debt of €1.5 million. Accordingly, he submitted that in the exercise of its equitable jurisdiction the court should permit redemption of part of the security. 
74.	The equitable jurisdiction over mortgages was developed in relation to mortgages of land. There is no trace in the books of any instance of, say, a farm being redeemed acre by acre as the mortgage debt was paid off. So Mr Millett’s submission has no foundation in practice to date. It is also inconsistent with the statement of principle in Re Rudd and Son Ltd, which Mr Millett accepted as correct. In addition, as I have said, the essence of the equitable right to redeem is that the mortgagor is given the opportunity to perform his contract late; not that he is given the opportunity to perform a different contract.
75.	I therefore reject Mr Millett’s submission that the court has an equitable jurisdiction to allow redemption of part of the security where the remaining security is perceived to be adequate security for what remains of the secured debt. 
Conclusion
76.	Elektrim is not yet entitled to redeem its security either in whole or in part.
Have the bonds been redeemed?
77.	In its written submissions Elektrim said that the bonds were redeemed when it paid the €525 million; and that the Trustee should then have released the whole or substantially the whole of the security. In the course of his oral submissions, Mr Millett did not strenuously pursue this argument. Instead he concentrated on the submission that it was not necessary to redeem the bonds in order for Elektrim to be entitled to redeem the security. I have already considered and rejected that submission. Nevertheless I ought to deal with this argument briefly, since points have a habit of re-emerging.
78.	The Trustee and the bondholders say that that payment did not redeem the bonds. The Trustee says that redemption of the bonds means payment to the bondholders. This requires payment by the Trustee to the bondholders. This stage is not reached simply by receipt by the Trustee. There are at least three reasons for this. First, in receiving money the Trustee is not the agent of the bondholders, so that payment to the Trustee does not automatically count as payment to the bondholders. Second, depending on the circumstances, the Trustee may allocate any sums received towards satisfaction of its own contractual indemnity entitlements. Third, it may allocate sums in the exercise of its rights of retention under the general law. In none of these cases is there a redemption of the bonds themselves. The bondholders support this contention. They point out that under Clause 11 of the Trust Deed, the parties expressly agreed that all monies, “received” by the Trustee under the Trust Deed, the bonds and/or under the security documents must be held by the Trustee upon trust to apply them (subject to Clause 13):
i)	First in payment or satisfaction of all amounts then due and unpaid under Clauses 16 and/or 17.1(J) to the Trustee;
ii)	Secondly, in or towards payment pari passu and rateably of all principal, premium (if any), interest and any other amounts then due and unpaid in respect of the bonds; and
iii)	Thirdly, in payment of the balance (if any) to the Issuer or the Guarantor.
79.	Clause 2.4 of the Trust Deed expressly recognises that the payment to the bondholders by the Trustee out of any monies it has received is made pursuant to Clause 11 of the Trust Deed, and implicitly, will be made after the Trustee has received payment or satisfaction of all amounts due and unpaid to it. Accordingly, if the amount paid to the Trustee is in fact insufficient to pay both (a) all amounts due (and unpaid) to the Trustee under Clauses 16 and 17.1(J) of the Trust Deed and (b) the Adjusted Principal Amount together with accrued interest on the proposed redemption date, then Elektrim will not have complied fully with its obligation under Clause 2.2 of the Trust Deed on payment. 
80.	In addition, the bondholders draw attention to the definition of “outstanding” in clause 1.1 of the Trust Deed. They say that this definition suggests (1) that there is a distinction between redemption and payment to the Trustee; and (2) that where there has been payment to the Trustee, the monies have to be available for payment against presentation of the bonds by the bondholders for the bonds to be considered not to be outstanding. In circumstances where, as in the present case, the Trustee contends that not all the monies are available to payment to the bondholders, then it follows that the bonds remain “outstanding”. If the bonds remain outstanding, they cannot have been redeemed.
81.	I accept these submissions, subject to the qualification that if the Trustee’s decision to apply money received in discharge of its own entitlement to remuneration or indemnity or to retain money against contingent liability is either not made in good faith or is perverse, then money in the Trustee’s hands could count as money in the bondholders’ hands and thus count towards redemption of the bonds. 
82.	Since the bonds have not been redeemed, and Elektrim is not entitled to redeem its security, it follows, in my judgment that all the terms of the Trust Deed remain in force, with the consequence that Elektrim continues to be liable to pay the Trustee’s costs.
Has interest stopped running and, if so, when?
83.	Under clause 2.2 of the Trust Deed interest is payable “on the principal amount outstanding of the Bonds … up to and including the date on which the Trustee determines to be the date on and after which payment is to be made to the bondholders.” The Trustee has not yet determined a date on which payment is to be made to the bondholders. Consequently, on the face of the documents, interest continues to run on the principal amount outstanding of the bonds.
84.	Mr Millett says that the determination of a date is a discretionary power given to the Trustee as part of its trust powers. The power must therefore be exercised for the purposes for which it was conferred; and must not be exercised capriciously, or perversely. In principle, I agree. He goes on to say that the Trustee ought to have determined a date for payment of the bondholders either on or shortly after 26 October 2006 when Elektrim paid the €525 million, or alternatively, on or shortly after 27 February 2007 when the Trustee wrote a detailed letter in rebuttal of claims made by Vivendi (which I later held on 1 May 2007 to be without foundation).
85.	I look first at the position at 26 October. As at that date, the Trustee had withdrawn its bankruptcy petition against Elektrim. But another of Elektrim’s creditors, ET (which claimed to be entitled to the PTC shares the sale of which had funded the payment to the Trustee), had presented its own petition, which the Polish bankruptcy court dismissed. ET appealed against that decision on the following day. Its appeal was not dismissed until 30 January 2007. From the Trustee’s perspective the danger of ET’s appeal was that if it succeeded, and if Elektrim were adjudged bankrupt, a liquidator might seek to undo the share transaction between Elektrim and Deutsche Telekom from the proceeds of which the €525 million had been paid. This potential “clawback” led the Trustee to fear that it was not safe to distribute any part of the €525 million. Hence it did not, at the time when it received the money in October, determine a date for payment of the bondholders. I cannot say that that decision was capricious or perverse. Accordingly, interest continued to run.
86.	By 27 February 2007 the threat of the reinstatement of ET’s bankruptcy petition had disappeared. Vivendi had made claims which the Trustee rebutted. But in addition Elektrim itself had made claims against the Trustee for substantial damages resulting from what it alleged was the wrongful retention by the Trustee of the security. The claim has now been abandoned, but Elektrim persisted in the claim at least up to the hearing on 1 May, even though the alleged damages could not at that stage be quantified. I cannot see that it lies in Elektrim’s mouth to say that its own claims were without foundation and that the Trustee should have realised that. In addition, I consider that given the magnitude of Vivendi’s claim the Trustee was entitled to come to the court for a ruling whether it had any foundation. As it turned out I held that it did not. Moreover, between October 2006 and February 2007 interest continued to run; and Elektrim made no further payment or tender. Since the Trustee is not obliged to determine a date for final payment of the bondholders until it has received all that is due, it was not obliged to determine a date for final payment of the bondholders on or shortly after 27 February 2007. 
87.	The amount on which interest continued to run was “the principal amount outstanding” of the bonds. This is defined as meaning the Increased Principal Amount of the bonds, as reduced from time to time as a result of pro rata redemptions under condition 6 (l). Accordingly in my judgment, until such time as either monies in the hands of the Trustee are actually paid down to the bondholders or it can be said that monies in the hands of the Trustee ought to count as being in the hands of the bondholders, those monies will not go in reduction of the amount outstanding, and interest will continue to run on them. That time had not arrived either at or shortly after 26 October 2006 or at or shortly after 27 February 2007. Interest therefore continues to run.
Does Elektrim have a claim relating to the PAK shares?
88.	Both the Trustee and the bondholders say that Elektrim’s claim relating to the PAK shares is hopeless as formulated; and that I should so declare. Mr Millett put the claim on the basis of a claim under the English law of tortious conversion, although everyone agrees that if there is a claim, it is likely to be a claim under Polish law. There was no evidence about Polish law, so the general presumption that foreign law is the same as English law applied. But the exercise of deciding whether the claim has any substance by applying this presumption may be an artificial one.
89.	Although during the course of the oral argument it seemed that something might turn on the question whether the PAK shares were part of the security to which the Trustee was entitled, in fact nothing turns on this. It is agreed that because the Polish treasury never gave the requisite consents to the pledge of the PAK shares, they never became part of the Trustee’s security.
90.	However, the PAK share certificates were initially deposited with the Trustee’s Polish lawyers in anticipation of receiving such consents. So the possession of the share certificates by the Trustee’s agents was, at its inception, consensual. That cannot amount to conversion. The conversion that Mr Millett relied on was conversion by keeping the share certificates after it had become clear that they would not form part of the Trustee’s security. However, where it is alleged that there is a conversion by unlawful retention of property, the usual way of showing this is by proving a refusal to surrender the property on demand: Clerk & Lindsell on Torts, 19th ed para 17-22. There is no evidence of any demand before 29 May 2007 (which Mr Millett said was the relevant demand). It follows that there is no realistic prospect of Elektrim succeeding in a claim for damages for conversion based on the retention of the share certificates up to 29 May. It is also right to say that Elektrim does not allege that the retention of the certificates up to that date has caused it any loss. That is another reason why the claim based on the retention of the certificates up to 29 May should not be a bar to distribution.
91.	However, Mr Millett urged me to concentrate on the current position and not to delve into the past. Whatever the rights and wrongs of the retention of the share certificates by the Trustee or their agents, there can no longer be any justification for retaining them. Elektrim is on the point of concluding a deal with the Polish government involving the PAK shares; and failure to secure the release of those shares would cause it an immense loss. That loss could be avoided by ordering the Trustee to deliver up the share certificates. 
92.	However, the current position is that the share certificates are not in the actual possession of the Trustee or its Polish lawyers. They have been seized by the Polish court bailiff, acting under the authority of an order of attachment granted by the Polish court. 
93.	As a general rule, where a court makes an order within its jurisdiction, that order is treated as correct, unless and until it is reversed or set aside; and acts performed under it are likewise treated as lawful. In Hillgate House Ltd v Expert Clothing Services & Sales Ltd [1987] 1 EGLR 65 the tenant was in breach of a covenant contained in a lease. The landlord brought proceedings for forfeiture, and succeeded at first instance. However, on appeal the Court of Appeal reversed the trial judge, holding that the forfeiture had been waived. The true legal position therefore was that the tenant had been the lessee throughout the proceedings. It then brought an action against the landlord, claiming damages for trespass, breach of covenant for quiet enjoyment and derogation from grant arising out of the landlord’s possession of the premises between the date of the judgment at first instance and its subsequent reversal by the Court of Appeal. Browne-Wilkinson V-C dismissed the claim. He said:
“On analysis what the plaintiffs are claiming in this case is that the acts done by them, the tenants, and by the landlords, directly pursuant to the order of the trial judge, themselves constitute a breach of legal duty which gives rise for the first time to a cause of action. In my judgment, that cannot be right. As the judgment of Scott J indicates, when an order is in force, and so long as it is in force, it is to be obeyed and is in law correct. It is true that it may be subsequently altered on appeal; but unless and until it is altered, it is an order of the court and acts done under it are lawful…. 
So when one turns to the various causes of action relied on here, in my judgment the taking of possession by the landlords under the order of the court, which possession was given to them by the tenants under the order of the court, cannot have constituted a trespass. Likewise, so long as the order of the court persisted, the tenants had no immediate right to possession, such as is necessary to found a cause of action in trespass, since the order of the court directs that they do deliver it up. So the cause of action in trespass, in my judgment, was not a good cause of action.”
94.	In SmithKline Beecham plc v Apotex Europe Ltd [2007] Ch 71 the Court of Appeal considered the availability of remedies where an interim injunction had been granted to a claimant who ultimately lost at trial. Jacob L.J said:
“A party who is granted an interim injunction but who ultimately loses the full trial is not regarded as a wrongdoer because he got an interim injunction. Sometimes, for convenience and want of a better term, the expression "wrongful injunction" is used, but in truth there is nothing wrongful about it. The decision whether or not to grant it is made on the basis of a necessarily incomplete picture. The decision depends on all the circumstances of the case, generally whether or not damages to an ultimately victorious claimant would be an adequate remedy, whether the claimant can show a serious issue to be tried and so on.”
95.	This is why, under English procedural law, it is usual for a claimant seeking an interim injunction to give a cross-undertaking in damages. As Jacob J put it in R v Medicines Control Agency, Ex p Smith & Nephew Pharmaceuticals Ltd (Primecrown Ltd intervening) [1999] RPC 705:
“There is no contract and no tort. The right to damages, if any, stems only from the cross-undertaking.”
96.	In my judgment, for as long as the order of the Polish court remains in being, and possession of the share certificates is held by the court bailiff, the Trustee commits no tort. Accordingly, I consider that the claim in conversion, as currently formulated, has no real prospect of success.
97.	Mr Millett said in the alternative that I should direct the Trustee to procure the release of the share certificates, and that I should direct it to withdraw its intervention in the Konin court. As I have said, I had understood Mr Miles QC to have originally argued that the Trustee was entitled to retain the shares as security for Elektrim’s obligations under the various documents. If that were the case then there would be no question of directing the Trustee to do anything that would have the effect of compelling it to release security that it was entitled to retain. However, it became common ground that, because the consent of the Polish treasury had not been obtained, the shares did not become security to which the Trustee was entitled. Mr Miles’ fall-back position was that in its capacity as judgment creditor the Trustee was entitled to enforce its judgment against any of Elektrim’s assets, whether or not those assets were part of the security to which the Trustee was contractually entitled.
98.	This, as I understand it, was the basis on which the Polish court made its order of attachment. The order was made at a time when the judgment of Hart J had not been satisfied. In my judgment it is a matter for the Polish court to decide whether to discharge its own order in the light of circumstances now prevailing. Elektrim was entitled to apply to that court to discharge its order, but has not done so. The order of attachment placed a time limit on the making of such an application. That time has now expired. But it is a matter for the Polish court to decide what consequences follow from that lapse of time. In addition, for as long as the Konin judgment stands, the PAK shares held by the Polish court bailiff are worthless. So far as the intervention in the Konin court is concerned, what Mr Millett really seeks is (or is equivalent to) an anti-suit injunction. No grounds on which I should grant such an injunction have been made out, and the fact that Poland is a member state of the European Union is a further complicating factor on which no argument has been addressed.
99.	I decline to direct the Trustee to procure the discharge of the attachment order and decline to direct it to withdraw from the Konin proceedings. In my judgment Elektrim’s remedy (if there is one) lies in Poland, not here.
Should the Trustee distribute?
100.	Mr Millett forcefully submitted that it could not be right that the Trustee could simultaneously have money in its hands (on which interest continued to run) and also have the benefit of the securities. If the Trustee was treating the money in its hands as security for its entitlement to indemnity against contingent obligations, then it should return the underlying securities, or at least such part of them as were equal in value to the monies in the Trustee’s hands. Mr Miles retorted that the Trustee’s entitlement was to retain trust funds to cover its contingent liabilities; and that that was all that it was doing.
101.	There are, I think, a number of difficulties with Mr Millett’s submission, attractive though it is in commercial terms. First, as I have said the agreed arrangements do not allow for partial redemption of the security. Second, the security is not to be released until the bonds have been redeemed in full. Until the money has reached the bondholders (or the Trustee has perversely decided to retain it) the bonds have not been even partially redeemed. Third, the Trustee is entitled to retain the security against future contingent obligations which they secure, unless Elektrim makes provision to the Trustee’s satisfaction. I do not, therefore, consider that I can or should direct the Trustee to release the security to which it is entitled.
102.	Ms Prevezer QC put a similar point, but from the opposing point of view of the bondholders. In substance, she also said that the Trustee should not retain both the security and the monies in its hands as security for its rights of indemnity. But whereas Mr Millett said that the Trustee should release the security and keep the money, Ms Prevezer said that the Trustee should keep the security and pay the money to the bondholders.
103.	Condition 8 (i) of the bond conditions says that the securities “shall be released upon redemption in full of the Bonds”. Although as a matter of general principle a mortgagee is entitled to retain security where that security has been charged to secure contingent obligations (see Re Rudd and Son Ltd), it seems to me that that general principle must yield to any specific terms of the agreement providing for earlier redemption. Condition 8 (i) is clear in its terms and provides for the securities to be released once the bonds have been redeemed in full. It seems to me, therefore, that if the bonds have been redeemed in full, then the Trustee must release the securities, even if there are still contingent liabilities outstanding. It follows, in my judgment, that the Trustee cannot redeem the bonds in full and yet retain the securities. 
104.	The Trustee is also entitled to contractual indemnities under clauses 16.5 and 17.1 (J) of the Trust Deed. Ms Prevezer says that the Trustee should require Elektrim, in reliance on these provisions, to provide the funds needed to secure the Trustee’s contingent liabilities. However, I do not read these clauses as entitling the Trustee to have “money up front”. Ms Prevezer pointed out that these were contracts of indemnity. So they are; but the fact that a contract is one of indemnity against loss or damage (even contingent loss or damage) does not necessarily mean that the person entitled to indemnity is entitled to ask for money before the loss or damage takes place.
105.	However, the fact remains that the Trustee is not only a mortgagee. It is also a trustee of the monies that come into its hands; and moreover a trustee of a trust under which both the bondholders and Elektrim are at least potential beneficiaries, constituted by a deed of trust to which Elektrim is a party. In its capacity as trustee, the Trustee is, in my judgment, entitled to retain out of the trust fund sufficient to secure its entitlement to indemnity. If it were to pay the bondholders in full, and thus become obliged to release the securities, it would not be able to secure its entitlement to indemnity. If, on the other hand, it were to retain monies in its hands in order to secure its right to indemnity, it will not have redeemed the bonds in full, and it will therefore be entitled or obliged to retain the security as well. It would have been attractive to devise a solution under which the Trustee could pay the bondholders in full, and yet retain the security against future contingent liabilities. But in view of the clear terms of Bond Condition 8 (i), I do not consider that this can be done. A trustee’s right to indemnity and the consequential lien or charge that he has over trust assets has always been treated as a first charge on the trust fund. In those circumstances, it seems to me that the Trustee’s right to indemnity “trumps” the bondholders’ entitlement to be paid and Elektrim’s right to redeem its security. I therefore conclude that I should not direct the Trustee to distribute to the bondholders any part of the trust monies that (on reasonable but worst case assumptions) might be required to indemnify the Trustee.
106.	This, as it seems to me, is one area in which the relationships of trustee and beneficiary on the one hand, and mortgagor and mortgagee on the other, do not fit together well; and could usefully have been the subject of some express wording.
How much should the Trustee retain?
107.	The Trustee has produced a schedule of costs which it considers that (on reasonable but worst case assumptions) it might have to incur. The total comes to €16,955,700. Although the schedule is broken down into headings, there is no detailed narrative. Mr Miles accepted that the figures in items 6g and 6h (both of which related to Elektrim’s now abandoned claim over the failure to release securities) could be excluded from the total, which would reduce it to €16,730,700. The bulk of the remaining items are mostly the anticipated costs of litigation or arbitration and the Trustee’s own remuneration. However, the schedule also includes €500,000 for general advice on Polish law matters relating to the administration of the trust. Given that the trust is regulated by English law, it is hard to see what these matters might be if they are not litigation (the cost of which is covered elsewhere). It also includes a sum of €1,500,000 for general advice to the Trustee on English law trust matters. It is true that because the trust is governed by English law, the Trustee will need advice from time to time on non-litigious matters. But it is hard to see how as much as €1,500,000 in addition to litigation costs is going to be spent. Mr Millett also had criticisms of other items on the schedule. Some of the criticisms seemed to me to have force; but they were only made in oral argument and the Trustee has not had a proper opportunity to answer them.
108.	I bear in mind that whatever decision I make about the scale of the retention is only provisional. If in the future it turns out that the Trustee is in a position to distribute more, then a further application can be made. It must also not be forgotten that since the bondholders will not have been paid in full if there is any significant retention, the Trustee will also retain the securities as security for its entitlement to indemnity. However, bearing in mind Mr Millett’s criticisms and also my own misgivings about the two large items for general advice that I have mentioned, I propose to allow the Trustee to retain €15,500,000 out of the fund.
The new Vivendi claim
109.	By an amended complaint issued in the District Court of Florida, Miami Division, a corporation called Vivendi Holding 1 Corp has issued proceedings against both Elektrim and the Trustee. It claims in its capacity as the assignee of GM, one of the bondholders. The essence of its complaint against the Trustee is that the Trustee failed to disclose information to the bondholders before withdrawing the bankruptcy petition against Elektrim in Poland; and that if that information had been disclosed, then the bondholders might not have agreed to the withdrawal. It also complains that the Trustee has accepted “tainted money” in the shape of part of the proceeds of sale of the PTC shares, which, as I have said, constituted the payment of €525,000,000 that Elektrim made to the Trustee. Remarkably, bearing in mind that Vivendi Holding 1 Corp is a bondholder, it seeks to restrain the Trustee from paying the bondholders.
110.	For a variety of reasons (which I think I need not rehearse), it is common ground that these claims against the Trustee are without reasonable foundation; and the Trustee does not assert that the existence of this claim is a bar to distribution (other than a retention in respect of the legal costs of defending it and/or having it summarily dismissed).
111.	The figure of €15,500,000 may have to be modestly increased to take account of those costs, but otherwise remains unchanged.
Conditions on distribution
112.	The Trustee seeks to impose conditions on distribution. The Trustee says that either it should be entitled to require any bondholder to whom a distribution is made to enter into an indemnity in favour of the Trustee; or the bondholders should be required to identify themselves so that, if necessary, the Trustee can pursue them under the indemnities contained in the Trust Deed and/or the bond conditions. The difficulty arises because the bondholders who are beneficially entitled to the bonds do not appear in any of the records to which the Trustee has access.
113.	The definition of “bondholders” in the Trust Deed is:
“…the several persons whose names are entered in the register of holders of the Bonds as the holders thereof which expression shall, while any Global Certificate remains outstanding, mean in relation to the Bonds represented thereby each person who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of the Bonds”
114.	However, the holder of the global certificate is (so I was told) a subsidiary of Citibank; while the persons whose names would appear in the records of Euroclear or Clearstream are themselves nominees. However, the Trust Deed and the bond conditions themselves contain agreed provisions about payment. Where the Trustee makes a distribution the manner of that distribution is governed by condition 7 of the bond conditions. Condition 7 (a) provides that payments will be made in Euro by credit or transfer to the registered Euro account of the bondholder; and  Condition 7 (c) provides that a bondholder’s registered account means the account maintained by or on behalf of it, details of which appear on the Register. The scheme of the documents therefore seems to me to accept that the Trustee may never know the identity of the persons beneficially entitled to the bonds; but will deal with their nominees. No doubt this is part of the package that makes the purchase of bonds attractive to some people. 
115.	To permit the Trustee to impose conditions on distributions would, in my judgment, upset the scheme contained in the documents. Moreover, unless and until the bonds have been redeemed in full, the Trustee’s indemnity is secured by the securities. I was not therefore persuaded that there is any need for the Trustee to have the additional comfort of express indemnities from the underlying bondholders. I decline therefore to permit the Trustee to impose conditions on distributions.
How much does Elektrim owe?
116.	I think that the only remaining point of principle with which I need to deal relates to interest. The point arises out of the judgment given by Hart J. Paragraph 2 of his order declared that principal fell due under the Trust Deed on 18 January 2005 in the sum of €444,036,495.88. Paragraph 3 said that but for the credit to be given to Elektrim for the Mostostal Funds then standing in the Security Account, interest on the principal amounted to €32,548,959.76. The total of these two figures is €476,585,455.64. Hart J then ordered various enquiries. Paragraphs 4 and 7 declared that the Trustee was entitled to make certain deductions from those monies. Paragraph 10 of his order said:
“The First and Second Defendants do pay the Claimant the sum of €471,419,079.54, being the sum due in respect of principal, interest on principal and claimed unpaid costs … as at the date hereof less so much of the Security Account Monies as remains after the deductions allowed under paragraphs 4 and 7 above.”
117.	Thus the difference between the sum that Hart J declared to be due and the sum that he ordered Elektrim to pay was €5,166,376.10. In fact the amount remaining due after giving credit for the Security Account monies was greater than the sum specified in paragraph 10 of Hart J’s order because more was due to the Trustee for costs than had been anticipated. 
118.	Interest has been calculated on two bases:
i)	First, on the basis that interest has been accruing on the whole of the sum that Hart J declared to be due, namely €476,585,455.64, at the rate of 8 per cent per annum. Interest calculated on this basis, down to 17 May 2007, was €21,204,788.49
ii)	Second, on the basis that interest has been accruing at 8 per cent only on the principal amount due under the bonds, namely €444,036,495.88. Interest calculated on this basis, down to 17 May 2007, was €19,756,582,72.
119.	I am not at the moment convinced that either calculation is right. I take the first basis first. Under the terms of the Trust Deed interest at 8 per cent is payable on the principal amount outstanding of the bonds. The principal amount outstanding of the bonds does not include interest. In other words, under the terms of the Trust Deed, interest is not payable on interest. So the Trust Deed cannot be used to justify claiming 8 per cent interest on the whole of the amount that Hart J declared to be due. However, interest payable under the Judgments Act 1838 is payable on the whole of the judgment debt, and if the judgment debt includes interest, then interest is payable on that element too.  But it seems to me that the judgment debt is the amount that Hart J actually ordered Elektrim to pay, namely €471,419,079.54. The fact that a lesser credit was applied out of the Security Account Monies does not seem to me to change the amount of the judgment debt; although it might form the basis for an application to amend the judgment (an application that has not been made). Accordingly, I do not consider that the first basis of calculation is correct.
120.	The second basis of calculation charges interest only on the principal amount outstanding of the bonds. There is no doubt that in the light of my conclusions so far, Elektrim is liable to pay at least this amount under the terms of the Trust Deed, because the monies paid over to the Trustee have not yet been paid down to the bondholders, and hence has not gone in reduction of the principal amount outstanding of the bonds. But this calculation seems to me to understate Elektrim’s liability, which is to pay interest under the Judgments Act on the whole of the judgment sum, namely €471,419,079.54.
121.	However, due to the breakneck speed at which this point was covered during oral argument, I am minded to permit further argument on this point if the Trustee and the bondholders wish to press for an amount of interest greater than that calculated on the second basis.
The bondholders’ resolution
122.	The bondholders have passed, by an overwhelming majority, a resolution that direct the Trustee to pay the costs and expenses of the ad hoc committee of bondholders in priority to an actual distribution to them. It is agreed that any such payment will count towards redemption of the bonds, so that Elektrim will not be required to pay that amount again. Elektrim is therefore neutral on this question. The Trustee is also neutral on the question. The point arises because the bondholders’ committee have incurred costs and expenses in attempting to obtain payment under the bonds. They have sought advice and have litigated in many jurisdictions and, even where they have succeeded in litigation they have not recovered all their costs. It is they who have funded their own costs and expenses; and they want those costs to be shared by all the bondholders pari passu. 
123.	The Fourth Schedule to the Trust Deed allows the bondholders by a resolution passed by three quarters of those voting at a meeting to effect wide changes in their rights. The resolution that they have passed falls within those powers. However the power to change their rights must be exercised by the bondholders in good faith and for the purpose of benefiting the class as a whole: British American Nickel Corporation Ltd v MJ O’Brien Ltd [1927] AC 369. The argument that could be mounted against the resolution is that since the bondholders’ committee have already incurred the costs and expenses, it is not in the interests of the class as a whole for liability for those costs to be retrospectively imposed on them. On the other hand, the costs in question have been incurred for the benefit of the class of bondholders as a whole, and it would not be fair for some of them to have a free ride. In my judgment it is not unfair for the bondholders as a whole to have to pay the bill for costs and expenses that have been incurred for their benefit, and I am prepared to declare that the resolution was validly passed.
124.	I understand that if such a declaration is made, the Trustee will give effect to it and that there is no need for a formal direction to that effect.
125.	I believe that this judgment covers the points that were argued at the hearing, but if there are any additional points, they can be dealt with on the handing down of this judgment.