Reliance Rail Pty Limited v Permanent Custodians Limited

[2017] NSWSC 1111

Supreme Court

New South Wales

Medium Neutral Citation:	Reliance Rail Pty Limited v Permanent Custodians Limited [2017] NSWSC 1111
Hearing dates:	07/08/2017 and 08/08/2017
Date of orders:	23 August 2017
Decision date:	23 August 2017
Jurisdiction:	Equity - Commercial List
Before:	McDougall J
Decision:	Parties to bring in draft orders.
Catchwords:	CONTRACTS — construction — approach to construction – whether plaintiffs permitted to refinance debt without the consent of all creditors — determination of conditions that must be satisfied to refinance debt — determination of amount payable upon the redemption of debt — whether plaintiffs permitted to amend a deed without unanimous decision — where contracts interlock — identification of the commercial purpose or objects of the contracts
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Bank of Queensland v Chartis Australia Insurance [2013] QCA 183 Big River Timbers Pty Ltd v Stewart (1999) 9 BPR 16, 605 BNY Mellon Corporate Trustee Services Ltd v LBG Capital Number 1 PLC [2017] 1 All ER 497 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Fitzgerald v Masters (1956) 95 CLR 420 Hyde Management Services Pty Ltd v FAI Insurances Ltd (1979) 144 CLR 541 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 National Roads and Motorists’ Association v Parkin (2004) 60 NSWLR 224 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 Zhu v Treasurer of New South Wales (2004) 218 CLR 530
Category:	Principal judgment
Parties:	Reliance Rail Pty Limited (First Plaintiff) Reliance Rail Finance Pty Limited (Second Plaintiff) Reliance Rail Holdings Pty Limited (Third Plaintiff) Permanent Custodians Limited (First Defendant) BNY Trust (Australia) Registry Limited (Second Defendant) Dexia Credit Local Sa (Third Defendant) FMS Wertmanagement Aör (Fourth Defendant) Assured Guaranty Corp (Fifth Defendant) Assured Guaranty Municipal Corp (Sixth Defendant) Syncora Guarantee Inc (Seventh Defendant) FGIC UK Limited (Eighth Defendant)
Representation:	Counsel: MJ Darke SC / S Lawrance / E Bathurst (Plaintiffs) DR Sulan (First and Second Defendants) IM Jackman SC / DFC Thomas (Third and Fourth Defendants) R McHugh SC / N Bender (Fifth and Sixth Defendants) MS Henry SC / RCA Higgins (Seventh and Eighth Defendants)   Solicitors: Gilbert + Tobin (Plaintiffs) Hogan Lovells (First and Second Defendants) Herbert Smith Freehills (Third and Fourth Defendants) Quinn Emanuel Urquhart & Sullivan (Fifth and Sixth Defendants) Arnold Bloch Leibler (Seventh and Eighth Defendants)
File Number(s):	2017/185479

Judgment

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

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

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

Background

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

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

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

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

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

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

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

The parties

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

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

13. The second defendant (BNY) is the security trustee.

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

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

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

17. Dexia and FMS oppose the grant of relief.

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

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

The issues in dispute

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

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

3.   The issues to be determined are as follows:

(1)   whether, on the proper construction of the Senior Intercreditor Deed and the Senior Bond Trust Deed, the Second Plaintiff is entitled under clause 7.4 of the Senior Intercreditor Deed and clause 5.3 of Schedule 1 to the Senior Bond Trust Deed to redeem the Senior Bonds at any time before their Maturity Dates upon satisfaction of the conditions set out in clause 7.4 of the Senior Intercreditor Deed, and without the approval of the Senior Bondholders or any other Creditor;

(2)   if the answer to 0 is “yes”, what are the conditions that must be satisfied in order for the Second Plaintiff to be so entitled pursuant to clause 7.4 of the Senior Intercreditor Deed;

(3)   if the answer to 0 is “yes”, whether on the proper construction of the Senior Intercreditor Deed and the Senior Bond Trust Deed, the amount payable by the Second Plaintiff upon the redemption of the Senior Bonds in accordance with clause 7.4 of the Senior Intercreditor Deed is limited to:

(i)   in the case of an Instalment Senior Bond, the Par Amount;

(ii)   in the case of a Bullet Senior Bond, the outstanding principal amount, plus any accrued but unpaid interest, as at the date of redemption; and

(iii)   in each case, any other amount in the nature of a redemption amount specified in, or determined in accordance with, the Pricing Supplement for the relevant Tranche or the Senior Bond Conditions,

or whether, in addition, Senior Bondholders (as Secured Beneficiaries under the Debt Financing Documents) are entitled to be paid any amounts which are or become due to

them by the Obligor pursuant to the indemnity contained in clause 8.2 of the Common Terms Deed;

(4)   whether, on the proper construction of the Senior Intercreditor Deed and the Junior Bond Trust Deed, the Second Plaintiff is entitled under clause 7.4 of the Senior Intercreditor Deed and clause 5.3 of Schedule 1 to the Junior Bond Trust Deed to redeem the Junior Bonds at any time before their Maturity Dates upon satisfaction of the conditions set out in clause 7.4 of the Senior Intercreditor Deed, and without the approval of the Junior Bondholders or any other Creditor;

(5)   if the answer to (d) is “yes”, whether on the proper construction of the Senior Intercreditor Deed and the Junior Bond Trust Deed, the amount payable by the Second Plaintiff upon the redemption of the Junior Bonds in accordance with clause 7.4 of the Senior Intercreditor Deed is limited to:

(i)   the outstanding principal amount, plus any accrued but

unpaid interest, as at the date of redemption; and

(ii)   any other amount in the nature of a redemption amount specified in, or determined in accordance with, the Pricing Supplement for the relevant Tranche or the Junior Bond Conditions,

or whether, in addition, Junior Bondholders (as Secured Beneficiaries under the Debt Financing Documents) are entitled to be paid any amounts which are or become due to them by the Obligor pursuant to the indemnity contained in clause 8.2 of the Common Terms Deed;

(6)   whether, solely on the proper construction of clause 8.2 of the Common Terms Deed, the NSW Rolling Stock Security Trust Deed (Security Trust Deed) and the Senior Intercreditor Deed, it can be said that the Plaintiffs are not obliged to indemnify any person against liability or loss arising from, or Costs incurred in connection with, any of the circumstances prescribed in paras (a) to (h) of that clause, by reason of the person:

(i)   having an economic interest in Senior Bonds or Junior Bonds; or

(ii)   holding Senior Bonds or Junior Bonds through a custodian (other than Austraclear Limited),

in circumstances where the person is not recorded on the Senior Bond Register or the Junior Bond Register (or on the register of holders maintained by Austraclear Limited in respect of the Senior Bonds or Junior Bonds);

(7)   whether it can be said that the amount of Financial Indebtedness required to be raised by the Plaintiffs pursuant to clause 7.4(d) of the Senior Intercreditor Deed in order that all of the Creditors in respect of Senior Bonds in which the Third Defendant contends it has an economic interest be Finally Paid is:

(i)   the aggregate of the Par Amounts of each such Senior Bond that is an Instalment Senior Bond; plus

(ii)   the aggregate of the outstanding principal amount, plus any accrued but unpaid interest of each such Senior Bond that is a Bullet Senior Bond;

(8)   whether it can be said that the amount of Financial Indebtedness required to be raised by the Plaintiffs pursuant to clause 7.4(d) of the Senior Intercreditor Deed in order that all of the Creditors in respect of Senior Bonds in which the Fourth Defendant contends it has an economic interest be Finally Paid is:

(i)   the aggregate of the Par Amounts of each such Senior Bond that is an Instalment Senior Bond, plus;

(ii)   the aggregate of the outstanding principal amount, plus any accrued but unpaid interest of each such Senior Bond that is a Bullet Senior Bond;

(9)   whether, solely on the proper construction of the Senior Intercreditor Deed, it can be said that a decision by Creditors to instruct the Intercreditor Agent to approve the following amendments to the Common Terms Deed is not a matter that requires a Unanimous Decision:

(ii)   amend the beginning of clause 8.2 of the Common Terms Deed to read:

“Subject to clauses 8.2A and 8.3, Tthe Obligor indemnifies each Secured Beneficiary…”

(ii)   amend the last paragraph of clause 8.3 of the Common Terms Deed to read:

“Notwithstanding the foregoing, Tthe Obligors are not required to pay any amount on account of any liability or loss arising from, and any Costs in connection with, any of the matters specified in clause 8.2 (“Indemnity”) to the extent they are due to (i) the gross negligence or wilful misconduct of the Secured Beneficiary (or any person specified in clause 8.4 (“Payment of third party losses”) or (ii) any repayment or redemption of any financial accommodation under a Debt Financing Document prior to its maturity upon a refinancing effected in accordance with clause 7.4 of the Senior Intercreditor Deed”

(iii)   insert a new clause after clause 8.2 of the Common Terms Deed and before clause 8.3, numbered 8.2A, that provides as follows:

“Notwithstanding anything in the Transaction Documents, no Secured Beneficiary that was not a Secured Beneficiary as at 19 July 2017 is entitled to be indemnified pursuant to clause 8.2 in connection with any repayment or redemption of any financial accommodation under a Debt Financing Document prior to its maturity following a refinancing effected in accordance with clause 7.4 of the Senior Intercreditor Deed.”

(10)   whether the Plaintiffs have established that it would be appropriate to give declaratory relief in the terms sought in the Second Further Amended Summons or at all.

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

    1. At [100], [101].

Approach to construction of commercial contracts

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

    2. (2014) 251 CLR 640.

    3. (2015) 256 CLR 104.

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

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

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

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

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

    4. Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; Zhu v Treasurer of New South Wales (2004) 218 CLR 530.

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

    5. BNY Mellon Corporate Trustee Services Ltd v LBG Capital Number 1 PLC [2017] 1 All ER 497; National Roads and Motorists’ Association v Parkin (2004) 60 NSWLR 224.

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

First issue: right to redeem the Senior Bonds?

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

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

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

    6. Contained in Schedule 1 to the Senior Bond Trust Deed.

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

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

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

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

7.4   Refinancing - all of the Senior Debt or all of the Debt in a single transaction

The Obligors may raise Financial Indebtedness to refinance all (and only all) of the Senior Debt without the approval of any Creditor if:

(a)   the Financial Indebtedness is raised in a sufficient amount and manner to ensure all Senior Creditors are Finally Paid at the same time upon first raising of the Financial Indebtedness;

(b)   clause 7.10 (“General Rules for new Financial Indebtedness”) is satisfied; and

(c)   if any Tranche of Senior Debt which has a restriction upon its redemption (such as the need for an approval from a Senior Creditor or a Financial Guarantor), such restriction has been satisfied or waived under the terms of the Senior Debt Financing Documents.

The Obligors may raise Financial Indebtedness to refinance all (and only all) of the Debt without the approval of any Creditor if:

(d)   the Financial Indebtedness is raised in a sufficient amount and manner to ensure all Creditors are Finally Paid at the same time upon first raising of the Financial Indebtedness;

(e)   clause 7.10 (“General Rules for new Financial Indebtedness”) is satisfied; and

(f)   if any Tranche of Debt which has a restriction upon its redemption (such as the need for an approval from a Creditor or a Financial Guarantor), such restriction has been satisfied or waived under the terms of the Debt Financing Documents.

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

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

3.2   Undertaking to pay

The Borrower agrees to:

(a)   pay principal, any interest and any other amounts payable in respect of each Senior Bond in accordance with the Conditions of the Senior Bond; and

(b)    comply with the other Conditions of each Senior Bond.

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

1.1    Pricing Supplement

Senior Bonds are issued in Tranches. The Senior Bonds of each Tranche are issued on the terms set out in these conditions, as amended, supplemented or replaced by the Pricing Supplement for that Tranche.

If there is any inconsistency between these conditions and the Pricing Supplement for a Tranche, the Pricing Supplement prevails.

1.5    Clearing Systems

Senior Bonds may be held in a Clearing System. If Senior Bonds are held in a Clearing System, the rights of the Senior Bondholders and any person claiming through or under a Senior Bondholder holding an interest in those Senior Bonds are subject to the rules and regulations of the Clearing System. The Borrower is not responsible for anything the Clearing System does or omits to do.

1.6    Subject to Senior Bond Trust Deed and Common Terms Deed

All rights of Senior Bondholders in connection with the Senior Bonds are subject to the Senior Bond Trust Deed, the Senior Intercreditor Deed and the Common Terms Deed. Each Senior Bondholder is bound by the terms of the Senior Bond Trust Deed, the Senior Intercreditor Deed and the Common Terms Deed.

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

5   Redemption

5.1   Scheduled redemption

The Borrower agrees to redeem each Senior Bond on its Maturity Date by paying to the Senior Bondholder the Redemption Amount for the Senior Bond. However, the Borrower is not required to redeem a Senior Bond on its Maturity Date if the Borrower redeems, purchases or cancels the Senior Bond before its Maturity Date.

5.2   Instalment Senior Bonds

The Borrower must redeem each Instalment Senior Bond in instalments by paying to the Senior Bondholder on each Instalment Date the Instalment due on that Instalment Date.

5.3   Early redemption

If the Senior Bonds are to be, or are required to be redeemed or accelerated early in accordance with the Senior Intercreditor Deed (including if an Acceleration Notice has been delivered to the Bond Trustee or if a Compensation Date occurs), then the Borrower must redeem each Senior Bond by paying the Redemption Amount for that Senior Bond to the relevant Senior Bondholder.

5.4   Early redemption at the option of the Borrower

If the Pricing Supplement for a Tranche states that the Borrower may redeem some or all of the Senior Bonds of that Tranche before their Maturity Date, the Borrower may redeem so many of the Senior Bonds specified in the Pricing Supplement by paying to the Senior Bondholders the Redemption Amount for those Senior Bonds.

However, the Borrower may only redeem the Senior Bonds of a Tranche under this condition 5.4 if:

(a)   the amount of Senior Bonds to be redeemed is a whole multiple of their Denomination;

(b)   between 30 and 60 days (or any other period specified in, or determined in accordance with, the Pricing Supplement) before the proposed redemption date, the Borrower notifies the proposed redemption, specifying the Senior Bonds to be redeemed, to the Senior Bondholders of the Senior Bonds to be redeemed

(c)   the requirements of the Senior Intercreditor Deed in respect of any such redemption are complied with;

(d)   the proposed redemption date is a call date specified in the Pricing Supplement for that Tranche; and

(e)   any other condition specified in the Pricing Supplement for that Tranche is satisfied.

5.5    Partial redemption at the option of the Borrower

If the Borrower redeems some of the Senior Bonds of a Tranche only under condition 5.4 ("Early redemption at the option of the Borrower (Borrower call)"), the Borrower must select the Senior Bonds:

(a)   in a fair and reasonable manner; and

(b)    in compliance with any applicable law, directive or requirement of any stock exchange or other relevant authority on which the Senior Bonds of that Tranche are listed.

5.6    Effect of redemption notice

Any redemption notice given by the Borrower under this condition 5 ("Redemption") is irrevocable.

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

…[I]nscribed stock consisting of CPI indexing bonds due December 2035… .

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

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

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

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

… [I]nscribed stock consisting of callable floating rate step-up bonds due September [year]… .

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

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

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

1. to give the Obligors some power to raise Financial Indebtedness;

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

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

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

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

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

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

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

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

Financial Indebtedness means in relation to a person, at any time, the indebtedness, present or future, actual or contingent, of that person in respect of money borrowed or raised or any financial accommodation whatsoever including:

(a)   any amount payable under a capital or finance lease by such person;

(b)   indebtedness created, incurred, issued or assumed by such person:

(i)   for or in respect of money borrowed or raised; or

(ii)   evidenced by bonds, debentures, notes or similar instruments; or

(iii)   in connection with the taking of deposits;

(c)   indebtedness created, incurred or assumed by such person for the deferred purchase price of property or services (other than any such indebtedness which consists of trade accounts payable arising in the ordinary course of business and on terms requiring payment in full within no more than 60 days so long as such indebtedness is discharged in accordance with such terms);

(d)   obligations of such person under or in respect of:

(i)   Guarantees (other than in respect of those obligations excluded with respect to indebtedness for trade accounts payable pursuant to paragraph (c)) or Hedge Contracts; or

(ii)   acceptance or endorsement facilities (to the extent drafts or bills or other instruments have been accepted or endorsed under such facilities); or

(iii)   drafts, bills or similar instruments issued, endorsed or accepted by banks and other financial institutions for the account of such person (other than reliquefication bills drawn by the person where the person has an indemnity in respect thereof from a financial institution endorsing or accepting the same); or

(iv)   interest rate swaps and other hedging agreements; or

(v)   letters of credit;

(e)   any dividend (whether or not declared, and whether or not there are sufficient profits or other money for payment) of any redeemable or repurchasable share or stock; and

(f)   in respect of any obligation to deliver property or services which are paid for in advance by a financier of which are paid in advance in connection with any financing transaction,

and, for the purposes of the Debt Financing Documents, the amount of any contingent obligation or of the liability of the relevant person under or in respect of any Guarantee will equal the amount of the Financial Indebtedness supported by the contingent obligation or Guarantee, and rollovers under a facility (including changes in the Kind of Financial Indebtedness where the facility so permits or provides) will be deemed not to be the incurring of or extinguishment of Financial Indebtedness except to the extent that it results in an increase in the principal amount outstanding of such Financial Indebtedness.

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

Finally Paid means the later of the following:

(a)   in respect of:

(i)   a particular Secured Beneficiary, when that Secured Beneficiary confirms to the Security Trustee that all of the Secured Money of that Secured Beneficiary has been fully and finally repaid and all of the Secured Beneficiary’s commitments under all Debt Financing Documents have been cancelled or reduced to zero (which the Secured Beneficiary agrees to do promptly); and

(ii)   a Financial Guarantor, it has confirmed in writing to the Security Trustee that its Financial Guarantees have terminated or expired in accordance with their terms, which that Financial Guarantor agrees to do promptly after that termination or expiry, or the beneficiary of the Financial Guarantee has surrendered the Financial Guarantee for cancellation; and

(b)   otherwise, when the Secured Beneficiaries confirm to the Security Trustee that all of the Secured Money has been fully and finally repaid other than from a source of additional Secured Money on any refinancing and all commitments under all Debt Financing Documents have been cancelled or reduced to zero (which the Secured Beneficiaries agree to do promptly).

Confirmations referred to in this definition must be provided by the relevant Secured Beneficiary, Secured Beneficiaries or Financial Guarantor on full and final repayment of their Secured Money.

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

Secured Money means all amounts that:

(a)   at any time;

(b)   for any reason or circumstance in connection with any agreement, transaction, instrument (whether or not negotiable), document, event, act, omission, matter or thing whatsoever;

(c)   whether at law or otherwise;

(d)   and whether or not of a type within the contemplation of the parties at the date of this deed:

(i)   are payable, are owing but not currently payable, are contingently owing, or remain unpaid, by a Chargor to a Secured Beneficiary; or

(ii)   a Secured Beneficiary has advanced or paid on a Chargor’s behalf or at the Chargor’s express or implied request; or

(iii)   the Secured Beneficiary is liable to pay by reason of any act or omission on a Chargor’s part, or that the Secured Beneficiary has paid or advanced in protecting or maintaining the Secured Property or this deed following an act or omission on a Chargor’s part; or

(iv)   are reasonably foreseeable as likely, after that time, to fall within any of the above paragraphs.

This definition applies:

(a)   irrespective of the capacity in which a Chargor or the Secured Beneficiary became entitled to, or liable in respect of, the amount concerned;

(b)   whether a Chargor or a Secured Beneficiary is liable as principal debtor, as surety, or otherwise;

(c)   whether a Chargor is liable alone, or together with another person;

(d)   even if a Chargor owes an amount or obligation to a Secured Beneficiary because it was assigned to a Secured Beneficiary, whether or not:

(i)   the assignment was before, at the same time as, or after the date of this deed; or

(ii)   a Chargor consented to or was aware of the assignment; or

(iii)   the assigned obligation was secured before the assignment;

(e)   even if this charge was assigned to a Secured Beneficiary, whether or not:

(i)   a Chargor consented to or was aware of the assignment; or

(ii)   any of the Secured Money was previously unsecured; or

(f)   if a Chargor is a trustee, whether or not it has a right of indemnity from the trust fund.

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

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

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

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

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

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

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

    7. T 69.43-48; 70.6-.13

    8. T 70.15-.17.

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

JACKMAN: Achieves no purpose that couldn't have been achieved under the general law, but it serves a purpose of - we don't know what the drafting history is to 7.4 and who knows whether Reliance Rail, for example, wanted to have a provision in her for refinancing all of their debt, and someone said you can only have that provision if you add (c) and (f) to it, which gives paramount (c) to the restrictions that presently exist. Then the parties could have said let's scrap 7.4 entirely, or they could have said okay we'll put (c) and (f) in. One just doesn't know. But 7.4, your Honour is quite right, does not really achieve anything that could not have been achieved by separate negotiation at a subsequent point in time.

9. T71.1-.16.

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

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

    10. (1999) 9 BPR 16, 605 at 16, 607 (Mason P, with whom Handley JA agreed).

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

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

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

    11. (1979) 144 CLR 541 at 543-544.

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

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

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

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

Second issue: conditions on which redemption may be effected

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

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

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

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

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

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

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

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

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

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

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

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

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

    12. (1956) 95 CLR 420.

    13. [2013] QCA 183.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.2   Indemnity

The Obligor indemnifies each Secured Beneficiary against any liability or loss arising from, and any Costs incurred in connection with:

(a)   financial accommodation requested under a Debt Financing Document not being provided in accordance with the request for any reason except the default of that Secured Beneficiary; or

(b)   financial accommodation under a Debt Financing Document being repaid, redeemed, discharged or made payable other than at its maturity or on a scheduled interest payment, coupon payment or reduction date applicable to it; or

(c)   the Secured Beneficiary acting in connection with a Debt Financing Document in good faith on fax instructions purporting to originate from the offices of the Obligor or to be given by an Authorised Officer of the Obligor; or

(d)   a Default Event or breach of a Debt Financing Document (except to the extent caused by that Secured Beneficiary); or

(e)   a Secured Beneficiary exercising or attempting to exercise a Power in connection with a Debt Financing Document; or

(f)   except to the extent otherwise provided for in clause 8.1 (“What the Obligor agrees to pay”), the Transaction Documents; or

(g)   any statement in, conduct relying on or omission or any alleged omission from any information memorandum prepared or authorised by it, or any Claim in respect of any of the above; or

(h)   any indemnity a Secured Beneficiary gives a Controller or administrator of the Obligor in accordance with the Debt Financing Documents.

The Obligors agree, subject to the Senior Intercreditor Deed, to pay amounts due under this indemnity on demand from the Intercreditor Agent or any other Secured Beneficiary.

8.3   Items included in loss, liability and costs

The Obligor agrees that:

(a)   the Costs referred to in clause 8.1(a) (“What the Obligor

agrees to pay”) and the liability, loss or Costs referred to in

clause 8.2 (“Indemnity”) include reasonable legal Costs in

respect of the matters in clause 8.1(a) and otherwise include

legal Costs on a full indemnity basis;

(b)   the Costs referred to in clause 8.1 (“What the Obligor agrees to pay”) include those paid, or that the Secured Beneficiary reasonably believes are payable, to persons engaged by the Secured Beneficiary in connection with the Debt Financing Documents (such as consultants); and

(c)   loss or liability and any Costs in any indemnity under the Transaction Documents may include an amount called “break costs”. These may be calculated by any method generally accepted in the financial markets which the Secured Beneficiary reasonably chooses including by reference to any loss it incurs because the Secured Beneficiary terminates arrangements it has made with others to fund (or to maintain its funding of) financial accommodation under the Transaction Documents. The Secured Beneficiary must provide to the Obligors details of the method of calculation of the amount of “break costs” to the Obligor if the Obligor requests it to do so.

The Obligors are not required to pay any amount on account of any liability or loss arising from, and any Costs in connection with, any of the matters specified in clause 8.2 (“Indemnity”) to the extent they are due to the fraud, gross negligence or wilful misconduct of the Secured Beneficiary (or of any person specified in clause 8.4 (“Payment of third party losses”).

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

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

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

    14. By adaptation from the definition of Secured Money.

    15. The definition comes from the Security Trust Deed.

    16. See the definitions of each expression in the Security Trust Deed, cross-referring to the definitions in Senior Intercreditor Deed.

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

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

    17. At [89].

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

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

    18. See at [84] above.

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

    19. Written submissions, [97].

Fourth and fifth issues: Bullet Junior Bonds

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

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

    20. At [12] above.

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

Sixth, seventh and eighth issues

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

     21. T96.16-.19.

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

     22. Port of Melbourne Authority v Anshun Pty Ltd (No 2) (1981) 147 CLR 589.

     23. T98.45-100.14.

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

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

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

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

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

8.2 Indemnity

Subject to clauses 8.2A and 8.3, tThe Obligor .indemnifies each Secured Beneficiary against any liability or loss arising from, and any Costs incurred in connection with:

(a)    financial accommodation requested under a Debt Financing Document not being provided in accordance with the request for any reason except the default of that Secured Beneficiary; or

(b)    financial accommodation under a Debt Financing Document being repaid, redeemed, discharged or made payable other than at its maturity or on a scheduled interest payment, coupon payment or reduction date applicable to it; or

(c)    the Secured Beneficiary acting in connection with a Debt Financing Document in good faith on fax instructions purporting to originate from the offices of the Obligor or to be given by an Authorised Officer of the Obligor; or

(d)    a Default Event or breach of a Debt Financing Document (except to the extent caused by that Secured Beneficiary); or

(e)    a Secured Beneficiary exercising or attempting to exercise a Power in connection with a Debt Financing Document; or

(f)    except to the extent otherwise provided for in clause 8.1 ("What the Obligor agrees to pay"), the Transaction Documents; or

(g)    any statement in, conduct relying on or omission or any alleged omission from any information memorandum prepared or authorised by it, or any Claim in respect of any of the above; or

(h)    any indemnity a Secured Beneficiary gives a Controller or administrator of the Obligor in accordance with the Debt Financing Documents.

The Obligors agree, subject to the Senior Intercreditor Deed, to pay amounts due under this indemnity on demand from the Intercreditor Agent or any other Secured Beneficiary.

8.2A

Notwithstanding anything in the Transaction Documents, no person who becomes a Secured Beneficiary in the period from 19 July 2017 to 31 December 2017 (inclusive) is entitled to be indemnified pursuant to clause 8.2 in connection with any repayment or redemption of any financial accommodation under a Debt Financing Document prior to its maturity following a refinancing effected in accordance with clause 7.4 of the Senior Intercreditor Deed.

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

Relevant Majority means, in respect of any Decision that percentage of the Aggregate Voting Exposure of Senior Creditors set out below:

(a)   (Unanimous) 100% for the following Decisions (each a Unanimous Decision”):

(i)   being satisfied that the conditions precedent in clause 2 of the Common Terms Deed are satisfied in order that the first Drawdown be made under the Debt Financing Documents;

(ii)   any change to this deed or the Security Trust Deed unless the change is only to implement the terms of a Permitted Financing:

(iii)   any change to any other Debt Financing Document that changes:

(A)   the Maximum Debt Profile; or

(B)   the tenor, timing, order, scheduled amount of or calculation of payments to a Senior Creditor or refinancing amounts in respect of all of the Senior Debt; or

(C)   any financial ratio or its source calculations or definitions under the Debt Financing Documents; or

(D)   the operation of, or order of application of funds in, any Project Bank Account; or

(E)   the Construction Drawdown Schedule;

(F)   the percentage of 103% in the definition of Maximum Debt Profile;

(G)   the terms upon which any cash is able to be released by an Obligor to or at the direction of its Equity Investors; or

(H)   the ranking of any Security; or

(I)   any provision of the Security Trust Deed, the Common Terms Deed or this deed under which the agreement or instructions of a Unanimous Decision, of all Senior Creditors or all Secured Beneficiaries is expressly required; or

(iv)   the giving of a direction to the Security Trustee to release (either in whole or in part) any Security (except where such release is required under the express provisions of the Common Terms Deed); or

(v)   any discharge of any Guarantee except in accordance with the Debt Financing Documents; or

(vi)   the exercise of any Power under a Debt Financing Document that expressly requires the approval of all Creditors, all Secured Beneficiaries or Unanimous Decision; or

(vii)   any consent to the terms and conditions of any intercreditor deed to be entered into between any Junior Creditors and the Senior Creditors; or

(viii)   any change to the Project Contract or the Debt Finance Side Deed:

(A)   which changes, or effectively changes the tenor, timing, order, scheduled amount of or calculation of payments (including those set out in schedule 14 – Termination Payments – to the Project Contract) to be made by RailCorp under the Project Contract or the Debt Finance Side Deed; or

(B)   in respect of which the Ratings Agencies have confirmed that the rating of each Debt Tranches will be less than the rating of the Debt Tranches prior to the change (exclusive of the credit enhancement under a Financial Guarantee); or

(ix)   any act, matter or thing that would have the effect of displacing or affecting any of the provisions listed in this paragraph or anything that might have a similar effect whether by amendment to another Debt Financing Document or implementation of any new transactions; or

(b)   (66.67%+) subject to paragraph (a), for any other Decision, more than 66.67% (a “Majority Decision”).

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

106. The questions argued were, in very broad outline:

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

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

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

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

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

3.2   Financial Guarantor controls while Controlling Party

Despite any other provision of this deed or any other Debt Financing Document, for so long as a Financial Guarantor is a Controlling Party in relation to any Debt and in respect of that Debt only, each Obligor, Creditor and Debt Representative acknowledges and agrees that:

(a)   subject to clause 2.7 (“Guillotine voting”) and subject to paragraph (b) below, the Financial Guarantor is irrevocably authorised and entitled to exercise in its absolute discretion all Powers of the Creditors (and their Debt Representatives), under and in connection with the Debt Financing Documents (including this deed) to make Decisions and any other document relating to the relevant Debt (including making or agreeing to any amendment or variation to any such documents or exercising a right to vote); and

(b)   Creditors (and their Debt Representatives) are bound by that Financial Guarantor’s exercise of such Powers and will (if required by that Financial Guarantor) ratify anything properly done or properly not done by that Financial Guarantor in connection with the exercise of such Powers,

in each case in accordance with and subject to the relevant conditions of the Debt Financing Documents and provided that:

(i)   in respect of any Unanimous Decision, clause 3.3 (“Senior Creditors votes entrenched”) is complied with in respect of any Senior Creditor;

(ii)   in respect of any Junior Creditor Endorsement, clause 3.4 (“Junior Creditors votes entrenched”) is complied with in respect of any Junior Creditor;

(iii)   the Creditors shall at all times remain entitled to make demand under the relevant Financial Guarantee in accordance with the terms of that Financial Guarantee and the proceeds of any such demand are not Recovered Money for the purposes of the Debt Financing Documents which may or can be shared or paid to any other Creditors; and

(iv)   none of the Obligors, the relevant Debt Representative nor the relevant Creditors are liable in connection with the exercise or non-exercise by that Financial Guarantor of such Powers or in connection with the grant by that Financial Guarantor of such waivers,

and despite any other provision of this deed or any Debt Financing Document, those Creditors will not make any Decisions or exercise any Powers under a Debt Financing Document except as contemplated by this clause, clause 4.1 (“Hedge Administration”) or clause 5.4 (“Senior Creditor entitlement to take Enforcement Actions”). Nothing in this deed restricts a Financial Guarantor from voting any part of the Debt for which it is a Controlling Party differently to any other part of the Debt for which it is a Controlling Party.

109. Nothing turns on cl 2.7 for present purposes.

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion and orders

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

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

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

**********

Endnotes

Decision last updated: 23 August 2017