- Separate loan note holders treated as separate classes
- Consequently, no implied term of good faith either for issuer or alleged "majority" note holder
- Where contractual right of issuer involves a binary choice (amend/not amend), also no implied term of good faith
The claimants ("C") sold their shares in Swift Advances plc to Kestrel Acquisitions ("D1"). Part of the consideration for the acquisition was the issue of vendor loan notes ("VLNs") by D1 to C. In order to fund the acquisition, D1 also issued discounted loan notes ("DLNs") to its shareholders ("D2"). Following financial difficulties, D1 issued further follow on notes to D2 ("FONs").
On each issue of FONs, repayment of the VLNs were subordinated and the redemption date postponed pursuant to a unilateral right granted to D1 under the VLNs to modify the VLNs to ensure consistency with the DLNs. The DLNs were similarly amended.
C claimed that this was in breach of D1's and D2's obligation of good faith, which was to be implied to protect C as a minority within a larger single class (being holders of both the VLNs and DLNs) and/or that as D1 was exercising a contractual discretion, a similar term should be implied.
The court rejected C's claim holding that (amongst other things): (i) the holders of the VLNs and DLNs did not constitute a single class – they were two separate classes, whose rights were separately documented; (ii) in any event, it was D1 rather than D2 (as the alleged "majority") making the amendment; and (iii) there was no discretion on D1 in the sense of choosing from a range of options – the only option was to amend to ensure consistency with the DLNs. Consequently, there was no requirement of good faith.
This decision reiterates the court's reluctance to imply a good faith obligation into a contract other than in narrow and established circumstances.