(CN) – In a case he called “unprecedented in the convertible bond market,” U.S. District Judge Peter Leisure of New York granted in part and denied in part three requests for summary judgment on damages, setting the stage for trial. Aristocrat Leisure Ltd. sued Deutsche Bank as trustee for a slew of institutional funds.
Australia-based Aristocrat issued $130 million of 5 percent convertible bonds, due May 2006, but failed to convert those bonds into company stock. Aristocrat said it would have redeemed the bonds by deadline had there not been a clerical error regarding the currency exchange rate.
The contract erroneously listed the U.S. dollar as weaker than the Australian dollar, which prevented Aristocrat from redeeming its bonds in December 2004 and terminating the bondholders’ right to convert.
Judge Leisure reformed the contract in 2005 so that the exchange rate properly read “US$0.514 = A$1.00” and not vice versa. Despite the error, the judge refused to let Aristocrat redeem its bonds and upheld bondholders’ conversion right.
But Aristocrat refused to issue any shares, prompting the bondholders to sue for breach of contract.
Judge Leisure ruled that Aristocrat owed damages, but stopped short of ordering the company to issue stock.
As the case progressed, interest from before the breach came due. Aristocrat tried to make interest payments, but the bondholders rejected them. Bondholders asserted that taking the payments would imply acceptance of a contract that had been nullified through Aristocrat’s breach.
Aristocrat was forced to submit the interest payments to the trustee, which Deutsche Bank then deposited with the court.
The parties and trustee each moved for summary judgment to resolve “(i) the date of the breach; (ii) whether the bondholders are entitled to consequential damages; (iii) whether the bondholders failed to mitigate their damages; and (iv) what prejudgment interest, if any, should be included in the damage award,” the ruling states.
Sixty pages later, Judge Leisure concluded: “Because there are genuine issues of material fact as to the reasonableness of the bondholders’ decisions to hold open their short positions after Aristocrat’s breach, the court cannot dispose of the issue of mitigation of damages, nor determine the scope of available consequential damages. These issues must be determined by the trier of fact.”
The judge ordered the parties to appear for a pre-trial conference on May 26.