EMTV v Bayerische Landesbank

Counsel for the defendant placed some reliance on article 3(2) of the Security Interests Law which provides that a security agreement may "contain or refer " [my emphasis] to such matters as may be agreed between the parties. While this may be indicative of an intention on the part of the legislature to create some flexibility in the manner in which the parties can express their agreement, it does not assist to counter the argument of the plaintiff. Paragraph (2) is subject to paragraph (1). If therefore paragraph (1) requires that all particulars of events of default should be contained within the security agreement, paragraph (2) does not avail.

Article 3(1)(f) of the Security Interests Law provides that the security agreement shall "specify the events which are to constitute events of default". I take the words "name (something) definitely or explicitly" in the definition of "specify" in the Oxford English Dictionary as being most apt to this particular context. In my judgment the essence of the requirement is that there should be an absence of ambiguity. The events of default should be definitely or explicitly set out. There should not be any doubt as to what the events of default are. Plainly this is very important, because if an event of default occurs steps may be taken to enforce the security.

In the company convening notice cases referred to by Mr Thompson "specify" was held to require that the object of the meeting be stated fairly and clearly. In the Paddle River case there was a general statutory provision that the assignment of book debts should be void against a trustee in bankruptcy. A saving provision exempted debts "under specified contracts". One can understand why the court in that case should have adopted a narrow construction and held that such contracts should be "unambiguously identified in the document itself". In this context, however, I reject the submission that "specify" requires all the particulars of the events of default to be contained within the security agreement itself. Such a construction would impose a straitjacket that is not required by the words of the statute. If the legislature had intended that the particulars of the events of default should be contained within the security agreement itself, express provision could easily have been made to that effect. No such provision was made, and indeed in other parts of the Security Interests Law (article 3(2) for example) there is evidence that the legislature intended a measure of flexibility as to the manner in which parties could express their agreement. The legislature did not proscribe the incorporation by reference of particulars of the events of default. To construe the statute in that way would not only run counter to the presumed intention of the legislature, but would also produce inconvenience in that security agreements would become longer and more complex. Provided that the events of default can be definitely or explicitly identified in the security agreement and any documents incorporated by reference, the requirements of article 3(1)(f) of the Security Interests Law are in my judgment satisfied. Clearly, the longer the paper-trail, and the more convoluted the cross-referencing may be, the greater the scope for argument that ambiguities exist. In the context of the EM TV security agreement there is, in my judgment, no ambiguity. The event of default specified at paragraph (b) of the definition in the security agreement is explicitly set out and I accordingly find that the agreement is valid and effective.