On December 22, 2023, Justice Borrok of the New York County Commercial Division issued a decision in Antara Capital Master Fund LP v. Bombardier Inc., 2023 NY Slip Op. 34524(U), holding that a party’s exercise of discretion explicitly granted to it can still breach the covenant of good faith and fair dealing, explaining:
Bombardier is also not entitled to dismissal of the breach of the covenant of good faith and fair dealing claim. The covenant of good faith and fair dealing is implicit in every contract and is a pledge that neither party to the contract will do anything that will have the effect of destroying or injuring the right of the other party to receive the fruit of the contract, even if the terms of the contract do not explicitly prohibit such conduct. Even where a party does not breach the express contractual obligations, it may still be in breach of the implied covenant where it exercises a contractual right as part of a scheme to deny or deprive the other party of the benefit of its bargain. Even an explicitly discretionary contract right may not be exercised in bad faith so as to frustrate the other party’s right to benefit under the agreement.
As alleged in the SAC, the New Notes were issued below market at a discount and only in an attempt to circumvent the Plaintiffs’ bargained-for rights set forth in the Indenture by attempting to immunize the Transactions rather than paying the Make-Whole premium to the Plaintiffs as Bombardier was required to do. Put another way, although Bombardier certainly has the unfettered right to issue new debt and the Plaintiffs did not bargain for the right not to be diluted, Bombardier is alleged to have breached the covenant of good faith and fear dealing in issuing new debt at a discount and without redeeming the existing note holders so as to avoid their obligation to pay the Make Whole premium, which would cost Bombardier significantly more and which was owed to the Plaintiffs following the Transactions and after having failed to obtain their waiver/consent, and which Make-Whole premium the existing note holders did bargain for. Thus, their conduct as alleged deprived the Plaintiffs of the benefit of the bargain.
(Internal quotations and citations omitted).