Key Points

  • The First Department unanimously affirmed Justice Joel M. Cohen's grant of summary judgment to BFAM Asian Opportunities Master Fund and co-plaintiffs on defaulted notes issued by Glory Health Industry Limited.
  • Beneficial owners of 26.54% of the notes, holding through prime brokers at Euroclear, established standing under section 2.06 of the indenture by submitting Euroclear's policies and procedures and STAC letters authorizing suit.
  • The panel rejected the argument that the STAC letters improperly bypassed the indenture's structure, noting the defendants stipulated that all parties in the ownership structure are governed by Euroclear's procedures.
  • The impossibility defense based on an intervening Chinese law failed because the indenture was governed by New York law and had no force majeure clause addressing changes in Chinese law.
  • The price the funds paid for the notes was not a legally cognizable basis for further discovery before summary judgment.

A New York appeals court on Oct. 15 upheld a judgment for investment funds that sued a Chinese real estate developer over defaulted notes from a roughly $335 million issuance, holding that the funds had the right to sue even though they owned their stakes through a chain of intermediaries and that an intervening Chinese law did not excuse the developer's failure to pay.

The Appellate Division, First Department, unanimously affirmed an order by Justice Joel M. Cohen of the state Supreme Court in Manhattan, entered on or about April 16, 2025, that granted summary judgment to BFAM Asian Opportunities Master Fund LP and its co-plaintiffs against Glory Health Industry Limited and other defendants. The panel of Justices Webber, presiding, Friedman, Kapnick and Pitt-Burke issued an unsigned decision.

The ruling resolves the two questions the developer had contested. The panel held that beneficial owners who hold notes through prime brokers at Euroclear, a bond clearing system, proved their authority to sue with Euroclear's own procedures and authorization letters. It also held that an issuer that signed a New York-law indenture without a clause allocating the risk of foreign legal change could not escape payment by pointing to a new Chinese law.

According to the decision, Glory Health, a real estate developer in China, issued the notes in February 2022 under an indenture. A single Global Note representing the entire issuance was registered in the name of a "Common Depositary" or its nominee for the accounts of Euroclear Bank SA/NV and one other entity.

Euroclear, the court explained, "serves as an intermediary between bond issuers and the clearing system's participants, usually prime brokers, who in turn are custodians for the bond's ultimate beneficial owners." The funds own 26.54% of the notes as beneficial owners through their prime brokers. They are not the notes' holders, and the court wrote that "this status limits their ability to take action with respect to rights under the indenture."

Section 2.06 of the indenture required the funds to "rely on the procedures" of their prime brokers to transfer their interests or to exercise any rights of holders. Under the indenture, the right to sue to compel payment after a default belongs to the holder, and only holders of 25% or more of the notes' total value may bring such a suit.

Shortly after acquiring their notes, the funds sent a demand for acceleration and later filed suit for breach of contract. The defendants did not dispute that they had defaulted, the panel noted. That left two issues on the funds' summary judgment motion: the funds' standing and the developer's impossibility defense.

On standing, the funds submitted Euroclear's policies and operating procedures along with statements of account, known as STAC letters, that Euroclear sent to the prime brokers authorizing the funds to sue. The panel held that this evidence "was sufficient to establish that plaintiffs had met any requirements imposed by ยง 2.06 of the indenture."

The developer argued, in the court's description, that the STAC letters "flatten the structure for exercising rights under the indenture," letting the funds bypass the proper procedure and obtain authorization directly from Euroclear. "We reject this argument," the panel wrote. The court found that all relevant parties in the notes' chain of custody were subject to Euroclear's procedures and that the record showed the funds "worked through their prime broker participants to obtain the STAC letters from Euroclear."

The panel also relied on a concession by the developer. "Indeed, defendants stipulated that all of the parties in the ownership structure are governed by the Euroclear policies and procedures," the court wrote. It cited a 2022 Manhattan Supreme Court decision in Cortlandt Street Recovery Corp. v. TPG Capital Management, which was later modified on other grounds on appeal.

On the second issue, the developer had argued that its performance was excused because an intervening Chinese law made it impossible for the company to make the payments due under the indenture and notes.

The panel held that Justice Cohen "properly rejected this defense." The indenture was "expressly governed by New York law," the court wrote, and it lacked a force majeure clause addressing the risk that Chinese law would change to conflict with New York law.

"Thus, defendants failed to raise an issue of fact as to whether they bore the risk of conflicts between New York and Chinese law," the panel held. For that conclusion it cited two decisions, Kel Kim Corp. v. Central Markets from 1987 and Deutsche Bank Securities Inc. v. Montana Board of Investments from 2006.

The panel also rejected the developer's effort to examine what the funds had paid for the notes. The defendants "provided no legally cognizable basis for considering the relevance of the price plaintiffs paid for the notes," the court wrote, so Justice Cohen properly granted summary judgment without ordering further discovery on that question. The decision does not state the purchase price.

Lawyers for Glory Health included Katie Schwarm of Pillsbury Winthrop Shaw Pittman LLP. The funds were represented by Leif T. Simonson of Kobre & Kim LLP.

The affirmance, issued without costs, leaves Justice Cohen's summary judgment order for the funds in place. The decision, reported as 2026 NY Slip Op 05997 under Index No. 651863/23, is marked uncorrected and subject to revision before publication in the Official Reports.