Citibank NA v MBI Assurance SA
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MANN,Mr Justice Mann |
| Judgment Date | 13 December 2006 |
| Neutral Citation | [2006] EWHC 3215 (Ch) |
| Court | Chancery Division |
| Date | 13 December 2006 |
| Docket Number | Case No: HC06C04102 |
[2006] EWHC 3215 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Mann
Case No: HC06C04102
MR. R. ADKINS Q.C. (instructed by Denton Wilde Sapte LLP) for the Claimant
MR. M. BARNES Q.C. and MR. A. LENON Q.C. (instructed by Cadwalader Wickersham & Taft LLP) for the First Defendant
MR. A. POPPLEWELL Q.C. and MR. J. DHILLON (instructed by Reynolds Porter Chamberlain LLP) for the Second Defendant
The Third Defendant did not appear and was not represented.
Hearing dates: 21 st, 23 rd, 24 th November 2006 4 th and 11 th December 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application by Citibank NA (" Citibank") as trustee for certain noteholders in a company called Fixed-Link Finance BV (" FLF"), a Dutch special purpose vehicle set up in the circumstances appearing below. By it Citibank and the other parties seek the determination of questions arising out of the current proposals for the restructuring of Eurotunnel debt. The essential question is whether the first defendant, MBIA Assurance SA (" MBIA"), is entitled to direct Citibank as to how to act in relation to an option arising under that restructuring. It has been dealt with as a matter of urgency because of the timetable of the present proposed restructuring. These proceedings were started on 20 th November, so their determination has taken place within a month of their commencement.
Historical background and the current structure of the FLF debt
The history and details of Eurotunnel's funding are immensely detailed and complicated. What follows is a simplified version of the elements which are germane to this application.
In 2000 the Eurotunnel debt was refinanced. Part of its junior debt was acquired by FLF. Various parts of the debt are held on varying terms, including terms as to subordination. This application concerns a part of that which is described as Tier 3 debt. FLF holds the Tier 3 debt in two currencies –£304m and €395m.
In order to fund its acquisition of this debt FLF issued a series of notes which it was intended should be serviced and repaid from its participation in the Eurotunnel instruments. There is a series of notes with varying degrees of subordination. They, and their amounts, are as follows:
Guaranteed G1
£232m
Guaranteed G2
€365m
Senior A1
£200m
Senior A2
€103m
Senior subordinated B1
£50,000
Senior subordinated B2
€135m
Subordinated C2
€142m
All notes are due in 2025. The letters A to C reflect the degree of subordination of the notes. The numbers denote currency (1 is sterling, 2 is euros). The G series are a combination of some A and B series which have the benefit of a guarantee by MBIA. The notes are currently listed on the Luxembourg stock exchange. The second defendant, QVT Financial LP (" QVT") is a hedge fund which also manages investments of others. It holds C2 notes; that is the capacity in which it participates in these proceedings, though it also holds direct debt in Eurotunnel.
The notes are secured by a trust deed and security arrangement. Citibank is the trustee for these purposes. It has the benefit of direct covenants from FLF by virtue of a trust deed dated 28 th February 2001 (" the trust deed"), and a charge over FLF's assets of the same date (" the deed of charge"). These documents form part of a very elaborate structure of documents and there are many cross-references to other documents by virtue of extensive definitions in the trust deed and a separate agreed master definition document running to 24 pages. For ease of understanding I shall from time to time read in the relevant effect of those definitions rather than setting out the defined terms and their full meaning. Both the trust deed and the deed of charge, and the notes that they secure, are governed by English law.
It will be useful to set out the general tenor and purpose of the trust deed before setting out the specific provisions on which this application turns, because it contains one feature which is central to this application. The deed contains a covenant from FLF to pay the notes when due and provides for that and the benefit of other covenants to be held on trust for the noteholders. It provides for MBIA to be able to give directions and exercise a lot of control over what would otherwise be Citibank's duties and discretions as a trustee. It is that power of MBIA that lies at the heart of the second of the questions that I am asked to decide. That power is expressed to be exercisable while MBIA is the "Note Controlling Party", which essentially means while it is liable under its guarantee of the G series notes, which it still is.
The parties to the deed of trust are Citibank (as trustee) MBIA and FLF (as issuer of the notes). The relevant provisions of the trust deed are as follows:
a) Clause 2.1 contains a covenant by FLF to pay the sums due under the Notes when those sums become due. Payment to various agents is taken to be compliance with this obligation; the trust deed reflects a complex structure of various managers, agents and others which is not material to this application.
b) At the end of clause 2.1, in an un-numbered paragraph, there are the following words:
"The Trustee [ie Citibank] will hold the benefit of this covenant and the covenant in Clause 5 … on trust for the Noteholders."
c) Clause 2.2 provides that on an Event of Default Citibank shall or may do certain acts. The acts are unimportant for these purposes. What is important is that Citibank has to do those acts ("shall") if instructed by MBIA while MBIA is the Note Controlling Party; otherwise it "may" do them. In other words, it must comply with MBIA's instructions if MBIA is still potentially liable under its guarantee. This is a familiar pattern thereafter in this document.
d) Clause 5 contains a covenant by FLF with Citibank to comply with the provisions of the deed, the Conditions of the notes and the other "Transaction Documents", which latter expression includes the deed of charge. The Notes are expressed to be subject to the provisions of the deed.
e) Clause 6 contains further detailed covenants by FLF, which I do not need to describe.
f) Clause 8.1 gives the trustee power to authorise or waive breaches by FLF without the consent of the Noteholders. It "shall, only if directed by MBIA (whilst MBIA is the Note Controlling Party) and otherwise may" waive or authorise. In other words, this is another clause that gives MBIA a power to direct how Citibank shall act while MBIA remains liable under its guarantee.
g) Clause 8.2 gives the trustee a power to modify certain documents, but again subject to the right of control and direction in favour of MBIA while MBIA is the Note Controlling Party.
h) Clause 10 deals with the relationship between the trustee and MBIA. Clause 10.1 provides:
"10.1 Extent of Trustee's Obligations
The Trustee shall not be obliged to comply with any direction or request of MBIA to do any act or thing which would or may, in the opinion of the Trustee, be illegal, contrary to any requirement or request of any fiscal or monetary or other governmental authority or in breach of any contract, treaty or agreement the terms of which bind the Trustee but shall notify MBIA promptly if it does not intend to comply with any such direction or request, stating the reasons therefor."
i) Clause 10.4 provides:
"10.4 Interests of the Noteholders and the other Issuer Secured Creditors
When acting in accordance with the instructions of MBIA while it is the Note Controlling Party pursuant to these presents and the other Transaction Documents, the Trustee shall not (subject to Clause 14.1.7) be required to have regard to the interests of the Noteholders and the other Issuer Secured Creditors and shall have no liability to the Noteholders or the other Issuer Secured Creditors as a consequence of so acting. When giving any instructions, consents or waivers under the Transaction Documents, MBIA (if MBIA is the Note Controlling Party) need have no regard to the interests of the Noteholders, the Trustee or any other Issuer Secured Creditors, but without prejudice to Clause 14.1.7. The parties hereto acknowledge and agree that MBIA shall assume no duty or obligation whatsoever (whether fiduciary or otherwise) and shall incur no liability whatsoever to the Noteholders, the Issuer or the Issuer Secured Creditors or any other person (other than the Trustee, in its capacity as Trustee, in accordance with the provisions of these presents) by reason of giving any instruction or direction, granting any consent, exercising any discretion or otherwise exercising any of its rights under these presents other than in the case of its wilful default or negligence."
j) Clause 12 is headed "Enforcement" but clause 1 provides that headings are to facilitate use and are not to affect the construction of the deed. Clause 12.1 deals with legal proceedings after the occurrence of default (giving MBIA the now familiar rights of control). Clause 12.2 is heavily relied on by MBIA. It reads:
" 12.2 Proceedings relating to the Financing Agreements
Subject to Clause 14.1.7, all the Issuer's rights in respect of the Financing Agreements (including, without limitation, its rights to vote as a Lender (as defined in the Financing Agreements)) which have been assigned to the Trustee pursuant to the Deed of Charge shall, unless and until the Secured Obligations have been discharged in full, be exercised by the Trustee in accordance with Part 1, Schedule 4."
"Financing Agreements" is defined by...
To continue reading
Request your trial
-
Citibank NA v MBIA Assurance SA
...EWCA Civ 11 [2006] EWHC 3215 (Ch)" class="content__heading content__heading--depth1"> [2007] EWCA Civ 11 [2006] EWHC 3215 (Ch) IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE CHANCERY DIVISION MANN J Royal Courts of Justice Strand, London, WC2A 2LL The......
-
Can Complex Contracts Effectively Replace Bankruptcy Principles? Why Interpretation Matters.
...vary from one transaction to another. Sometimes simply no decision can be made without its approval. Citibank NA v. MBIA Assurance SA [2006] EWHC 3215 (Ch) [2007] EWCA Civ 11). Sometimes it manages the assets directly. Bank of NY v. Montana Bd. of Inv. [2008] EWHC 1594 (U.K.); In re Golden ......