Norske Skogindustrier, the world’s largest newspaper producer, fell into financial difficulties last year and defaulted on its EUR 290m secured notes. In March 2018 Mann J gave judgment, in Citibank N.A. v Oceanwood Opportunities Master Fund, on a dispute between its creditors.

Its holding company had charged the Norske shares to Citibank as security agent for the noteholders (the shares would of course be valueless if the notes were underwater, but this was doubtless for the usual belt and braces reason, to allow another method of enforcement post-default). Over half the notes were held by Oceanwood, which wanted to acquire some of the Norske Skog group assets via a restructuring and enforcement, and it was in dispute with another noteholder, Foxhill, which had a minority of the notes. The case is interesting on several counts:

  • The notes were governed by NY law, but there was an English law intercreditor agreement, and when a swift trial was required, the English courts’ Financial List was asked to, and agreed to, hear it, using expert evidence of how NY law contracts should be interpreted (and the principles seem very similar to the English law ones)
  • Oceanwood wanted to argue that a particular clause heading helped the interpretation, but the judge upheld the usual clause that headings were for convenience of reference only and should be disregarded
  • Oceanwood could direct Citibank to enforce the share charge if its votes fell to be counted in any noteholders’ meeting. Foxhill argued they should not, because any notes owned by the issuer or any person controlled by or controlling the issuer were disenfranchised. Foxhill argued that the share charge gave Oceanwood the required “control”! The Judge spotted the absurdity in this, and held that “control” in this context meant the kind of a control a shareholder would have, which did not include the control a creditor might have via a share charge.

In English law agreements, such as LMA-based documents, we would usually define control these days by reference to section 1162 CA 2006, and when drafting make sure you do, to keep your agreements free from argument. CA 1162 – and mainly schedule 7, which contains the interpretation provisions – provides that where shares are held by way of security and, apart from the right to exercise the votes for the purposes of preserving or enforcing the security, the votes are exercisable by the chargor, the charge is not to be taken as having those voting rights. Three lessons:

  • “Headings are for ease of reference only” means what it says
  • The Financial List is a superb contribution by the Judiciary to English law’s global pre-eminence
  • Mixed governing laws are a mixed blessing: here, the parties had to spend lots of money fast on a preliminary dispute on jurisdiction and then get NY law experts into the witness box; but then they got a sensible and rapid judgment.