Citibank NA, London Branch v Oceanwood Opportunities Master Fund & Ors [2018] EWHC 448 (Ch)

[2018] EWHC 448 (Ch)

Case No FL-2018-000001

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF

ENGLAND AND WALES

FINANCIAL LIST (ChD/QBD Commercial Court)

Venue Royal Courts of Justice, Rolls Building, 7 Rolls Buildings

London, EC4A 1NL

Date 08/03/2018

Before

MR JUSTICE MANN

Between

CITIBANK, N.A., LONDON BRANCHClaimant

(1) OCEANWOOD OPPORTUNITIES MASTER FUNDDefendants

(2) FOXHILL CAPITAL PARTNERS LLCDefendant

(3) FOXHILL OPPORTUNITY FUND L.P.Defendant

Mr Gabriel Moss QC and Mr Adam Al-Attar (instructed by Allen & Overy LLP) for Claimant

Mr William Trower QC, Mr Edmund King and Mr Marcus Haywood (instructed by Akin Gump LLP) for First Defendant

Hearing Hearing dates: 20 th, 22 nd, 26 th& 27 th February 2018

Judgment Approved

Mr Justice Mann :

Introduction

[1]This action is a claim for directions by Citibank NA (“Citibank”), as Security Agent and Note Trustee under financing arrangements for the Norwegian Norske Skog group, as to whether it should, or is entitled to, follow directions given by the first defendant (“Oceanwood”) which is the majority holder of the loan notes in question. The loan documentation contains provisions which provide for majority noteholders to be able to give directions to the Agent and Trustee, but also contain a provision which disentitles a noteholder which “controls” the debtor from having its vote counted. The question which arises is as to whether, in the circumstances, Oceanwood is disqualified on the basis that it “controls” the Issuer of the notes. The point has been raised by the second and third defendants (together, “Foxhill”) who have a minority interest in the same notes. In those circumstances Citibank felt it had to obtain a determination from the court as to whether it should accept direction which included Oceanwood’s vote. However, in the circumstances appearing below Foxhill did not in the end appear to argue the point.

[2]At the hearing before me Mr William Trower QC led for Oceanwood and Mr Gabriel Moss QC led for Citibank. Mr Moss’s junior, Mr Adam Al-Attar, also ended up playing a role as advocate that he was not originally expecting to play, as will appear.

Procedural background

[3]That last sentence requires an explanation, which I give in this section of the judgment.

[4]The main debt document in this case (the “Indenture”) in which the control disqualification provision appears, is subject to New York law and contains a New York court jurisdiction clause. There is also an Intercreditor Agreement (“ICA”) which contains the main direction-giving provisions which Oceanwood seeks to invoke, and that document is subject to English law. Citibank started these proceedings as Trustee and Security Agent in this jurisdiction on the basis that the dispute was one arising under the ICA and therefore justiciable here. It joined Oceanwood as the person whose rights were questioned, and Foxhill because Foxhill was the person questioning those rights, apparently being one of several other noteholders who had together formed an ad hoc creditors committee which took the “control” point. A Part 8 claim form was issued on 4th January 2018 and directions were given from time to time by Snowden J before the matter was assigned to me. The case has been brought in the Financial List, which offers the speedy resolution of financial disputes (where appropriate). His directions were such as to procure a speedy trial (because otherwise the dispute was said to be likely to imperil a sale of secured assets and thus imperil the survival of the Norske Skog group business). One of the orders he made, on 12th January 2018, was a representation order which appointed Foxhill to advance arguments against Oceanwood having any right to vote in respect of creditor directions; that is to say, to support the argument that Oceanwood “controlled” the debtor. Oceanwood was appointed a representative for the other side of the argument and a further provision in the order bound all noteholders in the relevant class into the final decision.

[5]As well as the main issue in the case, there was a jurisdiction challenge. Foxhill maintained that this dispute should be determined in New York because it was said to arise under the Indenture (which provided for New York jurisdiction) and not the ICA (which provided for English jurisdiction). The parties prepared the case on both aspects (jurisdiction and the substantive point) with Foxhill having protection against it being said it had submitted to the jurisdiction by virtue of its preparing for trial on the substantive point. Until I made a determination about how the points were to be tried on 2nd February, there was always a possibility that both points would be tried at the same hearing and the parties prepared accordingly. However, on that date I determined that the jurisdiction point should be taken prior to and separate from a trial of the main issue, and on 20th February 2018 gave judgment in favour of English jurisdiction - see

[2018] EWHC 305 (Ch)

. On that occasion I indicated that the trial would take place on the following Monday (26th February). The parties were, or were expected to be, ready for a trial on that date.

[6]On that occasion Foxhill expressed uncertainty as to whether it would seek to appeal (it did not seek permission from me) and uncertainty as to whether it would participate in a trial, expressing concerns that it would thereby be submitting to the jurisdiction and prejudice a potential appeal. Despite being offered safeguards against that point being taken against it, on 22nd February Foxhill indicated that it would indeed not participate in a trial. It did not change its mind so the trial took place in the absence of Foxhill, despite the fact that it was a representative defendant. It did not enter an acknowledgment of service either, beyond a qualified one reserving its right to challenge jurisdiction. By the time of the trial Foxhill was in default of acknowledgement of service, having not filed one within an abbreviated timetable set by me. It had made an application for an extension of time, apparently until after any appeal, but abandoned that application on the first day of this trial (counsel for Foxhill attending for the purposes of dealing with the extension application). Thus its default of acknowledgment position stands.

[7]In the absence of the representative defendant which was supposed to put the relevant points, and as a result of a question raised by me as to how the absence of Foxhill might affect the usefulness of any decision I might give (and indeed the appropriateness of the trial taking place), Citibank took on a role in arguing the point at the trial. Its own position on the point in this trial was that it was neutral, and it was planning to leave it to the other parties to debate the point between them. However, in the absence of Foxhill Citibank decided that it would take on itself the burden of putting the Foxhill side of the case. It was prepared to proffer a person to be a substitute representative, but decided not to and said that it would be content with a regime in which it made the submissions contrary to Oceanwood’s case which seemed to be run by Foxhill. It did that via its junior, Mr Al-Attar. Mr Al-Attar took Foxhill’s evidential material and the case it had apparently sought to make through a letter from its solicitors which stood as a form of pleading, and advanced those parts of that case as seemed to him to be arguable. He did not make all the arguments that it seemed Foxhill would or might make because some of them were apparently arguments that he had difficulty in propounding, but he advanced other points both on the law (New York law) and the facts. I am grateful to him for his clear and helpful submissions which were prepared as a matter of urgency.

[8]As a result of that state of affairs and looking at the material which Foxhill had put in before it withdrew from the fray, and having the submissions of Mr Al-Attar, I am as satisfied as I can be that in the circumstances I have heard sufficient argument to enable me to reach a conclusion on the issues before me notwithstanding the absence of one of the two main protagonists. Whether I have received all the points that Foxhill would have wished to make were it arguing it will not be known, but the general shape of its case seemed clear enough for me to express the views I express in this judgment. The technical force of this judgment, in the absence of Foxhill, will remain to be judged, depending on the circumstances in which it is relied on. Citibank considers that a decision reached on this basis will serve its purposes.

The evidence

[9]These being Part 8 proceedings, the parties put in evidence, not statements of case, though one of the letters in the case was given a quasi-pleading status. There were several witness statements across the parties, and I have considered them all as appropriate, but the main ones were a witness statement of Mr Weiner for Foxhill and Mr Chiang for Oceanwood. The urgency with which this judgment has had to be prepared does not permit to me to set out some of that evidence in the detail that might otherwise have been desirable, but I have taken it into account and reflected it in summary where appropriate. There was also evidence from an expert in US law on each side of the main argument. At one stage before Foxhill withdrew there was a half-hearted but inconclusive discussion as to whether there would need to be brief cross-examination, but no-one pursued that at the time.

The main underlying agreements

[10]The Norske Skog group (Norske Skog) is Norwegian based international manufacturing business (including paper manufacture) with over 2,000 employees in a number of countries. The parent company of the group is Norske Skogindustrier ASA which was, until very recently, listed on the Oslo stock exchange. There are a number of companies in the group. I shall not distinguish between them save where it is necessary to do so. It will generally be possible simply to refer to them as the Norske group.

[11]There are three main relevant transactional documents in this case - the Indenture, the Intercreditor Agreement and a share pledge agreement.

[12]The document under which the relevant notes are issued is the Indenture, dated (as all the agreements are) 24th February 2015. The Issuer is Norske Skog AS (“NSAS”, a company to which it will be necessary specifically to refer from time to time) and other companies are guarantors. Citibank is the Note Trustee and the Security Agent, and the notes governed by the Indenture are 11.75% Senior Secured Notes (“SSNs”) due in 2019 in an aggregate principal amount of €290m. It is subject to New York law under section 14.07 (which I do not need to set out). The most significant provision for present purposes is section 2.09, which relates to control and is the provision on which Foxhill relies:

“Section 2.09 Treasury Notes In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer or any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any Guarantor, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.”

[13]Oceanwood and Foxhill are holders of Notes within that provision - they each hold SSNs.

[14]The practical significance of that section lies in its interaction with the ICA and the fact that there have been defaults and Citibank is moving to security enforcement. The ICA was signed on the same day 24th February 2015 and is a document which regulates the activities and interests of the Senior Secured Noteholders (and certain other noteholders, who do not matter for these purposes) amongst themselves, and their relationship with Citibank as Security Agent. The Senior Secured Noteholders (such as Oceanwood and Foxhill) are bound by its provisions. As Security Agent Citibank formally exercises all enforcement powers for the Noteholders, but it does so potentially subject to direction from a majority under the terms of the ICA: “11.2 Enforcement Instruction(a) The Security Agent may refrain from enforcing the Transaction Security unless instructed otherwise by: (i) an Instructing Group;…

(b) Subject to the Transaction Security having become enforceable in accordance with its terms: (i) an Instructing Group … may give or refrain from giving such instructions to the Security Agent to enforce or refrain from enforcing Transaction Security as they see fit provided that the instructions as to Enforcement given by the Instructing Group … are Qualifying Instructions.

(i) an Instructing Group … (a) an Instructing Group;…

[15]An Instructing Group is defined so as to be, in the circumstances, the “Majority Senior Secured Noteholders”, and that expression is defined as being:

“… those Senior Secured Creditors whose Senior Secured Credit Participations at that time aggregate more than 50 per cent. of the total Senior Secured Credit Participations at that time.”

[16]Senior Secured Credit Participations is defined to include the Senior Secured Noteholders and certain other creditors who have lent on terms which give them the same priority.

[17]I shall avoid an unnecessarily detailed exposition of all the cross-references, but the effect of those provisions is that the Instructing Group is the majority holders of the SSNs. In the events which have happened Oceanwood now holds, and has for a little time held, the majority of the SSNs so that it is in effect the Instructing Group, subject only to the effect of the “control” provision in clause 2.09 of the Indenture. Again subject to that effect, it is able to give instructions to Citibank as Security Agent for the purposes of clause 11 of the ICA. That, too, is and has been common ground in these proceedings. Oceanwood also holds a further small amount of a Liquidity Facility debt which gives it the same priority as the SSNs and bolsters its voting power slightly, and Foxhill owns 4.6% of the SSNs.

[18]There is in fact a similar power to direct or authorise in the Indenture at section 6.05:

“Section 6.05 Control by Majority Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. However, the Trustee may refuse to follow any direction that conflict with law or this Indenture or that the Trustee determine may be unduly prejudicial to the rights of the other Holders of Notes or that may involve the Trustee in personal liability ...”

[19]The third principally relevant agreement is a share pledge agreement (“the Share Pledge”), again dated 24th February 2015, between Norske Skog Holding AS as pledgor and Citibank as pledgee, acting as Security Agent under the loan documentation. The pledgor is effectively the third company down the chain of holding companies in the group, and NSAS is the next company down and the holding company for the group. By this agreement the pledgor charged the shares in NSAS with the liabilities under the various debt documents, including the Indenture. The shares are described as the “Security Assets”. Clause 6 provides for enforcement and Citibank is entitled to look to it for those purposes. I do not need to set out its terms. Clause 8 contains provisions entitling Citibank to vote the shares which have been invoked in this case in a manner which is controversial. It reads:

“8. Voting rights 8.1 Notwithstanding any other provisions in this Share Pledge Agreement prior to the occurrence of an Acceleration event which is continuing, the Pledgor shall, without the prior written consent of the Security Agent, (A) be entitled to vote or cause to be voted In respect of any and all of the Security Assets and give or cause to be given consents, waivers and ratifications In respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or taken which would be In breach of the SSN Indenture or this Share Pledge Agreement; and (B) deal with, and exercise (or refrain from exercising) any other powers or rights relating to, the Security Assets In any other manner whatsoever to the extent not prohibited by the Debt Financing Agreements. 8.2 Upon the occurrence of an Acceleration Event which is continuing, the Security Agent may (but shall not be obliged to) exercise all voting and other rights attached to the Shares, including, without limitation, the right to convene shareholders' meetings and waive notice and other requirements in connection therewith, and the Security Agent has the sole and exclusive right and authority to exercise such voting and consensual rights and powers.”

[20]An “Acceleration Event” is defined in the Indenture and, as will appear, one has occurred. The Share Pledge is governed by Norwegian law, but nothing turns on that at this trial.

[21]There is no doubt that these agreements have to be taken together as part of one overall transaction, and each provides a context for the other. In the case of the ICA, it is actually specifically referred to in the Indenture at several points, and the Share Pledge is one of the securities to which the other two agreements apply.

[22]Other provisions of these documents will be referred to below as they become relevant to the points that arise in these proceedings.

The underlying facts

[23]The Norske Skog group employs 1600 people in Europe and 620 people in Australasia. It has been in financial trouble for some time. Its debt structure involves debts of €900m and is complicated, but for present purposes the parts that matter are the Indenture and the ICA. With a couple of exceptions the rest of the indebtedness is not legally relevant to the debate in this action. NSAS is the holder of the relevant operating companies. Its shares are therefore the ones with real value when it comes to security. Hence the Share Pledge.

[24]Restructuring negotiations were launched by the top companies in the group in June 2017. In that month the group missed an interest payment which can lead to an event of default under the Indenture. After 30 days grace there would be an Acceleration Event but as will appear that Event was for a time postponed by agreement.

[25]There then followed a prolonged period of negotiation in which an ad hoc committee of SSN holders, including Oceanwood but not Foxhill, was very active. In parallel with those negotiations the committee, Citibank and their advisers discussed a Plan B, to be invoked if the restructuring plans failed. This plan included a sale of the NSAS shares which were the subject of the Share Pledge. In June this particular ad hoc committee and one further ally (Cyrus) had over 51% of the interest in the SSNs. In due course Oceanwood bought in those parts of those interests which it did not itself own, thereby putting it in its present position of majority holder with just over 51%.

[26]In the course of those negotiations the group and various of the creditors entered into various agreements, of which the relevant ones are referred to in this judgment.

[27]On 14th July 2017 the ad hoc committee and another noteholder (Cyrus) entered into a Standstill Agreement with the relevant parent company at the latter’s invitation under which the creditors agreed not to exercise the rights available to them following the interest payment default. This agreement was extended until 23rd August.

[28]On 24th August the members of the ad hoc committee and Cyrus agreed terms with a Mr Ombudtsvedt for him to act as adviser to the comittee (and Cyrus) during the restructuring process. Mr Ombudtsvedt was a former CEO of the group, and therefore had experience of its affairs. The arrangements with him contemplated that he might be appointed to be a director of NSAS in due course, in the context of a restructuring. One of the things that concerned the committee was the possibility of a Mr Peter Sveass getting on to the board - he was a man perceived to favour shareholders over creditors and was apparently perceived as a risk to the interests of creditors.

[29]On 1st September 2017 a Liquidity Facility was granted to NSAS by, among others, Oceanwood. It was a €15.93m facility intended to provide liquidity for trading pending the group’s financial situation being sorted out. Under the terms of the Indenture this facility ranked with the SSNs in terms of priority and voting rights, so Oceanwood’s (majority) participation in it would have increased the amount in respect of which it could vote under the above provisions had that been necessary (as was, of course, true of the other lenders under the Facility Agreement).

[30]On 24th August there was an EGM of the parent company and Mr Sveass did indeed become chairman and other directors were replaced. In response to that the majority of the SSN holders (64.65%, including Oceanwood) directed Citibank to accelerate the notes and Citibank did so on 12th September by declaring all principal and interest due. That opened the way to reliance on security rights, and on the same day the same noteholders directed Citibank, as Security Agent, to use the voting and other powers conferred by the Share Pledge to convene an EGM of NSAS to pass resolutions to replace the board of that company. Since Citibank could vote 100% of the shares in that company it convened an EGM on the same day and replaced the board with Mr Ombudtsvedt and others. This act, and the position of Mr Ombudtsvedt thereafter, is one of the factors put forward by Foxhill as amounting to or demonstrating control for the purposes of section 2.09.

[31]Restructuring and recapitalisation negotiations continued and on 18th September the parent announced a revised proposal. However, that did not command the support of the ad hoc committee, as they communicated on 27th September. A revised proposal was put forward on 11th October by the parent, but that did not attract enough support in the end.

[32]On 22nd November Oceanwood purchased the interests of the other ad hoc committee members in their SSNs, thereby acquiring its own majority holding, together with their commitments under the Liquidity Facility. This was announced in a press release on 23rd November, which also announced that Oceanwood would no longer support a consensual debt restructuring and had formed a joint venture with a concern called Aker to bid in any sale of the group, including a sale effected through an enforcement of the Share Pledge shares in NSAS. Preparations, involving NSAS, had been in train for a sale of assets for some time, in case the restructuring negotiations failed. On the same date the parent announced that a consensual debt restructuring was unlikely to be achievable. Thus the fate of the group took a new direction which resulted in this litigation.

[33]On 13th December 2017 NSAS issued a press release announcing the start of a public sales process. Oceanwood and Aker (via a special purpose vehicle) have submitted a bid in that process. Citibank is proposing to take the necessary enforcement action to pursue and complete the sale, but for that purpose needs directions from the Instructing Group. Hence the need to know who is entitled to make up that Group and in particular whether Oceanwood should be treated as part of it. The sales process is designed to produce final binding offers by the beginning of March so that the process can be kept going. There are said to be serious question-marks as to whether the business of the group can keep going beyond that time if there remains uncertainty about the ability to complete the sales process, and if it cannot there will be less or nothing to sell (though Foxhill has questioned whether or not that is correct). That accounts for the urgency with which this trial has been brought on.

[34]On 19th and 20th December two of the companies above NSAS entered insolvency proceedings in the Norwegian courts upon failure of the restructuring proposals, but NSAS has not done so.

[35]There are other relevant elements of the background but I shall deal with those in the context in which they are relevant. The above facts provide the framework within which they can be understood.

The three issues for decision

[36]It appears that one of Foxhill’s major concerns, if not its only real concern, is that Oceanwood is taking unfair advantage of its position to procure a sale process in which it can then participate in an unfairly advantageous manner, but that is not the issue raised in these proceedings. The question or questions in these proceedings turn on whether Oceanwood’s wishes or directions can or should be taken into account by Citibank, and this turns on whether Oceanwood “controls” NSAS as the Norske Issuer (or other companies) for the purposes of section 2.09. Foxhill’s case was that there were two bases on which it should be said that Oceanwood has control. The first is by virtue of its 51% holding of the debt - it is said that that gives it control. The second is that, on the facts and looking at what has actually happened, Oceanwood has actually got control. I shall call this latter basis “de facto control”. The actual questions have been formalised in the following way by an order of Snowden J:

“(1) Whether any instruction given by a purported instructing group that depends for its status as an Instructing Group on any interest held by Oceanwood Opportunities Master Fund or any other single entity or person or persons acting in concert, as a holder or as holders of the ultimate economic interest in more than 50 per cent of the principal amount of outstanding Senior Secured Notes Liabilities (as defined in the Intercreditor Agreement), is an instruction provided by an Instructing Group for the purposes of the Intercreditor Agreement; and/or" (2) Whether any interest of Oceanwood Opportunities Master Fund or any other single entity or person or persons acting in concert, as a holder or as holders of the ultimate economic interest in more than 50% of the principal amount of outstanding Senior Secured Notes Liabilities (as defined in the Intercreditor Agreement), is to be disregarded pursuant to Section 2.09 of the Senior Secured Notes Indenture; and/or (3) Whether any interest of Oceanwood is to be disregarded pursuant to section 2.09 of the Indenture on the basis of the facts and matters relied on by Foxhill, being the facts and matters stated in Part B of Paul Hastings' letter dated 29 January 2018 as may be amended from time to time with the agreement of the parties or the order of the court.”

The first two of those questions relate to the 51% holding of Oceanwood, and its powers, per se, and the third (added later) relates to de facto control.

[37]The letter referred to in (3) has in substance been given the status of a pleading. It is a letter written by the solicitors to Foxhill in order to set out Foxhill’s case. It was necessary to pin down the points made against Oceanwood by Foxhill in relation to its de facto case, and that was done by an order vesting that status in the letter – it became Foxhill’s pleaded case on de facto control. The order allowed amendments to the letter, but none were ever applied for so the terms of the letter stand as defining Foxhill’s case. It contains averments running to some 5 pages, under two headings - “(a) Oceanwood’s influence and Control as a provider of finance”, and “(b) Oceanwood’s influence and Control as a Bidder for the Shares/Assets of Norske”. They can be summarised as follows (removing some duplication of concepts): Under (a): i) NSAS is in dire financial straits and the Indenture restricts NSAS from incurring further debt other than some permitted debt without consent. The majority of the noteholders control this consent and Oceanwood now constitutes a majority. ii) Oceanwood has advanced over 64% of the Liquidity Facility and it (with Aker) has provided a guarantee facility for trade which allows Oceanwood and Aker to consider each request for a guarantee on a case by case basis. iii) Oceanwood holds 100% of a different class of notes (the “NSF” notes) which gave it considerable leverage in approving (or not) the group’s restructuring proposal. iv) Oceanwood holds a large holding of Perpetual Notes and the group has on several occasions said that without that source of funding the group would have had to have filed for bankruptcy. v) The Liquidity Facility, the guarantee arrangements, the NSF holding and the Perpetual notes just referred put Oceanwood in a position in which it can influence and/or direct the management and policies of NSAS. vi) The Liquidity and guarantee arrangements contain provisions preventing NSAS from paying interest or principal on the SSNs. vii) Oceanwood used the powers under the ICA to require Citibank to replace the board with its own nominees, and the reinstated chairman Mr Ombudtsvedt has said that he regards himself as having been appointed to serve the interests of Oceanwood. viii) Oceanwood bought out the other members of the ad hoc committee. ix) “Through its participation in the Liquidity Facility and the Guarantee Facility” and ownership of the NSF notes and the connection with Mr Ombudtsvedt, Oceanwood has been able to influence the development and outcome of the restructuring plans. Under (b): i) From the end of September Oceanwood was “working with” NSAS on a Plan B which involved a sale of assets and formed a plan to bid itself. Oceanwood was in a position to negotiate or influence the negotiation of 3 agreements - the Support Deed, the Confidentiality Agreement and the Forbearance Agreement - which gave privileges and rights beyond those it had under the Indenture and the ICA and which were intended to facilitate its due diligence as a potential bidder. Substantial information has been made available to Oceanwood and (it is to be inferred) “a high degree of influence” exercised over NSAS. Certain specific information was to be provided under the Support Deed which was not shared with other third party creditors or potential bidders. (I expand on the nature of those agreements in the discussion below.) (ii) NSAS entered into an agreement in the Forbearance Agreement to pay contributions towards the fees of the advisers of Oceanwood (and other noteholders) in the Forbearance Agreement despite its cashflow difficulties. (iii) Oceanwood exercised influence to secure wide-ranging information rights, as a bidder and liquidity provider. (iv) “In the light of the matters referred to above, Oceanwood is, or is effectively, a shadow director of NSAS in that the formally-appointed directors of the Company are accustomed to act on instructions or directions from Oceanwood; alternatively, its involvement in the affairs of the Company is analogous with that of a shadow director.”

[38]Not all those points were propounded as such by Mr Al-Attar, but insofar as he did not deal with them I will seek to do so by the end of this judgment where relevant.

Principles of construction

[39]The central question underlying those issues turns in part on a question of construction. The relevant part of section 2.09 can be dissected out as follows:

“In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by … any Person directly or indirectly controlling … the Issuer or any Guarantor, will be considered as though not outstanding …”

[40]I have underlined the words whose construction is relevant. The question of construction which arises is as to what is meant by, or what acts are within, the word “controlling” (though it will usually be more useful to consider its root verb form “controls” or the associated noun “control”).

[41]That question being one which arises under an agreement governed by New York law, it is necessary to consider New York principles of construction. Oceanwood and Foxhill put in a statement of principles of New York law, and then adduced their own expert evidence on the point. Mr Robert E Smith provided a report for Oceanwood; Prof Barry E Adler provided a report for Foxhill.

[42]There is little dispute between the experts as to the principles of New York law and, as it transpires, most of the principles are entirely familiar to common law lawyers in this jurisdiction, which is not surprising (see Excalibur Ventures v Texas Keystone [2103] EWCH 27 at para 209). Most of the relevant principles were in the end uncontroversial. I find the following principles apply:(i) Where a contract is unambiguous, its meaning should be found within the four corners of the contract, giving practical interpretation to the language employed and the parties’ reasonable expectations.

(ii) In interpreting a contract, the court should arrive at a construction which gives a fair meaning to all the language employed by the parties to reach a practical interpretation in order to realise the reasonable expectations of the parties. This is not necessarily a literal interpretation. The expectations of businessmen should be considered in relation to business contracts.

(iii) The factual context of the contract is capable relevant to interpretation.

(iv) A contract should not be construed to produce a commercially unreasonable result, at least if an interpretation is available which will prevent that.

(v) Headings to clauses can in principle be used as a guide to construction, but not if the contract forbids it.

(vi) Where the words of a contract mirror the words of a statute, determinations as to the statutory effect may be a guide to construction, but they are not necessarily determinative.

(vii) The court should avoid (if possible) a construction which gives rise to an inconsistency with another part of the contract. This principle was expressed by Mr Smith, and is not directly reflected in Prof Adler’s report, but I accept it because it obviously follows from the preceding principles.

[43]The application of those principles, all of which are reflected in equivalent English law principles, is by and large what is required to resolve the dispute between the parties in this case. Where there is a divergence in any refinement of the principles I pick that up in the debate below.

The construction of clause 2.09 - generally

[44]At one stage it seemed to me that there was something akin to a question of principle arising between the parties. Mr Trower seemed to me to be saying that “control” in section 2.09 meant nothing less than equity control - control through shareholdings. That meant that control could never arise in a de facto way. However, if that ever was his approach, it was modified during the course of the trial by his acceptance that there could be control outside the concept of control through shareholdings, though he said it had to be control which effectively put the controller on the debtor’s side of the line as if internal to the debtor, or as if a shareholder. That means that a species of de facto control, or at least a species which does not involve controlling a shareholding, could in theory suffice for the purposes of section 2.09, so the question becomes, in any given case, whether the circumstances do demonstrate a sufficient degree of control of the right nature so as to fall within the section. That means I do not have to decide what had seemed to be the point of principle. For what it is worth it seems to me that Mr Trower is right not to rule out all species of de facto (non-equity based) control. The word “controlling” is a wide word capable covering matters beyond equity-based control and it is not immediately obvious why it should be given that very narrow meaning in its context in the Indenture (albeit that there may exist other contexts in which it would plainly have the narrower meaning). The question becomes one of considering whether the facts amount to “control” within the section.

[45]Having said that, it will be useful to consider separately the two types of control alleged by Foxhill - the control that arises from Oceanwood commanding 51% of the SSNs, and the control said to be derived from other factors. Before doing so I get out of the way one of Mr Trower’s guides to construction which he invoked, and that is the heading to the section - “Treasury Notes”. He submitted that this supported his case as to what section 2.09 was really about when it came to control.

[46]I do not need to develop how he said he derived that support because the Indenture’s terms prevent the heading being taken into account. I have identified above the principle that headings cannot be used as a guide to construction if the agreement in question forbids it. In my view section 14.12 does just that. It reads:

“Section 14.12 Table of Contents, Headings etc The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.”

I consider the terms of that to be clear. If a heading cannot be considered to be part of the Indenture it cannot be looked to, as such, as a guide to construction, or as support for a particular construction. It is, at best, a piece of extrinsic evidence which as such would be inadmissible on New York law principles. Furthermore, if it had any effect on what would otherwise be the correct interpretation of the Indenture, a heading would probably be modifying or restricting it, so it would fall foul of that part of section 14.12 as well. Mr Trower said that there was no explicit prohibition on using the heading as a guide to construction, which is true so far as the express words go - there is no such prohibition in terms. However, one can only use it as an assistance to construction if it is part of the document, and since the clause prevents that being the case, it is treated as if it is not there. If it is not there it is of no use in the construction activity. I shall therefore disregard it.

Construction of section 2.09 - the 51% holding point

[47]Issues(1) and

(2) go to this point, and they can sensibly be taken together.

[48]The case of Foxhill on this point has not, so far as I am aware, been formally articulated in this case, but it would seem it must be based on the fact that there is an ability to produce control via the mechanisms in the Share Pledge which enable the pledged shares to be voted. The argument runs thus. Citibank can vote the shares; Citibank has to act on the instructions of the majority of the SSN holders; Oceanwood have that majority now and can therefore direct Citibank; so Oceanwood controls the Issuer (NSAS).

[49]As Mr Trower submitted, this line of Foxhill’s argument cannot logically be correct. The existence of security is expressly provided for by the Indenture (though the Share Pledge is not specifically referred to). Section 12.01(a) provides that the payment obligations will benefit from “the Collateral”. “Collateral” is defined to include any asset over which a Lien or security interest has been created. “Lien” is defined in such a manner as to include the Share Pledge. Thus far the security, and therefore the Share Pledge, is clearly bound into the Indenture provisions.

(c) then provides:

“The Security Agent agrees that it will hold the Liens in the Collateral created under the Security Documents to which it is a party as contemplated by this Indenture and the Intercreditor Agreement, and any and all proceeds thereof, for the benefit of, among others, the Trustee and the Holders… The Security Agent will, subject to being indemnified and/or secured in accordance with the Intercreditor Agreement, take action or refrain from taking action in connection therewith only as directed by the Trustee, subject to the terms of the Intercreditor Agreement.”

[50]I have already set out above the provisions of section 6.05 which allows a noteholder majority to give directions to the Trustee, and if it did so the Trustee would have to pass those directions on to the Security Agent who would therefore have to act on them under the ICA. (In the present case the Trustee and the Security Agent are one and the same.). A majority provision direction is therefore built into the Indenture irrespective of the similar provisions of the ICA. Furthermore, the Indenture expressly refers to the ICA in a number of places apart from Clause 6.05, so the latter’s majority direction provisions (in clause 11) were also firmly in the contemplation of the parties. The ICA is clearly part of the commercial context of the Indenture (and vice versa) and must be read and given effect to alongside it.

[51]When one puts the all the relevant provisions together as part of the same package the lack of sense, and indeed logic, of Foxhill’s position becomes apparent. The documentation provides for securities to be given and then managed. It provides for a majority of noteholders to prescribe matters relating to security enforcement, on the obvious assumption that the interests of the majority creditors should be acknowledged and served. It provides for one method of enforcement to be the voting of the shares. Accordingly, the majority may determine how the shares should be voted. The greater the share of any given noteholder, the greater its commercial interest.

[52]Yet as soon as its interest gets over 50% it is, on Foxhill’s narrower case, instantly disqualified from giving or participating in any directions to be given to the Security Agent on enforcement because the very event which gives rise to the right to enforce the security instantly disqualifies the person with the greatest interest in having it done because that person has a controlling vote. A theoretical possibility, actually conferred by the overall loan documentation itself, creates a serious disqualifying factor. The creditor who has the greatest interest in the realisation of the security suddenly loses the power to have influence, and this becomes important at the very moment when it matter most (when there is a repayment problem).

[53]That would in my view be an absurd conclusion. It makes no commercial sense. Mr Al-Attar sought to defend this result from accusations of absurdity by pointing to how the case was put by Foxhill in proceedings pending in New York in which Foxhill is challenging the position of Oceanwood. The New York complaint says: “Oceanwood has orchestrated a process whereby it exercises de facto control over Norske and has enabled Citi to initiate an enforcement (ie a sale) of Norske’s shares while simultaneously announcing that Oceanwood will be the lead bidder for those assets.” (Paragraph 4)

[54]Mr Al-Attar said that this showed that the clause was designed to protect against the exercise of majority power. I do not think that this way of putting Foxhill’s case does demonstrate that. First, this analysis emphasises de facto control, not control coming from the ability to control voting under the Share Pledge. Second, the objectionable conduct alleged is not so much initiating a sale of the shares but being the lead bidder in that sale. If that is objectionable it is not because the majority noteholder can control the shares. It is the particular use to which that power has been put, that is to say bidding in a sale which Oceanwood has brought about. What has been complained about is an abuse of power. It does not follow that the parties intended that there should be no power in the first place. The whole thrust of the provisions which allow noteholders to control the Trustee and Security Agent is to give power to a majority. It would be quite antithetical to that thrust to deprive them of serious power the moment they become a majority. The remedy for an abuse of power should lie elsewhere; in these agreements it would be very odd to say it lies in taking away the power in order to remove any risk.

[55]The absurdity does not stop there. Voting rights cannot be exercised by the Security Agent until there is an Acceleration Event. Chasing down what an Acceleration Event means is a long and difficult journey through first the ICA and then into the Indenture, ending up with an Event of Default. Clause 6.02 of the Indenture provides for the consequences of an Event of Default. There are two types. An insolvency triggers an immediate Event of Default which makes the principal and interest due, which in turn then constitutes and Acceleration Event. The other type (for example, non-payment of principal or interest) becomes an Event of Default if the Trustee or 25% of the noteholders give notice to Issuer declaring the debt to be repayable. Until one of those events occurs the 51% noteholder has its voting rights intact. On Foxhill’s construction once one of those events occurs it immediately loses its rights to control the Trustee or the Security Agent, in all respects. Those events can take place without the concurrence of the 51% noteholder. And if Foxhill is right, the 51% noteholder would be well advised to vote againstcreating an event of default because otherwise the contractual events cascade through into a loss of the right to give any directions to the Trustee (through section 6.05 of the Indenture) or to the Security Agent in the matter of enforcement (under clause 11 of the ICA). (I should say that this last absurdity is one that has occurred to me and which was not demonstrated by Mr Trower. As I have said, it involves a difficult journey through definitions within definitions within definitions in the agreements - there are 42 pages of definitions in the ICA and 33 pages in the Indenture - and thence into substantive provisions and back again. I was neither guided nor accompanied by counsel on that journey. If I have strayed in my journey, and what I consider to be this additional absurdity turns out not to be one, that does not affect my conclusions on this overall point.)

[56]The short answer to Foxhill’s case is that the control referred to in section 2.09 does not include the consequences of the working out of the arrangements in the loan documentation and which arise under the documentation itself. That is not really control at all. It is really a right to provide how the Security Agent should realise a security, and in that context and for that purpose (if voting becomes relevant) how to vote some shares. The “control” referred to in clause 2.09 must be control arising other than under the loan documentation.

[57]A contrary conclusion would also lead to a couple of other actual or potential absurdities. First, take the situation of 25% and 26% noteholders discussing on a course of action, and deciding that the time has come for enforcement and deciding that it is their joint interests to vote the same way on enforcement issues, including taking control of the pledged shares. Do they suddenly have control, thereby disentitling one or both of them from having their votes counted? That would make no sense.

[58]Second, there would be a risk of a small minority having an excessive say. Suppose a 51% noteholder was disqualified under section 2.09, and suppose the next largest holding is 26% or over. By the same token that noteholder would be disqualified, because it holds more than 50% of the balance. The exercise could be repeated again if another noteholder holds more than 50% of what is left; and so on. That, again, is a commercial absurdity. It would not necessarily arise in every case, because that would depend on the relative sizes of the minority interests, but it is entirely foreseeable that it could arise, and it is not likely that businessmen would accept a foreseeable absurdity.

[59]Those considerations lead to the conclusion that Foxhill’s narrow case cannot be right. Whatever else control may mean (and it is not necessary to define it precisely) it cannot mean being a 51% noteholder. A documentary scheme which allows for majority noteholder control cannot be sensibly operated on the footing that becoming a majority costs it its vote.

[60]The answer to question 1 is therefore “No”, and the answer to question 2 is “Yes”.

Construction and effect of section 2.09 - the de facto point

[61]This point is elaborated in the letter from Paul Hastings referred to in the third question, whose points I have sought to distill above. It was also elaborated by Mr Al-Attar who took some, but not all, of those points (there is no criticism in that). At the heart of Mr Al-Attar’s case is the submission that “control” of a company means influence on the management and policies of that company, and that on the facts Oceanwood had what he called “real world economic power” by virtue of its control of the finances of NSAS. This power is said to have been demonstrated in a number of ways. He urged on me a definition of control which involved simply using the word in its normal sense as it would be understood by a layman.

[62]Mr Al-Attar started from certain principles of construction put forward by Foxhill in its statement of relevant principles of New York law in order to lay the groundwork for a definition of control which demonstrated control on Foxhill’s de facto case though he felt unable to follow Foxhill’s entire path on the law.

[63]His starting point was the proposition that “Contractual provisions borrowed from statute are subject to the same interpretation” - I have referred to this above. From that proposition Foxhill sought to rely on two statutes which were said to have equivalent provisions, and to argue from there that control was a question of fact depending on the totality of the circumstances. Foxhill would presumably argue that if one looked at what Oceanwood had been doing for the past 8 months or so it could be seen that it had control.

[64]The case which is said to justify the legal proposition about borrowing words from a statute is Matter of Country Wide Ins Co (Russo) 210 AD 2d 368. In that case a provision in a car insurance policy was said to “mirror” a provision in an Insurance Law, so the same construction should be given to the policy as had been given to the Act. Although it is not wholly clear from the report, it would seem from the circumstances and from the use of the word “mirror” that the court took the view that the words in the policy were deliberately taken from the Act in order to correspond with the Act. In those circumstances it is not surprising that the same construction is given to both sets of words. The other authority relied on for the proposition (Sec Mut Life Insurance Co of NY v Rodriguez 65 AD 3d 1) is another insurance case in which this time the statute actually required certain wording, which is not the case in the present matter. It seems to me that the proposition from which Foxhill starts is too wide, and on a proper reading of Prof Adler’s report even he does not say it is correct. The true position is likely to be (in accordance with the views of Mr Smith, who confirmed Oceanwood’s statement of New York legal principles in this respect) that while words in an agreement corresponding to a statute may bear the same meaning, they do not necessarily do so. It is a factor to be taken into account, but only as part of the construction process.

[65]If the modified principle is to be of any assistance one then has to identify statutes with corresponding wording. The first statute relied on by Foxhill is the Trust Indenture Act of 1939 (“TIA”). That does indeed have almost identical wording, but this statute does not seem to me to assist Foxhill because it has not cited any authorities which bear on the interpretation of that Act. In its statement of US law principles Oceanwood itself cited one authority under the Act (Meehancombs Global Credit Opportunities Funds LP v Caesar’s Entertainment Corp 80 Fed Sup 3d 507). It does not help in the present debate, being merely a decision on the facts, which are not the same, and it contains no statement of principle useful to this case.

[66]It is right to note that Mr Smith has identified a statement before Congress, which he says is admissible under New York law to assist in interpreting statutes, which he says indicates that “control” in the bill which became the Act was intended to apply to bonds (notes) actually owned by the issuer, and therefore to control in that sense and not in any wider sense. The statement was:

“under the bill, in determining whether a majority have joined in [a] direction [of bondholders to the trustee], bonds owned by the issuer itself or persons in a control relation with the issuer are to be excluded. This paragraph provides a short answer to the suggestion that this bill will deprive bondholders of the control of their own destinies. Majority control is specifically preserved.”

[67]I do not give that point much weight because I do not think the statement concerned was intended to set bounds to the concept of control. On its face it seems to be more intended to deal with one particular type of perceived threat to bondholders and to give reassurances about it. It is not plain to me that it sets overall confines to the concept of control.

[68]All in all, the reference to the TIA does not assist in this case at all.

[69]The other statutory provision which is cited is described as “federal security laws” which are said to utilise the words in describing control by an “affiliate”. “Affiliate” is described in terms which are similar to section 2.09, and the relevant law actually provides a definition of control. It is: “The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise”.

[70]That is what is relied on by Foxhill. I do not see how that assists. It is not a court decision as to what is “control” in a provision which is itself similar to, or which is mirrored by, section 2.09. It is a definition which the rule-making body chose itself. Furthermore, the context is, or is likely to be, different. The fact that those particular regulators chose that definition of control for their purposes does not assist much in assessing what “controlling” means in the context of section 2.09. Mr Al-Attar did not seem to develop this point, and that decision would seem to me to be justifiable.

[71]In its statement of principles Foxhill also cited some cases from other areas of the law which were said to justify a wide meaning of “control”. Mr Al-Attar did take me through those cases, which he said justified the wider de facto case that Foxhill were running.

[72]United Stated v Corr 543 F.2d 1042 was a criminal appeal concerning the sale of unregistered securities. Corr was convicted but challenged his conviction on the grounds (inter alia) that he was not a “control person” under the statute. In particular he claimed that he was not in control because someone else in his company was a majority shareholder and the CEO. In that context the court said:

“While there is no statutory definition of “control”, its concept is not a narrow one. Its determination is a question of fact which depends upon the totality of the circumstances including an appraisal of the influence upon management and policies of a corporation by the person involved. Control may be exerted in other ways than by vote … stock ownership being only one aspect of control. A person may be in control even though he does not own a majority of the stock ... And such control may rest with more than one person at the same time or from time to time ... In the present case the evidence was overwhelming that Corr was responsible for numerous and essential programs of Judo including financing of Judo. He controlled Judo's financial relationship with the public and was able to exercise authority independent of Mackey [the majority shareholder/CEO] and at the same time influence the authority exercised by Mackey.”

[73]This case establishes what “control” meant in the context of that case, but does not justify the application of a universally broad meaning in all contexts. In the context of that case and that legislation “control” was not confined to voting control via a shareholding, but Mr Trower has conceded that that is the case in relation to section 2.09 in any event. The dispute in the present case is where the line should be drawn, and Corr does not really assist in that.

[74]United States v Sprecher (1992) 783 F.Supp 133 is a decision relating to an “affiliate” in the securities legislation. In that context the court applied Corr in saying that “control” was not confined to shareholding control. This case adds nothing to Corr, as Mr Al-Attar himself said.

[75]Bell v White 77 AD.3d 124, referred to by Oceanwood in the lead-in to this trial, was a share valuation case in which raised the question of a “control discount”. It does not involve a statutory provision or a contractual stipulation with the word “control” in it. Rather, the expression “control discount” seems to have been adopted in the case for the purpose of encapsulating what had been done. It seems to have been used to produce a synonym for “minority discount”. In that context it was said (at page 1243):

“Plaintiff also argues that there was no factual basis for Mellen's application of a lack of control discount to his shares because, pursuant to Norpco's preincorporation agreement, all corporate decisions require unanimous approval of the shareholders. Although plaintiff is correct that this provision of the preincorporation agreement provides a minority shareholder with some level of control – i.e. the ability to unilaterally veto important corporate decisions – a minority shareholder under these circumstances nonetheless still lacks power to unilaterally direct and compel corporate activity…”

[76]The judgment also cites a definition of "control" from another case in a footnote:

“Control means that, because of the interest owned, the shareholder can unilaterally direct corporate action, select management, decide the amount of distribution, rearrange the corporation's capital structure, and decide whether to liquidate, merge or sell assets.” (Emphasis as in the original.)

[77]This case was also referred to in Foxhill’s statement of New York law principles, but Mr Al-Attar said it did not really fit with the other cases because it provided a narrower shareholding-based sort of test. I would agree that it does not help Foxhill to the wide definition of “control” that it would wish to apply, but disagree with the proposition that it does not help in the debate. It demonstrates that context is all-important. In that particular context a shareholding-based definition was appropriate because it was shares that were being valued. Like Corr, it does not provide a definition applicable to all circumstances, but that is because one cannot do so.

[78]The last authority to which I was taken was Cassoli v Am Med & Life Ins Co [2015] WL 3490688. This again was an authority relied on by Oceanwood. It concerned a term in what was in effect an employment contract which provided that:

“In the event that there is a change in control or the Company terminates Employee without cause the Company shall provide Employee with severance pay…”

[79]The court had to consider the meaning of "changing control" in a context in which the relevant event was an agreement with a regulator that the employer would cease its operations and begin running off its business. This was alleged by the employee to be a "change in control". The court held:

“Although plaintiff asserts that the term "control" is ambiguous and therefore may be reasonably interpreted as the ability to "exercise power or influence over", this broad interpretation does not comport with the reasonable and ordinary meaning of "changing control" of a corporation as supplied by the relevant case and statutory law. An entity is in "control" of another within the reasonable and ordinary meaning of that term when the entity has the authority to direct the company's management and policies. New York Insurance Law… defines "control" as the "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an institution, whether through the ownership of voting securities, by contract or otherwise.”

Similarly, the New York Business Corporation Law defines control for the purposes of a "changeable potential change in the control of a corporation" as "the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Corporation, whether through the ownership of voting stock, by contract, or otherwise. In sum, a change in control contemplates – at a minimum – a change in the ownership or management of a corporation such that a new entity has the ability to direct the management and policies of the corporation. Plaintiff's broad definition of "control" as the ability to exercise power or influence over an entity "strain[s] the contract language beyond [the] reasonable and ordinary meaning" ascribed to the term in the insurance industry and corporate context. [Authority cited]"

[80]Both sides of the argument in this case sought to make something of this authority. Mr Trower submitted that in a corporate context this was a useful starting point, and pointed out the reference to "authority" and "power" which connoted legal rights, rather than mere "influence" which does not. Mr Al-Attar pointed out the breadth which was encompassed by the use of the words "or otherwise". In my view what this case again demonstrates is the importance of context. One cannot simply import decisions on the word “control” from one context to another and apply them unless the analogy is strong. In my view it is not particularly strong in this case (or indeed in any of the others).

[81]Mr Smith proposes his own parallel line of cases. His view is that a useful analogy can be found in cases decided under the US Bankruptcy Code, which contains a mechanism governing creditor approval of certain plans for reorganisation of the debtor. In those cases the votes of an “insider”, including a person who “controls the debtor” are said to be excluded. Instances of control are control over the debtor’s voting stock, managerial control, and whether the relationship between the debtor and the lender was the result of an arm’s length transaction.

[82]He also appealed to bankruptcy cases in which liability for some of the debtor’s actions can be attributed to a creditor who is alleged to have “controlled” a debtor. In In re E. End Develop. LLC 2017 WL 1277443 it was said:

“Lenders are afforded substantial leeway in dealing with a debtor in default, and suggestions by a lender which are unpalatable to a borrower, regarding methods to increase revenues and decrease expenses, even when accompanied by an implicit threat that, unless such suggestions were taken, the lender would pursue its remedies under the loan agreement, do not suffice to state a cause of action or liability. In order to find liability against a lender under a theory of dominated and controlled instrumentality, the debtor must show actual, participator, pervasive control of the debtor. It does not constitute an actionable claim for the lender liability to repeatedly give restructuring suggestions to the debtor coupled with a threat of foreclosure if the suggestions were not followed.”

[83]These bankruptcy cases give instances of what is and what is not considered to be control in other situations. They have an appeal in that this sort of analogy seems to me to be a closer one than the cases proposed by Foxhill. Mr Smith’s first class provides a situation where the analogy is between the terms of section 2.09 and the Bankruptcy Code, and his second class presents a factual analogy with the present de facto control case. They do not, however, provide a bright distinguishing line. They are, on their facts, a further demonstration of the importance of the statutory context and provide instances rather than definitions of what does and does not amount to control.

[84]What emerges from this authority is not necessarily a lot of help in this case. Once Mr Trower abandoned his view that “control” meant only shareholder-type control the question then becomes what sort of other types or sources of control might be sufficient. What the authorities demonstrate is that the context of the question is important in determining the answer, which (as a general proposition) is obviously right. None of the cases, with the possible exception of Mr Smith’s bankruptcy cases, are sufficiently close in their nature to provide much guidance.

[85]What I consider to emerge from the Indenture in its commercial context is as follows. Section 2.09 clearly covers control in a shareholder sense. That is likely to be the prime target. Its context indicates that its first purpose (so far as control by an Issuer is concerned) is to prevent an Issuer acquiring promoting its own interests and standing in the way of creditors by acquiring notes and voting them. The section then implicitly recognises that the same conduct will be equally undesirable if carried out by someone who controls the Issuer. Such a person is on the Issuer’s side of the Issuer/Noteholder divide and is in the same opposing interest vis-à-vis the Noteholders. The paradigm of such a person is a controlling shareholder.

[86]Short of shareholding there may be other instances of control which still exist and fall to be treated as activity on the Issuer side of the line - perhaps a contractual right to control, or a shadow controller who for all practical purposes can control the Issuer without actually having a direct or indirect shareholding. I do not see why those people, who in reality fall to be treated as the Issuer, should not be seen to have control even without a shareholding. They should be treated as being on the same side of the line. In these cases whether a degree of influence is sufficient to amount to control is a question of fact and degree and no clear dividing lines can be specified which will provide a test applicable to all circumstances.

[87]A useful touchstone is probably the word “pervasive” (to borrow a word from Mr Smith’s bankruptcy authority). It is a useful word to encapsulate the degree of control required because it distinguishes areas of limited control from the sort of serious case which the preceding paragraph of this judgment anticipates. It does, of course, itself introduce questions of fact and degree, but it does at least connote the extent to which there has to be exercisable influence, and to that extent I would agree with it. One can easily imagine cases where there is some control over a part of the affairs of a company but where one would not say the “controller” controls the company. To take an example, imagine a company which agrees not to dispose of an asset without the consent of another person. That other person has a degree of control over that asset, but one cannot say he or she “controls” the company. The degree of influence has to be much more “pervasive” than that.

[88]I therefore reject Mr Al-Attar’s proposition that “controlling” should be given a wide definition as it would appear to a layman (which is in effect what he was submitting). The loan documentation is not in anyway documentation which should be construed as if written by a layman. They are business documents embodying a complex business transaction and must be given a businessman’s meaning. The word “control” is a nuanced word capable of meaning different things in different contexts. If it matters to describe it as “ambiguous” it is ambiguous, though I do not think that that description particularly assists the debate. In the present context it must be given a businessman’s interpretation, in accordance with NewYork law principles.

[89]This sort of analysis provides another rationale as to why it is that the exercise of rights under the loan security cannot be or give rise to “control” within the section. Those are rights which are not in reality exercised by someone on the Issuer’s side of the line. The degree of influence (I am deliberately avoiding using the word “control”) which the exercise of those rights gives is not wielded in the interests of the Issuer and in conflict with the noteholders. It is influence which is exercised for the noteholders in their capacity as noteholders for the benefit of the noteholders. While that might be “control” in some circumstances, it cannot sensibly be treated as “control” within the meaning of section 2.09 because no reasonable businessman on either side of the transaction would have treated it as such in the context of section 2.09.

[90]This analysis does not produce a clear answer to what “control” is in the sense of providing a universally applicable synonym, but it assists in helping to form a view as to what it is not. I now turn to deal with the matters said by Foxhill to amount to control with those points in mind. Foxhill has divided its points into two parts in the Paul Hastings letter, and I shall do the same before seeking to pull everything together.

Foxhill’s heading (a) - Oceanwood’s influence and control as a provider of finance

(a) - Oceanwood’s influence and control as a provider of finance

[91]Mr Al-Attar emphasised the centrality of the Liquidity Facility and the guarantee facility to this part of the case. These two facilities together enabled NSAS to stay in business, and they gave Oceanwood what Mr Al-Attar called “real world economic power”. It is said that their terms prevent any further payment of interest or principal to the SSNs. The provision of the guarantee in practice allows Oceanwood to consider each request for a trade guarantee, and therefore gives a degree of control over what trade transactions are or are not entered into. This gives a control over future trade indebtedness and trading.

[92]The evidence from Mr Chiang of Oceanwood is that the Liquidity Facility (to which three other groups of SSN holders contributed in addition to Oceanwood) was intended to keep NSAS’s trade going through the restructuring proposals. As Mr Trower pointed out, it is not unusual for a creditor who provides liquidity to put in place restraints which restrict the application of liquidity. That is what seems to have happened here. It is not surprising to find a restriction on using funds needed for liquidity (whether emanating from the Liquidity Facility of not) being used to pay existing creditors. However, the absence of surprise is not sufficient for present purposes. The question is whether such restraints are, or contribute to, control for the purposes of section 2.09.

[93]I do not consider these to be particularly relevant matters. The Liquidity Facility, and the ability to consider which transactions should benefit from the guarantee, do not enable full control of trade. They enable vetoes, but not positive control. A veto may be an aspect of control, but positive control over the actual activities is much more important and is apparently absent from these documents or facilities.

[94]The same applies to the power to withhold consent to raising further debt, which is apparently contained in the Indenture (though I was not taken to it). It amounts to a similar power of veto, but does not give a greater degree of positive control.

[95]That brings me on to consider the force of the point taken about the appointment of a new board for NSAS in September 2017, because this is something which comes much closer to the directors of the company, and is prima facie more fruitful ground. Much is made of this. The circumstances of the appointment of the board are outlined above. In the course of the restructuring negotiations Oceanwood and others became concerned at the replacement by shareholders of the board of one of the holding companies and they required Citibank to take steps to replace the board of NSAS as the holder of the main operating companies. It was not only Oceanwood who required this - others joined with Oceanwood (this was before Oceanwood bought them out). The evidence of Mr Chiang states that it is not uncommon for a secured creditor to appoint independent directors to the board of a distressed company particularly where there is a concern that management is not being conducted properly (though again that is not particularly relevant to the question in hand).

[96]The concern of Foxhill seems to come from two things in combination. First, from the fact that Oceanwood has done this, and second from a statement apparently made by Mr Ombudtsvedt on his appointment as recorded in a Norwegian publication called E24. Mr Ombudtsvedt is said by Foxhill to have said that Oceanwood “asked me to go in as Chairman and take an active management role on behalf of them”. In fact his statement is that “They asked me [etc]…”, and the “they” is the then ad hoc committee, of which Oceanwood was only one of four, and a further creditor (Cyrus) which joined in the request without being part of the ad hoc committee. The suggestion behind the reliance on the statement is that Mr Ombudtsvedt considered he was appointed because he could be expected to do the bidding of his appointors and that now Oceanwood has become the sole repository of the notes of the noteholders who procured his appointment he will now be doing Oceanwood’s bidding. The way that it is put in the Paul Hastings’ letter is that he was appointed to “serve the interests of Oceanwood”.

[97]If a board of directors is appointed with the expectation that it will simply do whatever an appointor tells it to do, and that expectation is fulfilled, then that could well be a method of control within section 2.09. However, the evidence falls far short of establishing that in this case. The evidence was that a director of a Norwegian company which is insolvent is under a duty to consider the interests of the creditors generally. If Mr Ombudtsvedt and his co-directors were to act merely in the interests of Oceanwood and to do its bidding then they would be in breach of that duty. At a previous hearing on jurisdiction Mr Margolin QC, appearing on behalf of Foxhill, made it clear that his case did not involve his advancing a case that the directors had acted or intended to act in breach of duty. That means that Foxhill cannot be, and cannot have been, advancing a case that Mr Ombudtsvedt and the rest of the new board was appointed merely to act for Oceanwood (and the other relevant SSN holders at the time) and essentially to do their bidding. Mr Chiang for Oceanwood has made it clear in a witness statement that while he, as a person involved in all these matters, has had conversations wtih Mr Ombudtsvedt, he has never sought to give him instructions to act in a certain way, and solicitors for the group itself (Linklaters) have said in terms, in correspondence, that “the directors of NSAS do not seek, or take, instructions from Oceanwood, or for that matter any other party”. In the light of Mr Margolin’s concession Mr Al-Attar in his argument was careful not to advance a case which suggested that the directors were in breach of duty.

[98]All that seriously undermines the force of Foxhill’s reliance on this factor. The “control” relied on cannot be taken to mean that the directors were the proxies of Oceanwood (or the ad hoc committee plus Cyrus before Oceanwood bought out the other interests). Control through this mechanism must be taken to be rather less than that, but at that point it becomes obscure what it does mean. The witness statement of Mr Weiner, provided in support of Foxhill’s case, does not make it clear what lesser allegation is being made. It is not said that in this respect there was control because Oceanwood could procure the removal of the board if it did not like the turn that things were taking, but in any event that sort of “control” takes one back to the narrow point of construction that I have already determined against Foxhill. It is precisely the sort of power which the loan documentation confers on noteholders, and its exercise per se at the behest of a majority SSN holder cannot sensibly be taken to be control within the meaning of section 2.09. Furthermore, it is not control coming from the Issuer side of the line, which is what the provision is really aimed at.

[99]It is probably not necessary to make a finding as to what Mr Ombudtsvedt meant in his quoted statement (which has been translated from the Norwegian) but if he is not to be taken to have accepted he would do the bidding of the secured creditors then he was probably saying no more than he was appointed by the appointors to take on the management “at their behest”.

[100]In the circumstances this factor does not seem to me to demonstrate “control”.

[101]The allegation about the NSF notes requires a little elaboration. These notes are notes issued by NSAS with a face value of €103.59m. As explained by Mr Chiang, they were issued by NSAS but without recourse to NSAS or any other company in the group. They are secured over a number of significant assets whose availability was crucial to a restructuring (or a sale of the whole of the group assets) but were not subject to the ICA. It became apparent that an entity called GSO, which held 100% of the notes through the re-structuring negotiations, was not prepared to agree to the way those negotiations were going, and was seeking repayment. In order to remove that blockage to restructuring, Oceanwood bought out GSO’s NSF notes, and some Perpetual Notes (65% of the total holdings of those latter notes) held by GSO as well.

[102]The purchase of the NSF notes is said in the Paul Hastings letter to have given Oceanwood “considerable leverage with respect to approving [the group’s] recapitalisation and restructuring proposal since without the support of the NSF holder and the majority holders of the SSNs, the recapitalisation and restructuring proposals were doomed to fail”. That may have been so, but in my view that does not give control in the sense intended by section 2.09. It may provide a negotiating position, and it may provide a form of veto so far as the restructuring is concerned, but that is not control of the Issuer NSAS (or the guarantors). Apart from anything else, the veto extends only to the restructuring. It does not go wider than that (or is not alleged to go wider than that). It does not give any form of legal right to direct what the group companies should actually do or not do; it does not give a right, or even an opportunity, to direct policy. And there is no evidence that the holder of the notes was in a position such that it could de facto do any of those things. Interestingly, if the holding of those notes was such as to give control of the Issuer in the circumstances of the restructuring, then GSO must logically have “controlled” the Issuer during the period that it held the notes, but no-one suggested that that was the case.

[103]The Paul Hastings letter goes on to rely on a combination of the “influence” which the NSF notes and the provision of finance gave to Oceanwood, and it is said that gave control over the Norske group companies. I shall consider this sort of combination of factors when I consider combination more generally later in this judgment.

[104]The Paul Hastings letter also pleads that Oceanwood held 65% of the Perpetual Notes issued by another company in the group, and says that the group had on several occasions said that without that source of funding it would have had to file for insolvency. Even if true, I do not see what bearing that has on the “control” question.

Foxhill’s heading (b) - Oceanwood’s influence and control as a provider of finance

(b) - Oceanwood’s influence and control as a provider of finance

[105]At the heart of this part of the allegations are three agreements. The Paul Hastings letter seemed to suggest that it was their combined effect that was significant, though it also makes claims about some of them individually. Mr Al-Attar’s submissions also referred to their individual effects.

[106]I shall not lengthen this judgment by setting out their provisions in extenso. By and large a summary will suffice.

[107]The Forbearance Agreement is an agreement dated 14th July 2017 and is made between Norske Skog group companies on the one hand and the Forbearing Holders of certain notes on the other. Oceanwood was one of those Forbearing Noteholders. It is not clear from the redacted agreement which was before me who the others were. The situation at the time was that there were restructuring negotiations and there had been a default in paying interest which, after a 30 day grace period, would have justified enforcement. Under this agreement the relevant noteholders agreed to forebear to exercise their rights to direct the security agent to take enforcement steps, and the group companies agreed to provide such information as the noteholders might reasonably require about the financial condition, operations and business of the group, including 13 week cash flow forecasts. In his witness statement Mr Weiner acknowledged that this sort of arrangement was not untypical in restructuring negotiations of this kind, but said that the increased information flows together with what he believed to be “high level access to management” and Oceanwood’s effective influence as a “control party” under section 2.09 led to Foxhill becoming concerned about the restructuring process.

[108]That is a curious allegation in the context of this dispute. It does not allege that this part of the agreement gave control. Control is already said to have arisen under section 2.09, presumably once Oceanwood had acquired the majority of the SSNs, yet that did not happen until much later. At this point Oceanwood was the largest holder in the negotiating ad hoc committee, but it is not clear that it was the majority holder within this group.

[109]As identified by Mr Weiner, this agreement also contained various undertakings by the Norske group to co-operate with the restructuring process and an undertaking by the group to contribute to the fees of advisers on the noteholder side.

[110]Mr Al-Attar suggested that this agreement might be taken as evidence of past interference which justified an inference of present interference which amounted to control. I do not consider that this agreement demonstrates past interference at all. It demonstrates that information was to flow. It may be that in due course such information could be used for “interference” (to use Mr Al-Attar’s word) but that is different. I do not consider that this agreement by itself, in its context, demonstrates anything amounting to “control” at all. I do not consider that the undertaking to pay fees demonstrates anything significant for these purposes. There is nothing to indicate that the agreement to do so was anything other than a proper exercise of the judgment of the directors, and it is perfectly understandable in the circumstances.

[111]The next agreement is known as a Support Deed - its actual title is “CS Support Undertakings and Contingency Plan Support Deed”. (CS stands for Consent Solicitation.) This was dated 26th September 2017 (still before Oceanwood acquired its 51% holding of the SSNs), being a date after the Security Trustee had accelerated the SSNs and at which an instruction had been given to remove and appoint directors of NSAS. The parties were various Noske Skog group companies, including NSAS, on the one part and various SSN noteholders of the other. Those noteholders included Oceanwood, but the identities of the others has been redacted on the copy placed before me.

[112]The significant provision of the agreement was proposed by Mr Al-Attar to be section 8 (no doubt based on what Mr Weiner said in his witness statement about it). This section refers to something called the CS Support Undertaking, which is described as a prior document in which certain noteholders expressed their support for a contemplated restructuring (the “September CS”). Paragraph (a) seems to be the significant one. Its rather tortuous wording provides:

“(a) [the Norske Skog companies] will not determine that there is a sufficiently high level of confidence that each Scheme required in relation to the September CS shall not fail for lack of numerosity and/or lack of support of Eligible Holders (as defined in the September CS) representing sufficient value across each of the Existing Notes (as defined in the September CS) ... unless the Majority Supporting Holders (acting reasonably and in good faith) agree with the Norske Skog Companies that this condition is satisfied…”

[113]The agreement also provided for the putting in place of a Plan B (literally) which was the sort of sale of assets process that is now in train. This was to take effect if the then current restructuring did not occur. The Norske companies were to take certain steps which would be necessary to initiate such a process. Those steps were essentially preparatory. They also again agreed to provide business information.

[114]What the document anticipated was that consents would be sought from relevant participants to the restructuring that was then in contemplation, and as part of the steps to take that forward the group companies (or one of them) had to be satisfied that there was sufficient support such that it would not apparently fail. If it were to fail in due course then Plan B would be put in train. Section 8(a) meant that there could be no certification of the existence of sufficient support without the consent of the Majority Supporting Holders. The relevant majority was 66.6%. At the time, according to Mr Weiner, Oceanwood held 33.58% and was therefore in a position to block the consent of the Majority Supporting Holders, without which the relevant certification could not occur and Plan B would come into play, or would be more likely to do so.

[115]Mr Weiner’s witness statement relies in particular on that blocking power available to Oceanwood. He says that the influence that Oceanwood had over the restructuring process is “captured” by that power. Mr Al-Attar submitted that this document demonstrated influence over Norske Group company policies because Oceanwood could block Plan A and could specify what Plan B was. He suggested that at this point Oceanwood had control by holding a majority of the relevant notes and could block Plan A.

[116]It seems to me that at that stage what Oceanwood had was far from control of NSAS or any other company in the Norske group, by reason of this agreement. It had not acquired all the SSNs and did not even “control” the SSNs. All it could do under this agreement was exercise a veto. The veto would render more significant the Plan B that was provided for, but that is all. Under the agreement the Norske group was to appoint an “M&A Advisor” to prepare the sale process, which Citibank as Security Agent had to approve. According to the unchallenged evidence of Mr Chiang, Oceanwood was not directly involved in the choice of that Adviser and was not involved in the design or implementation of the public sale process which resulted. The agreement went on to provide for other preparatory steps, with several provisions requiring consultation and discussion with the Security Agent. Especially in the light of the fact that at this time Oceanwood did not even have a majority of the SSNs I find it impossible to see how any sensible degree of “control” can have been exercised by Oceanwood through this part of the process.

[117]The third agreement is actually a series of agreements which Mr Weiner called the Confidentiality Agreements. These are agreements entered into between the ad hoc committee of which Oceanwood was part (and possibly Cyrus - that is not clear but does not matter) in which each agrees with the other to keep business material flowing between them confidential. Mr Weiner says he does not know what information passed, but he suggests that the existence of the restrictions and the way in which Oceanwood has sought to work closely with Norske companies to develop Plan B (the collateral enforcement option) demonstrates a “high level of control”, as he put it.

[118]Oceanwood says it is common to include information sharing in a standstill agreement (which was in effect what was in place pending the actual decision to enforce the security), but makes two further points. First, such confidential information that it itself received was “cleansed” by a public disclosure on 23rd August. Second, much of the information provided did not reach the actual noteholders; it stopped at their advisers and the noteholders were not keen to have it because of the need to “cleanse” it if they had, and the Norske Group was not keen for that to happen. This evidence, which I accept, removes what little strength Foxhill’s point would have had.

[119]In fact, taken by themselves, these confidentiality agreements, once again, do not demonstrate anything amounting to “control” in any plausible sense of that word. They might, in some circumstances, provide a tool in the form of information which would be useful for considering how to exercise control, but that is entirely different.

[120]Having considered each of the agreements separately (an approach which seems to have been adopted by Mr Weiner) I turn to how they are, taken together, as apparently deployed in the Paul Hastings letter. The allegations as to their effect probably start with paragraph 12: “12. As a potential bidder for the shares and/or assets of Norske, Oceanwood (including through its bidco vehicle) was in a position to negotiate or influence the negotiation of a series of agreements and arrangements with Norske as well as with other creditors of Norske, the combined effect of which was to eliminate as many of the company's other creditors and stakeholders as possible to the acquisition of their debt and the consolidation of negotiating power in the hands of Oceanwood." The letter then sets out the various agreements and goes on: "16. The influence exerted by Oceanwood over Norske's management and its ability to secure wide-ranging information rights and gain privileged access into the financial health of the Company as a future bidder and provider of liquidity are material facts on which our clients seek to rely as demonstrative of Oceanwood's status as a person which controls Norske within the meaning of Section 2.09 of the Indenture."

[121]Putting the matter this way seems to me hardly to allege control at all. Paragraph 12 has the germs of the correct analysis in that it reflects the fact that what was going on was an arm’s length negotiation, not an exercise in Oceanwood or anyone else in controlling Norske group companies. At the time of the agreements Oceanwood did not have a controlling majority on the ad hoc committee. There is no evidence of the extent to which it was itself controlling what the committee was doing. It may have had some influence but what it influenced, if anything, was no more than the SSN side of a negotiation. What was happening was an exercise in negotiation, not control of the borrower. True it is that some of the rights conferred were rights of veto, but that is plainly insufficient control for the purposes of section 2.09. It does not amount to a sufficiently pervasive influence. The acquisition of information is capable of providing a tool to be used in proper control, but is not control itself. The acquisition of the debt of others is not control of anything apart from the debt itself. What paragraph 12 does get right is the fact that what was happening was a negotiation, but that does not help Foxhill.

[122]Putting those agreements in the context of the rest of the material relied on, or available to, Foxhill is the point I next turn to.

Conclusions on de facto “control”

[123]It is now necessary to bring all Foxhill’s strands together, because the nature of a de facto case will generally require that. It may be that taking each item of alleged control separately one can conclude that each fails. However, it may be that putting them all together produces a different overall picture in which, viewed fairly, they amount to de facto control for the purposes of section 2.09.

[124]In doing so I bear in mind the two indicia that I have found above - that the control should be coming from the Issuer side of the line, and that it should be pervasive.

[125]The overall picture is one in which neither indicium is fulfilled. Everything that Oceanwood is said to have done is done in its interest as a creditor (and for a time with other creditors) and to further its interests as a creditor under the very documentation which includes the “control” provision. Its acts were in no way analogous to those of an arm’s length Issuer or a controlling shareholder in the Issuer. The totality of the picture is one of a creditor seeking to protect its interests as such and negotiating with (not controlling) the debtor. It sought a restructuring agreement, and in order to further that it sought information. That is not control; that is negotiation. Mr Al-Attar suggested that Oceanwood directed the rescue plans. There is no evidential basis for that suggestion. It negotiated certain steps towards a rescue plan, and actually sought to negotiate one (the restructuring), but there is no evidence it issued directions. It stayed on its own side of the negotiating procedure. The same is true when it took part in the Liquidity Facility and the guarantee facility. It was acting as a creditor on the creditor’s side of the line. That is not only true of the individual elements; it is true of the whole picture.

[126]Nor were its acts sufficiently “pervasive” to give it a relevant degree of control. The ability to veto certain things might be said to give a limited degree of control of the things to which the veto relates, but even taking the various rights of veto together there is nothing like the sort of “pervasive” influence which can amount to control for the purposes of section 2.09. There is no evidence that that degree of influence existed.

[127]In this context I can deal briefly with the allegation of shadow directorship in paragraph 17 of the Paul Hastings letter. It is said there that Oceanwood was “effectively” a shadow director of NSAS, and it sets out the English law definition of such a person. Neither New York law expert addresses the point, and I do not know if what is suggested is a New York law concept equivalent to the English law one. I strongly suspect that the letter uses the concept as a helpful guide to the English court as to what Foxhill’s case on de facto control is, using a familiar English law concept. I shall assume that that is the case.

[128]This deployment of the concept in fact exposes the poverty of the factual case on the nature and pervasiveness of the influence. If I had to decide whether, on the evidence placed before me, Oceanwood was a shadow director, I would have concluded without hesitation that the evidence was nowhere near enough to establish that. The recorded statement of Mr Ombudtsvedt might have been some sort of useful starting point, but once that is explained, and the context of the appointment understood, that falls largely out of the picture. None of the rest of the evidence comes close to demonstrating that the directors were ever, in any meaningful way, accustomed to act on the instructions or directions of Oceanwood.

[129]My conclusion, therefore, is that the package is no stronger than any of its constituent parts. Oceanwood did not have and did not exercise de facto control over any company in the Norske group for the purposes of section 2.09.

[130]I therefore answer question (3) in the sense: No.

Conclusion

[131]As previously reflected in this judgment, the answers to the three questions which have been directed to be answered, the answers are as follows:(1) Whether any instruction given by a purported instructing group that depends for its status as an Instructing Group on any interest held by Oceanwood Opportunities Master Fund or any other single entity or person or persons acting in concert, as a holder or as holders of the ultimate economic interest in more than 50 per cent of the principal amount of outstanding Senior Secured Notes Liabilities (as defined in the Intercreditor Agreement), is an instruction provided by an Instructing Group for the purposes of the Intercreditor Agreement - Answer: Yes"

(2) Whether any interest of Oceanwood Opportunities Master Fund or any other single entity or person or persons acting in concert, as a holder or as holders of the ultimate economic interest in more than 50% of the principal amount of outstanding Senior Secured Notes Liabilities (as defined in the Intercreditor Agreement), is to be disregarded pursuant to Section 2.09 of the Senior Secured Notes Indenture - Answer: No.

(3) Whether any interest of Oceanwood is to be disregarded pursuant to section 2.09 of the Indenture on the basis of the facts and matters relied on by Foxhill, being the facts and matters stated in Part B of Paul Hastings' letter dated 29 January 2018 as may be amended from time to time with the agreement of the parties or the order of the court - Answer: No.