Citicorp Trustee Company Ltd v Barclays Bank Plc & Ors

Disenfranchisement provisions in note documentation must be construed by applying ordinary principles of contractual interpretation. Where “Seller” is defined as a bank acting in its capacity as seller of underlying loans, the restriction applies only when that bank holds notes in that capacity. It does not apply merely because the bank is identified as a Seller.

“Beneficial owner” ordinarily refers to proprietary ownership, whether held directly or through a trust or equivalent equitable arrangement. Contractual control over voting, or an economic interest without a proprietary interest, does not ordinarily satisfy that expression. The court declined to extend the concept to uncertain forms of economic control.

The claimant trustee sought directions in expedited Part 8 proceedings concerning two commercial mortgage-backed note issues. The dispute arose because Barclays held the senior notes in one issue and Rabobank held the senior notes in the other, while contractual arrangements gave Barclays and Ambac control over aspects of voting.

The central questions were whether the relevant notes were excluded from the definition of “outstanding” under the trust deeds because they were held by a Seller or beneficially for a Seller, and whether contractual voting control could make Barclays a beneficial owner of Rabobank’s notes.

1. Construction of the Seller restriction. The documentation was governed by ordinary principles of contractual construction. The definition of “Seller” in the Master Definitions Schedule expressly limited the term to the named banks acting in their capacity as sellers of the Senior Loans. That limitation could not be disregarded without a sufficient contextual reason. The disenfranchisement provision therefore applied only where a Seller held notes in that capacity.
2. Barclays’ acquisition and holding of the Disputed Barclays Notes was not in its capacity as Seller. The notes accordingly remained outstanding for the relevant voting purposes and were not disenfranchised. The fact that Barclays could never have held them in the capacity of Seller when the transaction documents were executed did not justify rewriting the definition.
3. Meaning of beneficial owner. The traditional meaning of beneficial ownership is ownership for one’s own benefit, as distinct from holding property as trustee for another. The court applied the reasoning in Sainsbury Plc v O’Connor (Inspector of Taxes) [1991] 1 WLR 963. Neither Barclays nor Ambac acquired a proprietary interest in the Rabobank Notes through the derivative and guarantee arrangements.
4. The court considered the discussion in Assenagon Asset Management SA v The Irish Bank Resolution Corp [2012] EWHC 2090 (Ch). The suggestion that beneficial ownership might, in unusual circumstances, extend to an economic allocation of all risks and rewards was treated as dictum. The court respectfully disagreed with extending that approach to contractual voting control, which would create substantial uncertainty. Barclays was therefore not a beneficial owner of the Rabobank Notes.
5. Neither the Disputed Barclays Notes nor the Disputed Rabobank Notes was disenfranchised. The court reserved submissions on the consequences of the decision.

The proceedings were first-instance Part 8 proceedings. They were issued pursuant to an expedited Beddoe order made by Morgan J on 31 July 2013. No appellate decision was stated.