UK: Secured Creditor Can Intervene In Charged Property Before Enforcement

Last Updated: 1 February 2007
Article by Martin Brown

This case is a reminder of how extensive a secured creditorís rights can be in respect of the charged property, even before the right to enforce arises.

It is also the first time that the English Court of Appeal has analysed the rights of parties to a securitisation. The decision, based on documents that are typical in the market, shows that certain parties to a securitisation (namely the Trustee and Insurer) can have a wide discretion to make what is in effect a commercial decision. In this instance, they were able to change the nature of the underlying security from convertible debt to cash.

This case is one of the many to have been brought following the approval by the Paris Commercial Court (on 15 January 2007) of Eurotunnelís restructuring plan. It concerned Eurotunnelís so‑called "Tier 3" debt which, under the plan, was to be exchanged for new convertible loan notes or, alternatively, a cash payment. The dispute was triggered by a complaint by one of the noteholders, QVT Financial LP, which argued that the cash option was contrary to QVTís understanding of the commercial context.

The Court of Appeal found that QVTís arguments were not supported by the underlying documents.

Case: Citibank NA v MBIA Assurance SA and another, CA (22.01.07)

To view the article in full, please see below:

Full Article

A recent case has provided the first opportunity for the English Court of Appeal to consider the rights of parties to a securitisation. The case is a reminder of how extensive a secured creditorís rights can be in respect of the charged property, even before enforcement arises. It also shows that, when exercised, those rights may lead to a commercial result that was not necessarily contemplated by certain of the parties which hold the underlying economic interest.


The dispute is one of the many to have been brought following the approval by the Paris Commercial Court (on January 15 2007) of Eurotunnelís restructuring plan. The salient facts can be summarised as follows:

  • the debt in question, known as "Eurotunnel tier 3 junior debt", was held by an SPV;
  • under the securitisation, the SPV had used that debt to issue seven different tranches of loan notes;
  • certain of those loan notes were secured by a guarantee issued by MBIA;
  • the documents that provided for the securitisation included, in the usual way, a trust deed and a deed of charge between Citibank (as trustee), the SPV (as owner of the debt) and MBIA (as "loan note controller" and, for certain notes, guarantor);
  • Eurotunnelís restructuring plan provided that the SPV would assign its debt to another Eurotunnel company in return for certain convertible notes with an option to receive cash instead of the notes (the "cash option");
  • MBIA (in its capacity as loan note controller) directed Citibank (as trustee) to exercise the cash option.

One of the loan noteholders, QVT, queried Citibankís power and rights to require the SPV to exercise that cash option. The notes held by QVT were not guaranteed.

High Court Decision

Citibank sought directions from the court. At first instance it was held that MBIA had the power to direct Citibank to exercise the cash option and that the exercise of that option did not require Citibankís consent under the negative pledge contained in the deed of charge and conditions attached to the loan note. QVT appealed.

Court of Appealís Decision

The Court of Appeal dismissed QVTís appeal.

We summarise below the Courtís analysis of the two main issues:

1. Citibankís power to cause the SPV to exercise the cash option

The Court saw this as a question of the true interpretation of the trust deed and deed of charge. While in the normal way the holder of security would not be expected to take steps in relation to the charged property before the security becomes enforceable, unless it could be shown that the sufficiency of the security was threatened, there is nothing to prevent the parties from agreeing that the holder of the security should have rights to intervene before the security becomes enforceable. The Court found authority for that in Nelson v Hannan [1943].

The deed of charge was worded in such a way as to entitle Citibank to require the SPV to enforce any rights that it may have under the documents that provided for the tier 3 debt and any document replacing or supplementing those documents. The wording was found to be broad enough to include Eurotunnelís restructuring plan which, in turn, included the cash option.

The Court found that it made no difference that the effect of the exercise of the cash option was to turn property into cash. The Court noted QVTís argument that such a result was contrary to what QVT had expected when they invested in the loan notes. However, the Court said that if those were commercial expectations of certain loan note holders, then the language used in the relevant documents was not reflective of those commercial expectations. The Court added that, in any event, the circumstances have changed from those envisaged at the time of the original subscription of the notes.

2. Was Citibank bound to comply with MBIAís direction or must it exercise its own independent judgment?

As above, the Court saw this as a question of the true interpretation of the documents and found against QVT. Citibank was contractually obliged to give a direction to the SPV if so required by MBIA.

In addressing this issue, the Court also dismissed QVTís arguments that the negative pledge in the charge applied to the exercise of the cash option.


The decision highlights the wide discretion of certain parties (in this case the guarantor and the trustee) to a securitisation to make what is, in effect, a commercial decision to change the nature of the security before it becomes enforceable. The purchasers of notes issued by securitisation vehicles should be aware of this as a potential risk and look carefully at the relevant clauses in the deed of charge and trust deed.

Case: Citibank NA v MBIA Assurance SA and another, CA, 22 January 2007.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 30/01/2007.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think youíve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaqís use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributorís own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaqís Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaqís Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaqís right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions