6 The Bond Trustee’s Right to Sue and be Sued in the UK and the US(1) One might expect there to be similar issues concerning the trustee’s title to sue in Norway’s neighbouring countries, but the bond markets in these countries are not as commercially developed. In both Sweden and Denmark, bonds are mainly issued by the government or within the housing market, see Letter from the Nordic Trustee dated 27 October 2009 (n 12) and Daniel Wenne, ‘Hinging on Trust’, JP 2015 235-253, 237. Thus, there is little guidance to be obtained from there. In Sweden it is however debated whether the bond trustee has title to sue on behalf of the bondholders, see Magnus Wieslander, ‘Om avtal om talerätt och taleförbud på företagsobligasjonsmarknaden i Sverige’, JP 2012 263-287. The Nordic Trustee is now present in Sweden, Denmark and Finland, which may give rise to a more commercial bond market in these countries; see Nordic Trustee, ‘Company Information’ <nordictrustee.com/company-information> accessed 16 March 2017
When discussing the Nordic Trustee’s title to sue and be sued in its own name, one cannot avoid comparing it to that of the bond trustees in the UK and the US. In these countries, the trusteeship is an advanced legal institute, stemming from the original family trusts,(2) A trust is commonly defined as “[a]n equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership, recognised and enforced by courts of chancery”, see Black's Law Dictionary, <thelawdictionary.org/trust/> accessed 1 April 2017. though to date there are few distinct similarities between these. For instance, the bond trustee is not a trustee in the traditional common law sense, since it does not have legal ownership to the trust property; it merely holds delegated authority from the bondholders.(3) Roy Goode, Commercial law (3edn LexisNexis Butterworths 2004) 166 and Philip Rawlings, ‘The changing role of the trustee in international bond issues’, JBL 2007 43-66, 48 A family trust, on the other hand, typically involves the transfer of land or funds by a settlor to the trustee, which holds such property for the beneficiary.(4) Philip Rawlings, ‘The changing role of the trustee in international bond issues’, JBL 2007 43-66, 43 The trusteeship is also largely the reason why the Anglo-Saxon bond markets have been more advanced than those found in civil law countries.(5) ibid In addition to bond issues, the trustee plays a significant role when structuring financial deals such as project finance and collective investment schemes.(6) ibid
As mentioned, the bond trustee has title to sue on behalf of the bondholders in the UK and the US. The no-action clause is strictly applied(7) E.g. Cruden v. Bank of New York, 957 F.2d 961, 968 (2d Cir.1992) by the courts in both jurisdictions for claims in contract and in tort.(8) See for instance Elektrim S.A. v Vivendi Holdings 1 Corp and Law Debenture Trust Corporation PLC [2008] EWCA Civ 1178 [101] and Feldbaum v. McCrory, 1992 WL 119095 *6 (Del.Ch. June 2, 1992). In the case of Elektrim SA v Vivendi Holdings Corp.,(9) [2008] EWCA Civ 1178 the Court of Appeal held that the no‑action clause precluded actions by the bondholders against the issuer, and upheld an anti‑suit injunction against a bondholder in Florida.(10) ibid [162] The court noted that the commercial reasoning underpinning bonds was that the bondholders should only act through the trustee.(11) ibid [100]
A customary no-action clause found in a UK trust deed may read:
At any time after the Bonds become due and repayable, the Bond Trustee may, at its discretion and without further notice, institute such proceedings against [the issuer] or [the guarantor] as it may think fit to enforce the Bonds and the provisions of the [Trust Deed], but it need not take any such proceedings unless (i) it shall have been so directed by an Extraordinary Resolution of the Bondholders or so requested in writing by holders of at least thirty percent in principal amount outstanding of the Bonds and (ii) it shall have been indemnified to its satisfaction. No Bondholder may proceed directly against [the issuer] or [the guarantor] unless the Bond Trustee, having become bound to proceed, fails to do so within a reasonable time and such failure is continuing.(12) The clause is found in the case of Elektrim S.A. v Vivendi Holdings 1 Corp and Law Debenture Trust Corporation PLC [2008] EWCA Civ 1178 [87].
The wording of this clause differs from the Norwegian no-action clause, but both clauses aim to prevent any action by individual bondholders. In the UK, the individual bondholder has to pass several obstacles in order to take direct action against the issuer. First, the bond trustee must fail to take action, and then a certain percentage of the bondholders has to adopt a resolution instructing the bond trustee to do so.(13) ibid 49-50 If the bond trustee still refuses or fails to take appropriate action, the individual bondholder will be permitted to take direct action against the issuer.(14) ibid
Comparing the example above to the standard Norwegian no-action clause, one notes that the right of the bondholders to take action, if the Nordic Trustee fails to do so within a reasonable time, is not included in the Norwegian clause. Nonetheless, such a right is likely to be implied by the Norwegian courts should the Nordic Trustee fail to take adequate and timely action. It is also worth noting that the Norwegian Supreme Court has not explicitly ruled on the validity of the no-action clause if it were to be challenged by an individual bondholder.
A similar no-action clause to the one above is found in the US trust indenture. The US federal Trust Indenture Act of 1939 15 U.S.C. §§ 77aaa-77bbbb allows the bond trustee to sue in its own name in order to recover unpaid interest and/or principal on the bonds. A key difference between the US and the UK, however, is that an individual bondholder, despite the no-action clause, can also sue to recover principal and interest due on his or her bonds.(15) See the US Trust Indenture Act, 15 U.S.C. § 77ppp(b). Consequently, the US trustee does not have the same authority and discretion as the trustee in the UK (or in Norway), and the trust indenture is not as far reaching in limiting the rights of the individual bondholder as the trust deed.(16) Philip Rawlings, ‘The changing role of the trustee in international bond issues’, JBL 2007 43-66, 64 Still, the no-action clause is strictly applied to the extent it complies with the US Trust Indenture Act. In Feldbaum v. McCrory,(17) 1992 WL 119095, *5 (Del.Ch. June 2, 1992)the court noted that purpose of the no-action clause is:
to deter individual debentureholders from bringing independent law suits for unworthy or unjustifiable reasons, causing expense to the Company and diminishing its assets. The theory is that if the suit is worthwhile, [a significant percent] of the debentureholders would be willing to join in sponsoring it.... An additional purpose is the expression of the principle of law that would otherwise be implied that all rights and remedies of the indenture are for the equal and ratable benefit of all holders.
In the Thule Drilling cases, the Norwegian Supreme Court’s main focus was, as mentioned, on the additional purpose: namely, that all remedies are for the equal benefit of the class of bondholders. The other aspects of the no-action clause protecting the issuer were, somewhat surprisingly, not given attention by the court.
Most English and US case law relating to the bond trustee’s title to sue concerns the no-action clause. There are few cases whereby the bond trustee has been sued in its own name.(18) In the UK, disputes were generally settled amicably with the help of certain institutes in the City of London. It was only when American vulture funds started utilising the mechanisms of the legal system, that such cases started appearing before the English courts, see Philip Rawlings, ‘The changing role of the trustee in international bond issues’, JBL 2007 43-66, 44, 46. In this respect, one must distinguish between a suit against the bond trustee for actions performed in its capacity as trustee, and suits against the bondholders in the name of the bond trustee. The latter is likely to be impossible under English and US law, considering the fact that the trust deed/indenture is only entered into between the issuer and the bond trustee in such a capacity. Thus, the bondholders are not party to the deed/indenture, and there is no contractual agreement to the effect of allowing the bondholders to be sued in the name of the bond trustee.
On the other hand, it is clear the bond trustee can be sued in its own name for actions performed in its capacity as trustee.(19) Phillip R. Wood, Principles of International Insolvency (Sweet & Maxwell 2007) 12-046. An example from the US is the case of Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A,(20) 773 F.3d 110 whereby the issuer, Chesapeake Energy Corp, sued the bond trustee in a dispute concerning the timeliness of a notice of special early redemption of the bonds at par plus. Neither the parties nor the court contested the bond trustee’s right to be sued in its own name.
While the UK and US bond trustees are rooted in the common law trusteeship, the Nordic Trustee is a contractual establishment, which renders its functions and legal status under Norwegian law more uncertain. It was probably due to the influence of the Anglo-Saxon contractual framework and legal tradition, that the Nordic Trustee was vested with powers to sue in its own name under Norwegian law. This article will now proceed by assessing the possibility, pursuant to Norwegian law, of suing the Nordic Trustee in its own name.