This is an appeal by the 2^nd Defendant, Kaupthing Bank hf (“Kaupthing”), against the decision of Mrs Justice Asplin of 30^th January 2013 giving the 3^rd Defendant, Mr Elfar Adalsteinsson (“Mr Adalsteinsson”) permission to bring certain new Part 20 claims (the “new Part 20 claims”) against Kaupthing. The primary issue in the appeal is whether the court had jurisdiction to allow the new Part 20 claims in the light of the provisions of Article 32 (“Article 32”) of Directive 2001/24/EC on the Reorganisation and Winding Up of Credit Institutions (the “Directive”). That issue turns on the proper meaning of the reference to a “pending lawsuit” in Article 32.

Kaupthing, as is well known, is an Icelandic bank that has been in a winding up procedure in Iceland since 22^nd November 2010. These proceedings (“Action 599”) were initiated some 21 months before that on 27^th February 2009 by the Claimant, Isis Investments Limited (“Isis”), an indirect subsidiary of Kaupthing, to determine the entitlements to the proceeds of sale of shares in the supermarket chain, Somerfield, and the repayment of an associated loan of £67.15 million made by Isis to a company called Tazamia Limited (the “loan”). Mr Adalsteinsson represents those sub-participants who entered into sub-participation agreements with Isis in 2005 in respect of the loan. When Somerfield was sold by Isis in 2009, some £129 million was paid into court to abide the outcome of Action 599.

The complex procedural background is clearly set out in paragraphs 6-14 of the judge’s judgment which I gratefully adopt. The key points are simply that:-

In her judgment at the Case Management Conference on 30^th January 2013, the judge refused Isis a stay of Action 599 on the grounds that it wished to pursue wider claims in the Isle of Man. That decision was not appealed and these wider claims have now been included by amendment of the Particulars of Claim in Action 599.

It is common ground that Directive 2001/24/EC on the Reorganisation and Winding Up of Credit Institutions (the “Directive”), as implemented in the UK by the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 (the “Regulations”), has the effect of requiring the English court to treat two specific provisions of Icelandic law affecting Kaupthing as part of the English law of insolvency. The Icelandic law provisions are as follows:-

Article 10 of the Directive provides as follows:-

“1.

A credit institution shall be wound up in accordance with the laws, regulations and procedures applicable in its home Member State insofar as this Directive does not provide otherwise.

2.

The law of the home Member State shall determine in particular: …

(e)

the effects of winding-up proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending as provided for in Article 32”.

Article 32 of the Directive, which Article 99 mirrors, provides that: “[t]he effects of reorganisation measures or winding-up proceedings on a pending lawsuit concerning an asset or a right of which the credit institution has been divested shall be governed solely by the law of the Member State in which the lawsuit is pending”.

Against that background, Kaupthing’s main argument before us has been that the English court had no jurisdiction to allow Mr Adalsteinsson to bring the new Part 20 claims (perhaps with the exception of one of the claims as to an alleged trust in favour of the sub-participants). The argument is broadly as follows:-

Mr Adalsteinsson’s response to these arguments was to say that the expert evidence on Icelandic law before the judge was the report of Mr Einar Tamini who opined that “if English civil procedure rules permit Mr Adalsteinsson’s claims to be raised within the existing proceedings then paragraph 1 of Article 116 does not prevent Mr Adalsteinsson from making and prosecuting those claims” (see paragraphs 51, 91, 98, and 112 of the judge’s judgment). Accordingly, Mr Adalsteinsson said that Article 99 and Article 32 were determinative as applying English law to the existing English “lawsuit”.

Kaupthing contended in the alternative that, if English procedural rules did apply to Mr Adalsteinsson’s application to bring his new Part 20 claims, then the judge exercised her discretion wrongly. She should have given primary weight to the fact that the new Part 20 claims were pointless because, even if they were successful, Mr Adalsteinsson would not be able to prove his claims in Kaupthing’s Icelandic insolvency. For that reason, Kaupthing should not be put to the time and expense of defending such claims.

It is perhaps worth noting at the outset that, before the judge, Kaupthing opposed the stay sought by Isis on the ground that Article 99 was applicable, and that English procedural law was determinative as to whether Isis could amend to widen its claims. On that issue, Kaupthing did not suggest that Isis’s amendments to its claims would take them outside the meaning of a “pending lawsuit” under Article 32 (see paragraphs 59-60 and 90-2 of the judge’s judgment). Mr Richard Snowden QC, leading counsel for Kaupthing, explained in his oral submissions that this difference exemplified the true meaning of Article 32. Isis was widening its existing claims as a creditor of Kaupthing, whilst Mr Adalsteinsson was seeking to bring wholly new claims.

The judge summarised the new Part 20 claims that Mr Adalsteinsson wished to bring against Kaupthing and the 1^st Defendant, Oscatello Investments Limited (“Oscatello”). In essence, Mr Adalsteinsson supports the new claims brought by Isis against Kaupthing and Oscatello, and alleges on behalf of the sub-participants that:-

It is not necessary to go into the details of the new claims brought by Isis against Kaupthing and Oscatello, but it may be noted at this stage that they cover much of the same ground as the new Part 20 claims. Moreover, it is not in dispute that, if the waterfall provisions in clause 6 were vitiated as Isis claims they should be, the sub-participants would be economically affected. Finally, in this connection, Mr Adalsteinsson’s new Part 20 claims are brought against Oscatello as well as Kaupthing. Oscatello (which is in liquidation in the British Virgin Islands) could not and did not raise the same points as Kaupthing in opposition to them.

Against this background, it seems to me that the appeal raises the following issues:-

Kaupthing has concentrated on Article 32 rather than on the Icelandic Article 99, because they would be expected to have the same meaning. In addition, it is important that the Directive is given an autonomous meaning applicable across the EEA.

It is important to note at the outset that the first question relates to the qualifying words in Article 32 namely that the “pending lawsuit” should be one “concerning an asset or a right of which [Kaupthing] has been divested”. As paragraphs 61-62 of the judge’s judgment makes clear, it was common ground between Kaupthing and Mr Adalsteinsson below that Action 599 did concern an asset or a right of which Kaupthing had been divested. This was mainly because the original thrust of the claims made by Isis concerned the destination of the funds in court.

The judge cited extensively at paragraphs 44-47 from Gloster J’s judgment in Lornamead Acquisitions Limited v. Kaupthing Bank HF [2011] EWHC 2611 (Comm) [2013] BCLC 73 in relation to the scheme and objective of the Directive and its implementation in the UK. I shall not repeat those helpful passages here.

Mr Snowden drew particular attention to recitals 3, 4, 6, 7, 12, 14, 16, 17, 23 and 30 of the Directive, which emphasise the universalist objective of the legislation and the exceptional nature of the carve out for pending lawsuits. I do not intend to set out these recitals at length, but would mention particularly recital 23, which indicates that “[i]n some cases, the reference to the law of another Member State represents an unavoidable qualification of the principle that the law of the home Member State is to apply” (emphasis added), and recital 30 which says that “[t]he effects of reorganisation measures or winding up proceedings on a lawsuit pending are governed by the law of the Member State in which the lawsuit is pending”, the latter part of the recital drawing a distinction with “individual enforcement actions arising from such lawsuits”, which are governed by the lex concursus.

Both sides sought comfort from the judgment of Longmore LJ in Syska v. Vivendi Universal SA [2009] 2 All ER (Comm) 891, which concerned the equivalent provisions of Council Regulation (EC) 1346/2000 on the law applicable to insolvency proceedings. The Court of Appeal held in that case that the effect of articles 4(2) and 15 of the Insolvency Regulation (which are in very similar terms to articles 10(2) and 32 of the Directive) was that the law of the Member State in which an arbitration was taking place should determine whether that arbitration should be continued or discontinued, rather than the law of the home Member State of the insolvent party, which was in that case Poland.

Longmore LJ said this at paragraph 16 of his judgment:

“ … It is self-evidently the law of [the home Member State] which must determine matters such as the amount of the debtor's estate which is available to satisfy creditors and the priority of competing claims on that estate. Likewise it is not difficult to see why pending lawsuits should be excluded from the general application of the lex concursus; a lawsuit (including a reference to arbitration) becomes necessary when there is a need to determine the existence or validity of a particular claim which (if valid) will then be permitted to participate in the insolvency proceedings. Until the validity of that particular claim is ascertained, it has no status in or relevance to the insolvency proceedings at all. If, moreover, a legal action has been begun or a reference to arbitration has been constituted in a member state other than that in which the insolvency proceedings have been opened, it is natural and understandable that it should be the law of that member state where the legal action has begun or the reference to arbitration is taking place which should determine whether that action or that reference should be continued or discontinued. Of course if no claim has been initiated before insolvency proceedings are opened, it is entirely appropriate that the lex concursus should determine how any subsequent litigation or arbitration should proceed. But if litigation or arbitration has begun before insolvency occurs the natural expectation of businesses would be that it should be that law that should determine whether the proceedings should continue or come to a shuddering halt”.

The parties also referred to Longmore LJ’s citation of an extract from the Virgos-Schmit report that was to have been the Official Report of the Bankruptcy Convention, and is generally regarded as an aid to the interpretation of the Insolvency Regulation. The extract from paragraph 142 of the report included the following: “Effects of the insolvency proceedings on other legal proceedings concerning the assets or rights of the estate are governed (ex Article 15) by the law of the Contracting State where these proceedings are under way. The procedural law of this State shall decide whether or not the proceedings are to be suspended, how they are to be continued and whether any appropriate procedural modifications are needed in order to reflect the loss or the restriction of the powers of disposal and administration of the debtor and the intervention of the liquidator in his place” (original emphasis).

Patten LJ concurred with Longmore LJ and added at paragraph 33 that: “Once it is accepted that an existing reference to arbitration constitutes a pending lawsuit within the meaning of art 15 then the choice of national law to determine 'the effects of insolvency proceeding on a lawsuit pending' would appear to comprehend any issues about the validity of the arbitration agreement which would affect the continuation of the arbitration itself”.

Finally, in relation to relevant authority, Mr Snowden drew our attention to a recent decision of the Court of Justice of the European Union in LBI hf v. Kepler Capital Markets SA (case C-85/12) where the Court had said at paragraphs 49-52 that Article 32 was an exception to the general rule and, as such, must be construed strictly. Paragraphs 53-56 of the Court’s judgment drew the distinction between “lawsuits pending” and “individual enforcement actions” referred to in recital 30, in order to hold that interim protective measures divesting a credit institution of the right to dispose of its assets pending settlement of the substance of a dispute with a creditor constituted such an “individual enforcement action” and were governed by the lex concursus. The court noted at paragraph 54 that the expression “lawsuits pending” covered only proceedings on the substance.

None of these authorities directly answers the question posed in this case as to whether the term “pending lawsuit concerning an asset or a right of which [Kaupthing] has been divested” is to be construed as meaning the whole of the lawsuit or only that part of the lawsuit that constitutes claims made by individual creditors to assets of the credit institution or in respect of a right to participate in the credit institution’s estate.

In oral argument, Mr Snowden was constrained to accept that some cross-claims could properly be regarded as part of a “pending lawsuit”. For example, he accepted that if and so far as a cross-claim was merely relied upon as a defence by way of set-off, that cross-claim could be regarded as part of an existing lawsuit; but that a cross-claim for monetary relief which was not a defence by way of set-off would not be part of a pending lawsuit and could not be raised (see Langley Construction (Brixham) Ltd. v. Wells [1969] 1 WLR 503 at page 509).

This, as it seems to me, identifies the core of the problem. Article 32 must be given an autonomous meaning. It cannot have been intended by its draftsman to slice up existing legal proceedings. Had that been the intention, the words “pending claim” or something less inclusive than the word “lawsuit” would surely have been used. The word used in French is “instance”, which is again, as it seems to me, a word indicating that the reference is to proceedings as a whole. In my judgment what was obviously intended by Article 32, construing it strictly as an exception to Article 10(2)(e), and accepting the whole universalist thrust of the Directive, was to allow the law of the forum in which existing proceedings were pending to determine the procedural, but not enforcement, aspects of them.

It is not to be forgotten that the words of article 32 only provide that the effects of the winding up on the pending lawsuit are to be governed by the local law. But that must be taken to mean, in this case, that English law will determine all matters concerning the effects of Kaupthing’s winding up on Action 599. That will include the relevance of the winding up to all procedural questions including whether or not it is appropriate for a party to the existing proceedings to be allowed to raise an additional claim against the insolvent bank.

In these circumstances, once one concludes, as was common ground, that the existing proceedings namely Action 599 are indeed a “pending lawsuit concerning an asset or a right of which [Kaupthing] has been divested”, it follows that the relevance of Kaupthing’s winding up to any procedural application is to be determined by English law, as the judge held. That does not mean that Kaupthing’s insolvency is irrelevant to the question the court had to decide. It is plainly relevant for the English court to consider, when applying its own Rules, the nature of the new claim proposed, that Kaupthing is in an insolvency procedure in Iceland, and that such new claims might or might not be allowed in that jurisdiction. None of these factors will necessarily be determinative in any particular case, but they will be relevant to the exercise of the court’s discretion to which I shall turn under issue 4 below.

These conclusions are supported by both the important passage from the Virgos-Schmit report that I have cited earlier and indirectly by the Court of Justice in LBI. The Virgos-Schmit report made it clear that the procedural law of the forum should decide “whether or not the proceedings are to be suspended” and “how they are to be continued” and “whether any appropriate procedural modifications are needed in order to reflect the … intervention of the liquidator”. The question of whether additional claims can be brought is a question of how proceedings are to be continued. The decision in LBI made clear that issues relating to the “proceedings on the substance” of existing disputes are governed by the law of the forum. Again, adding additional claims that relate to the substance must fall within that category.

In this connection, it is worth pointing out the unwieldy effect of Mr Snowden’s construction. Whilst Article 32 must be construed in the light of Article 10.2, and one can accept that only existing lawsuits are to be carved out, it would be a procedural nightmare if every existing proceeding had to be examined minutely to see whether each of the claims and cross-claims fell to be regarded as proceedings brought by individual creditors in relation to an asset of the credit institution or a right to participate in the credit institution’s estate. As Longmore LJ said in Syska, “the natural expectation of businesses would be that it should be [the law of the forum] that should determine whether the [existing] proceedings should continue or come to a shuddering halt” as a result of a foreign insolvency. It may be noted that Mr Snowden accepted that it was established as a matter of English law that a foreign insolvency did not have such an effect in this case, despite the provisions of section 130(2) of the Insolvency Act 1986 (see Mazur Media Ltd v. Mazur Media GmbH and others [2004] EWHC 1566 (Ch)). But I have little doubt that businessmen would find it most odd if they were told that the local law, after the insolvency of one party, could only govern certain aspects of the effect of the insolvency on those existing legal proceedings. That does not seem to me to be what Articles 10(2)(e) and 32 demand.

I should mention finally that the conclusion that I have reached is, in my judgment, inevitable despite the fact that the words in Article 32 are “pending lawsuit concerning an asset or a right of which [Kaupthing] has been divested”. Even if it were right to say that the new Part 20 claims (and specifically the conspiracy claims to which Kaupthing take particular objection) did not concern “an asset or a right of which [Kaupthing] has been divested”, about which I have some doubt, I still think that the reference to the “pending lawsuit” must be to the proceedings in their entirety whatever shape they take in the particular jurisdiction in which they are being prosecuted. The pending lawsuit as a whole includes claims that concern “an asset or a right of which [Kaupthing] has been divested”, and that, I think, is enough to engage English law. Any other result would be unworkable.

For these reasons, I have concluded that the term “pending lawsuit” in Article 32 and the term “lawsuit pending” in Article 32(2)(e) refer to the entirety of the proceedings in question, and not just a part of it.

It is convenient to deal with these issues together.

Once the proper meaning of Article 32 is established, these questions answer themselves. The provisions of article 116 merely mean that new proceedings cannot be brought, save in specified circumstances, in Iceland against Kaupthing after the commencement of its winding up. That does not have any bearing, as the expert evidence before the judge acknowledged, on whether “new claims” can be brought in English proceedings initiated before the winding up.

The provisions of Article 99 are merely the implementation in Iceland of Article 32 of the Directive. Article 99 therefore reinforces Article 32 in providing that the effect of Kaupthing’s winding up on these existing proceedings are governed by English law.

In addition, I think the judge was right to consider that Part 20 regards an ‘additional claim’, once allowed, as part and parcel of the existing proceedings. It is not necessary to set out CPR Part 20 or the Practice Direction in this judgment. The judge referred to the relevant aspects in paragraphs 99 and 112 of her judgment.

The conclusions here are therefore that the new Part 20 claims are indeed part of a “pending lawsuit” under Article 32. They are therefore outside the provisions of Article 116. The judge was right to hold that Article 99 meant that the question of whether the new Part 20 claims could be brought within the existing proceedings was a matter for English law.

As has been acknowledged by both sides, once there is jurisdiction to allow new Part 20 claims within the existing proceedings, the judge had a discretion to decide whether or not such new Part 20 claims should be allowed. I turn then to deal with the judge’s exercise of her discretion.

As I have said, it is under this issue that arguments about the nature of the new Part 20 claims fall to be considered. Mr Snowden’s junior, Mr Benjamin Strong (together with Mr Alex Barden) argued in their skeleton argument that the judge’s sole ground for allowing the application was her reading of the expert evidence to the effect that the new Part 20 claims could in any event be brought against Kaupthing in its Icelandic insolvency.

It is true that the judge placed some reliance in exercising her discretion on Mr Tamini’s uncontradicted evidence that: “Mr Adalsteinsson would still be able to bring the claims which he seeks now to bring against Kaupthing in these English proceedings in Kaupthing's insolvency in Iceland. This is because the claims which Mr Adalsteinsson has already notified in Kaupthing's insolvency are wide enough so as to encompass the claims which he now seeks to bring against Kaupthing”. But this was not her only reason. On a proper reading of her judgment, the judge also expressly preferred Mr Samek Q.C.’s submissions to the effect that: (i) Mr Adalsteinsson had been a party to these proceedings since their inception; (ii) Kaupthing's counterclaim (at least as it stood prior to amendment) included claims against Mr Adalsteinsson; and (iii) Kaupthing’s example of a world roving ‘would be’ litigant did not assist it, because in such circumstances, the effects of the English procedural rules would make it very unlikely that such a person would be joined to English proceedings.

Mr Snowden’s main point in oral argument was, as I have said, that the judge was wrong to allow a claim that was pointless, since any judgment could not be enforced in the Icelandic insolvency. I disagree that this was the effect of the expert evidence before the judge. There was a dispute between the experts as to whether Mr Adalsteinsson would be able to amend his existing proof after the “bar date” for claims had passed (as it had) to include claims of the kind that he wanted to pursue as new Part 20 claims. None of the expert evidence went directly to the enforceability in Kaupthing’s Icelandic winding up of any English judgment obtained against Kaupthing in respect of the new Part 20 claims.

In these circumstances, it will obviously be a matter for the Icelandic court to determine, if a judgment is obtained, how far it can be proved in the liquidation. I do not think this escaped the judge’s notice. The extensive evidence before her was all about what could or could not happen in Kaupthing’s Icelandic winding up. It was obvious that there would be real arguments there as to how far any English determination would be enforced. The implication from Mr Tamini’s evidence was that the Icelandic court would respect the decision of the English court in these proceedings, but that was a question for the future. Mr Snowden had argued before the judge that Mr Adalsteinsson should apply to expand his claim in Iceland first, and only if he was successful, renew his application here (see paragraph 104 of the judge’s judgment).

Mr Snowden also pointed to the nature of the new Part 20 claims as being entirely new and inappropriate for inclusion in Action 599. It is in this connection that I feel his submissions were rather unrealistic. Action 599 as constituted when this application came before the judge included a claim by Isis that Kaupthing had been a de facto director of Isis and had agreed to clause 6 of the Framework Agreement in breach of its duties to Isis. A challenge to clause 6 had a direct economic impact on the sub-participants. It would be cumbersome to say the least for Isis to challenge Kaupthing’s actions in relation to the transaction in these proceedings (as will happen whatever the result of this appeal), and for Mr Adalsteinsson to be forced to try to raise similar and connected allegations in the Icelandic insolvency. The logical approach demands that all those with a serious economic interest should be before the same court and be able to address the arguments raised on all sides. The facts that (a) Mr Adalsteinsson puts his claim against Kaupthing slightly differently from the way Isis puts it (for example by raising a section 423 claim), and that (b) Kaupthing had intimated its intention to drop its Part 20 claim against Mr Adalsteinsson shortly before the hearing, seem to me to be nothing to the point. Isis and its sub-participators have the same commercial interests and their claims should logically and sensibly be dealt with together. Moreover, it would be most inconvenient to have Mr Adalsteinsson’s new Part 20 claims against Oscatello proceeding in Action 599, whilst the equivalent claims against Kaupthing (and perhaps even the right to bring them) were being argued out in the Icelandic courts.

For these reasons, I do not think that Kaupthing has been able to point to any error in the judge’s approach to the exercise of her discretion under Part 20 to allow the new Part 20 claims. It seems to me that the judge was right to consider that it was appropriate to allow Mr Adalsteinsson’s new Part 20 claims to be brought in Action 599. The judge understood the universalist scheme of the Directive, its implementation in both the UK and Iceland, but still took the view in the exercise of her discretion, as I would have done, that the application should be allowed.

For the reasons I have sought shortly to give, the judge was right to hold that nothing in Article 32 of the Directive, nor in Articles 99 and 116 of the Icelandic law deprived her of jurisdiction to allow the new Part 20 claims to proceed against Kaupthing in the existing Action 599, which is properly to be regarded as a “pending lawsuit”. In addition, the challenge to the judge’s exercise of her discretion to allow the new Part 20 claims to proceed against Kaupthing fails.

I would, therefore, dismiss this appeal.

I agree.

I also agree.