Lornamead Acquisitions Ltd v Kaupthing Bank HF

It was common ground that the decision in Rawlinson, if correct, is both applicable to, and adversely determinative of, Kaupthing’s application based on its first ground, as set out above. As Lornamead’s proceedings were begun in the same period as the trustees’ proceedings in Rawlinson, i.e. between April 2009 and November 2010, Burton J’s decision, if applied, would equally preclude Kaupthing’s reliance on the 2004 Regulations. Both parties agreed that I should decide the additional point raised by Lornamead on the basis of Rawlinson.

Mr. Goldring, in his well-presented written and oral arguments on behalf of Kaupthing, submitted that the Court should not follow Rawlinson because Burton J’s conclusion - that Kaupthing had not been subject to an EEA insolvency measure in July 2010 - was wrong. He submitted that:

Mr. Thanki QC and Mr. Valentin, on behalf of Lornamead, in their similarly well-presented arguments, contended that I should follow and apply Rawlinson, not only because it was correctly decided, but also because Kaupthing had identified no good, or sufficient, reason for this Court to depart from a decision of the same Court, in circumstances where that decision:

It is not necessary to repeat Burton J’s rehearsal of the judicial and statutory processes which took place in Iceland between 24 November 2008 and 13 May 2010; that is set out at paragraphs 10 – 19 of his judgment.

Volume 11, paragraph 98 of Halsbury’s Laws states as follows:

“98.

Decisions of co-ordinate Courts.

There is no statute or common law rule by which one Court is bound¹ to abide by the decision of another Court of co-ordinate jurisdiction². Where, however, a judge of first instance after consideration has come to a definite decision on a matter arising out of a complicated and difficult enactment, the opinion has been expressed that a second judge of first instance of co-ordinate jurisdiction should follow that decision³; and the modern practice is that a judge of first instance will as a matter of judicial comity⁴ usually follow the decision of another judge of first instance unless he is convinced that that judgment was wrong⁵ …. (emphasis supplied.)

…

In The Makedonia [1958] 1 QB 365, [1958] 1 All ER 236, Pilcher J did not follow a prior decision of a Court of co-ordinate jurisdiction (The Telemachus [1957] P 47, [1957] 1 All ER 72) on the ground that it was wrong, although in Re Cohen, National Provincial Bank Ltd v Katz [1960] Ch 179, [1959] 3 All ER 740, Danckwerts J felt bound to follow a decision of Harman J which had been doubted, although not overruled, in a dissenting Court of Appeal judgment. It is undesirable that different judges of the same division should speak with different voices: Re Howard's Will Trusts, Levin & Bradley [1961] Ch 507 at 523, [1961] 2 All ER 413 at 421, per Wilberforce J; Alma Shipping Co SA v VM Salgaoncar E Irmaos Ltda [1954] 2 QB 94 at 104, [1954] 2 All ER 92 at 97, per Devlin J. See also Osborne to Rowlett (1880) 13 ChD 774; Gathercole v Smith (1881) 44 LT 439; affd on appeal 17 ChD 1, CA.6; Minister of Pensions v Higham [1948] 2 KB 153, [1948] 1 All ER 863; applied in Colchester Estates (Cardiff) v Carlton Industries plc [1986] Ch 80, [1984] 2 All ER 601; itself applied in Re Cromptons Leisure Machines Ltd [2006] EWHC 3583 (Ch), [2006] All ER (D) 178 (Dec).”

Mr. Goldring’s carefully structured argument has indeed raised doubts in my mind as to the correctness of Burton J’s decision in Rawlinson. In particular, I was impressed by Mr. Goldring’s submissions to the effect that:

I should say, however, that I did not find Kaupthing’s submission that the winding up order made on 22 November 2010 was retrospective in any way persuasive.

Following the approach set out in the passage quoted from Halsbury (supra), and in circumstances where:

On that basis, Kaupthing’s application to stay or strike out the English Proceedings based on Ground 1 fails.

However, it nonetheless remains necessary for me to decide Issue 2, because of the possibility that the Court of Appeal may allow Kaupthing’s appeal from Burton J’s decision in Rawlinson, and thus hold that, on 13 May 2010, Kaupthing was indeed subject to an EEA insolvency measure within the meaning of the 2004 Regulations and the Directive.

In order to understand the parties’ respective submissions, it is necessary to summarise the relevant European, United Kingdom and Icelandic statutory regimes.

The following summary is largely taken from Kaupthing’s original skeleton argument, which Lornamead accepted correctly set out the position, save that Lornamead did not accept that Regulation 5 gives direct and automatic effect to an EEA insolvency measure in the unqualified manner suggested by Kaupthing. Nor did Lornamead accept that the regime created by the 2001 Directive was intended to apply the principles of unity and universalism to re-organisation measures and winding up proceedings. Mr. Thanki submitted that such suggestion was undermined by the fact that Kaupthing itself was clearly prepared to litigate its disputes in England where it considered it to be in its interests to do so: see, for example, Kaupthing Bank HF v Exista HF & Another 2010 Folio 988, a claim started by Kaupthing against an Icelandic and a Dutch defendant in the Commercial Court as recently as 18 August 2010.

Neither the Brussels Convention, the Lugano Convention nor EC Regulation No 44 of 2001 (the “Judgments Regulation”) applies to:

“… bankruptcy, proceedings relating to the winding up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings” (Footnote: ¹³).

Instead, the primary European instrument dealing with cross-border insolvency is the EC Regulation No 1346/2000 of 29 May 2000 on insolvency proceedings (the “Insolvency Regulation”), which came into force on 31 May 2002 in relation to members of the EC (except Denmark). However, the Insolvency Regulation specifically did not apply to insolvency proceedings concerning four types of financial institutions, including credit institutions, which, unlike ordinary companies, were subject to special regulatory regimes: see Article 1(2) of the Insolvency Regulation. Recital 9 of the Insolvency Regulation (last sentence) made plain the reason for that:

“Such undertakings should not be covered by this regulation since they are subject to special arrangements and, to some extent, the national supervisory authorities have extremely wide-ranging powers of intervention.”

As regards credit institutions (Footnote: ¹⁴), the gap in legislation relating to cross-border insolvency was filled by the 2001 Directive, which formed part of the EC legislative framework on the co-ordination of laws, regulations and administrative provisions with regard to the taking up and pursuit of the business of credit institutions, which is found in Directive 2000/12/EC (the “2000 Banking Directive”) (Footnote: ¹⁵). As such, it was adopted, not only by the members of the EC bound by the Insolvency Regulation, but also by members of the EEA, who had adopted the EC framework on the co-ordination of credit institutions.

It has long been established under English law that the English Courts will generally recognise and respect insolvency proceedings ongoing in the place of a company’s incorporation, and seek to co-ordinate any English proceedings with them. As Lord Hoffmann put it in McGrath v. Riddell (supra):

“6.

Despite the absence of statutory provision, some degree of international co-operation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely that bankruptcy (whether personal or corporate) should be unitary and universal. There should be a unitary bankruptcy proceeding in the Court of the bankrupt's domicile which receives world-wide recognition and it should apply universally to all the bankrupt's assets.

7.

This was very much a principle rather than a rule. It is heavily qualified by exceptions on pragmatic grounds; elsewhere I have described it as an aspiration: see Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26; [2007] 1 AC 508, 517 at paragraph 17. Professor Jay Westbrook, a distinguished American writer on international insolvency has called it a principle of ‘modified universalism’: see also Professor Ian Fletcher, Insolvency in Private International Law (2nd ed 2005) at pp. 15-17. Full universalism can be attained only by international treaty. Nevertheless, even in its modified and pragmatic form, the principle is a potent one.”

In relation specifically to credit institutions, the 2001 Directive, which is based on international agreements, replaces the common law of modified universalism, with a purer form of unity and universalism, in which there can only be a single insolvency proceeding within the EEA, based in the credit institution’s home Member State, which has automatic effect, and extends to all branches, throughout all states within it (Footnote: ¹⁶). This is made plain both by the recitals to, and articles of, the 2001 Directive. As Lord Glennie put it in Landsbanki Islands HF v. Mills [2010] Scot CS CSOH 100 (Footnote: ¹⁷):

“61.

Taking the 2001 Directive as a whole, there can be no doubt that its purpose is to ensure that administration or winding up proceedings are dealt with exclusively in the home state of the credit institution, and to ensure that such proceedings, and the decisions taken in those proceedings, are recognised and given full effect in other states within the Community.”

The 2001 Directive sets out a coherent and detailed code governing the insolvency of banks. The starting point is that the 2001 Directive has the objective of extending the co-ordinated cross-border position established by the 2000 Banking Directive prior to insolvency, to the position after insolvency.

Under the 2000 Banking Directive (and earlier directives) the principle was that, prior to insolvency, only the regulatory authority in the bank’s home Member State could grant authorisation, and that such authorisation would allow a bank to conduct business throughout Europe, subject to regulation by its home Member State. The 2001 Directive applies the same principle following an insolvency, as explained in Recital (4):

“It would be particularly undesirable to relinquish such unity between an institution and its branches where it is necessary to adopt reorganisation measures or open winding-up proceedings.”

Under the 2001 Directive, the principles of unity and universalism are applied both to “re-organisation measures” and to “winding up proceedings”. As to re-organisation measures, which are defined, in Article 2, as

“… measures which are intended to preserve or restore the financial situation of a credit institution and which could affect third parties' pre-existing rights, including measures involving the possibility of a suspension of payments, suspension of enforcement measures or reduction of claims”.

Recitals (6) and (7) explain the position:

“(6)

The administrative or judicial authorities of the home Member State must have sole power to decide upon and to implement the reorganisation measures provided for in the law and practices in force in that Member State. Owing to the difficulty of harmonising Member States' laws and practices, it is necessary to establish mutual recognition by the Member States of the measures taken by each of them to restore to viability the credit institutions which it has authorised.

(7)

It is essential to guarantee that the reorganisation measures adopted by the administrative or judicial authorities of the home Member State and the measures adopted by persons or bodies appointed by those authorities to administer those reorganisation measures, including measures involving the possibility of a suspension of payments, suspension of enforcement measures or reduction of claims and any other measure which could affect third parties' existing rights, are effective in all Member States.”

Article 3 (headed “Adoption of reorganisation measures - applicable law”) gives effect to those principles:

“1.

The administrative or judicial authorities of the home Member State shall alone be empowered to decide on the implementation of one or more reorganisation measures in a credit institution, including branches established in other Member States.

2.

The reorganisation measures shall be applied in accordance with the laws, regulations and procedures applicable in the home Member State, unless otherwise provided in this Directive.

They shall be fully effective in accordance with the legislation of that Member State throughout the Community without any further formalities, including as against third parties in other Member States, even where the rules of the host Member State applicable to them do not provide for such measures or make their implementation subject to conditions which are not fulfilled.

The reorganisation measures shall be effective throughout the Community once they become effective in the Member State where they have been taken.”

As to winding up proceedings, which are defined, in Article 2, as:

“… collective proceedings opened and monitored by the administrative or judicial authorities of a Member State with the aim of realising assets under the supervision of those authorities, including where the proceedings are terminated by a composition or other, similar measure”.

Recitals (14) and (16) deal with winding up proceedings:

“(14)

In the absence of reorganisation measures, or in the event of such measures failing, the credit institutions in difficulty must be wound up. Provision should be made in such cases for mutual recognition of winding-up proceedings and of their effects in the Community.

…

(16)

Equal treatment of creditors requires that the credit institution is wound up according to the principles of unity and universality, which require the administrative or judicial authorities of the home Member State to have sole jurisdiction and their decisions to be recognised and to be capable of producing in all the other Member States, without any formality, the effects ascribed to them by the law of the home Member State, except where this Directive provides otherwise.”

Article 9 (1) provides (in so far as relevant):

“The administrative or judicial authorities of the home Member State which are responsible for winding up shall alone be empowered to decide on the opening of winding-up proceedings concerning a credit institution, including branches established in other Member States.

A decision to open winding-up proceedings taken by the administrative or judicial authority of the home Member State shall be recognised, without further formality, within the territory of all other Member States and shall be effective there when the decision is effective in the Member State in which the proceedings are opened.”

Article 10 provides:

“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:

…

(d)

the effects of winding up proceedings on current contracts to which the credit institution is party;

(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;

(f)

the claims which are to be lodged against the credit institution and the treatment of claims arising after the opening of winding up proceedings …”

The basic rule for both reorganisation measures and winding up proceedings is that the “laws, regulations and procedures” of the insolvency proceedings of the home Member State (i.e. the lex concursus) will be effective across all Member States, including in relation to proceedings against the credit institution, save where the Directive provides otherwise. The latter is a reference to Articles 20 to 32 of the Directive, which specify those limited areas where the lex concursus will not apply (Footnote: ¹⁸).

Article 32 deals with “Lawsuits pending”:

“The effects of insolvency proceedings on a lawsuit pending concerning an asset or right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending.”

Thus, save in relation to certain lawsuits which were already pending when the insolvency proceedings began, the law of the home Member State will determine the effect of the insolvency regime on proceedings ongoing elsewhere in the EEA. The logic of this distinction was explained by Longmore LJ in Syska v. Vivendi Universal SA [2009] EWCA Civ 677; [2009] 2 All ER (Comm) 891 (Court of Appeal), especially paragraph 16 (Footnote: ¹⁹):

“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.”

On the hypothesis that there was an EEA insolvency measure in place in May 2010, Lornamead accepted that it could not rely on Article 32.

Member States were required to bring into force the laws, regulations and administrative provisions necessary to comply with the 2001 Directive. On 5 May 2004, the 2004 Regulations were brought into force in the UK for that purpose.

Part 2 of the 2004 Regulations, which is the part relevant for present purposes, deals with “EEA credit institutions”: that is EEA undertakings, other than UK credit institutions (Footnote: ²⁰), as defined in the 2000 Banking Directive, namely credit institutions subject to the regulation of a Member State other than the UK. The 2001 Directive is implemented, in relation to such institutions, by two provisions:

Thus, an EEA insolvency measure, which will necessarily be governed by the insolvency law of the EEA state in question, has effect in the UK as if it were part of the English statutory insolvency regime. As the Explanatory Note to the 2004 Regulations puts it: “EEA reorganisation measures and winding up proceedings are to be recognised in the UK.”

There was no material dispute between the parties as to the measures which had been taken by the relevant judicial or administrative authorities in Iceland, or their effect as a matter of Icelandic law. Thus Lornamead did not challenge the expert evidence of Professor Gunnarsson, Kaupthing’s expert, in relation to the existence or effect of the measures as a matter of Icelandic law. The dispute focussed on whether there was a relevant EEA insolvency measure in place in Iceland (for the purpose of the 2004 Regulations) between April 2009 and November 2010 and whether Regulation 5 applied to the dispute as between Kaupthing and Lornamead.

The FME issued a commercial banking licence to Kaupthing, on 11 January 2002, which was its single passport to operate throughout the EEA. It had received an investment banking licence in 1997.

The 2000 Banking Directive and 2001 Directive were implemented in Iceland, by Act 161/2002 on Financial Undertakings (the “Financial Undertakings Act”), and by an amending statute which took effect on 1 January 2005. Chapter XII (“Financial Organisation, Winding Up and Merger of Financial Undertakings”) sets out the rules for the re-organisation or winding up of financial undertakings. It applied certain provisions of the Icelandic Bankruptcy Act, but did not originally allow financial institutions to use a Court-supervised process called the moratorium procedure. After the collapse in the Icelandic banking system in October 2008, there were several amendments to Icelandic insolvency law for banks, implemented through changes to the Financial Undertakings Act, designed to deal with the extreme financial difficulties of Kaupthing, Landsbanki Íslands hf and Glitnir Bank hf in particular. Since the start of the financial crisis, Kaupthing has been subject of intervention under that law by both the FME and the Icelandic Court.

On 9 October 2008, a resolution committee was appointed over Kaupthing pursuant to an Emergency Act of 6 October 2008 (Act No 129/2008), which amended the Financial Undertakings Act, authorising the FME to take emergency measures, such as (for example) to take over the management of an institution by appointing a resolution committee.

On 24 November 2008, on an application by Kaupthing, the Icelandic Court made a Moratorium Order. This order followed a further amendment to the Financial Undertakings Act by an Act of 13 November 2008, which allowed a financial institution to obtain such an order under the provisions of the Bankruptcy Act.

The Moratorium Order dealing with Kaupthing was extended by the Icelandic Court by successive orders, on 19 February 2009, 13 November 2009 and 18 August 2009. Meanwhile, the precise rules applicable to the Moratorium Order were amended by the April Amendment. This provided that, where (as in Kaupthing’s case) a moratorium was in place, it would continue notwithstanding the Act. In relation to such a moratorium, the Act applied certain provisions dealing with the winding up of companies in the Financial Undertakings Act as if a winding up order had been made on the date the Act came into force. Thus, a Moratorium Order made by the Icelandic Court would continue, subject to the application of those provisions of the Financial Undertakings Act. An important change was that the provisions relating to stay of proceedings brought by claimants against the insolvent bank were narrowed. A broad stay, introduced by the November 2008 Act, which had extended to prohibit the continuation of proceedings commenced before the moratorium and was held to be unconstitutional, was replaced by the narrower stay under Article 116 of the Bankruptcy Act described below.

The relevant rules applicable to a Moratorium Order made following the November 2008 Act and the April Amendment, including that in respect of Kaupthing, may be summarised as follows. Articles 116 and 117 of the Bankruptcy Act, which apply to a financial undertaking which is the subject of a winding up, also apply to financial undertakings benefiting from a Moratorium Order. The key parts of Articles 116 and 117, in English translation, are as follows (emphasis added):

“Article 116

Legal action shall not be brought against a bankruptcy estate in the district Court unless expressly permitted by law, except for criminal litigation in which a request is made for criminal sanctions applicable to bankruptcy estates. In such event, the action may be brought in the district where the bankruptcy proceedings take place.

A legal action brought against a bankrupt before the Court order declaring the bankruptcy was issued may be continued until adjudication, provided the plaintiff notifies the trustee in bankruptcy of the action …

Article 117

A party wishing to uphold a claim against a bankruptcy estate, but unable to pursue it as provided for in Article 116, … shall submit a statement of his claim to the trustee in bankruptcy.

A statement of claim shall be in writing, mentioning in clear manner in whose interest it is submitted. It shall state the claim as clearly as possible, including its amount, with interest, in Icelandic krónur, and the priority requested for the claim in the order of claims, or, as the case may be, delivery of a specified chattel, determination of particular rights against the estate, release from a particular obligation to the estate, an obligation of the estate to perform, or desist from, some particular act, payment of costs of collection or for representation of interests linked to the claim, etc. ...

A statement of claim submitted to a trustee in bankruptcy shall have the same effects as if legal action had been filed in respect of the claim at the point in time when the trustee receives the statement.”

Article 171 of the Bankruptcy Act provides:

“If a dispute arises relating to bankruptcy proceedings which, according to the provisions of this Act, the trustee in bankruptcy shall refer to the district Court for a resolution, or if the trustee considers that a district Court resolution is needed for resolving any other disputes that may arise in the course of bankruptcy proceedings, he shall direct a written request to this effect to the district Court that appointed him.”

According to Professor Gunnarsson, the Icelandic regime may be summarised as follows:

On 22 November 2010, on an application by Kaupthing, the Icelandic Court made a winding up order against Kaupthing. This followed a further amendment to the Financial Undertakings Act, post-dating the issue of Kaupthing’s application to this Court. That amendment did not change the scope of the prohibition on proceedings against an insolvent company.

Mr. Lord and Mr. Goldring, on behalf of Kaupthing, submitted that the English Court had no jurisdiction to entertain the English Proceedings for the following reasons:

Mr. Thanki and Mr. Valentin, on behalf of Lornamead, submitted that Regulation 5, on its true construction, had a limited application and was not engaged in the present case. That was because, on analysis, Kaupthing had no property or assets in relation to the Hedging Confirmations, in relation to which the EEA insolvency measure could take effect. In support of this contention they submitted:

Mr. Thanki and Mr. Valentin also made detailed submissions as to the interpretation and effect of the various contractual documentation, to support Lornamead’s contention that, as a result of the transfer to GE and the operation of the relevant provisions in inter alia the Restated SFA, the MFA, and the Deed of Resignation and Transfer of Security, Kaupthing had no claim against Lornamead in respect of the Hedging Confirmations, because those agreements were cancelled with effect from 5 January 2009. In brief summary these were:

There was no argument presented to me, on Lornamead’s behalf, to the effect that Article 116 only prohibited actions brought in an Icelandic District Court and did not prohibit actions brought in other Member states, whether pursuant to contractual jurisdiction clauses or otherwise. In other words, Lornamead accepted that the Icelandic insolvency regime, as a matter of Icelandic law, prohibited the commencement of Court actions - in any jurisdiction - against Kaupthing after the date of the Moratorium Order. Thus the only issue in contention was whether Regulation 5 applied at all in the circumstances of the case.

In my judgment, Kaupthing’s arguments in relation to Issue 2 are correct. If Kaupthing were indeed subject to a EEA insolvency measure in May 2010, any attempt by this Court to determine the merits of Lornamead’s claim in the English Proceedings, even for the so-called limited purpose of deciding whether Kaupthing had any “property or assets”, would undermine the purpose of the 2001 Directive, namely to give effect throughout the EEA to all aspects of the relevant insolvency regime of a credit institution’s home state, as part of one universal and unitary process, including its moratorium and dispute resolution mechanisms. It would also undermine the role of the Icelandic Court, as the supervisory Court of Kaupthing’s insolvency. Accordingly, in my judgment, were the Court of Appeal to allow the appeal from Burton J’s judgment, and to hold that Kaupthing was subject to a EEA insolvency measure in May 2010, this Court should stay the English Proceedings pursuant to Regulation 5, so that Lornamead’s claim can be resolved in Kaupthing’s liquidation in accordance with the Icelandic insolvency procedure.

My reasons for this conclusion may be summarised as follows:

It is not appropriate for me, in the light of my conclusion that I should, if the Rawlinson appeal were successful, stay the English Proceedings, to express any view at this stage as to whether Lornamead will succeed on its application under Part 24 for summary judgment, or whose submissions in relation to the argument on the merits I prefer. That is particularly so in circumstances where, as I have indicated, Mr. Lord adverted to the possible need for Icelandic law evidence in relation to the Hedging Confirmations, if a hearing of the Part 24 application were to take place. What I can say is that the position is not so clear cut as might first appear, given, inter alia:

Accordingly, I decide Issue 2 in favour of Kaupthing.

Kaupthing’s ground of objection under this head was that the Court, in any event, had no jurisdiction to try the claim on an ordinary application of the Lugano Convention. In particular, it contended that the disputes which were the subject matter of the claim were properly to be construed and characterised as concerning the Hedging Confirmations rather than any of the agreements with an English jurisdiction clause. That had the result that, applying Article 17 of the Lugano Convention, the Icelandic Courts had exclusive jurisdiction to determine them.

In support of this contention, Mr. Lord and Mr. Goldring made the following submissions:

In response to Kaupthing’s submissions, Mr. Thanki and Mr. Valentin submitted as follows:

The question here, in my view, is whether the claim in the English Proceedings falls within the English jurisdiction clauses in the Restated SFA, the MFA, the Intercreditor Agreement and the Deed of Resignation and Transfer of Security or within the Icelandic jurisdiction clauses in the Hedging Confirmations. That question turns on whether, in the light of the documentation as a whole, the parties should be taken objectively to have intended that, in the event that, following a transfer by novation of the “Existing Lender’s” “rights and obligations under the Finance Documents and in respect of the Transaction Security” (Footnote: ⁴⁰), pursuant to the relevant terms of the Restated SFA and the MFA, there was a dispute about whether the parties’ rights and obligations under any “Finance Document” (as defined) had been cancelled, released, or discharged, or whether the security for such obligations had been released, that dispute should be subject to the jurisdiction of the English Court, or to that of the Icelandic Court.

The guiding statement of principle is that of Lord Collins of Mapesbury in UBS AG v HSH Nordbank AG (Footnote: ⁴¹) at paragraph 95:

“In this case it is not necessary to go so far. Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses. The jurisdiction clause in the Dealer's Confirmation is a "boiler plate" bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes. Where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint and reflected in the draft particulars of claim in England.. ”

Moreover, as Thomas LJ pointed out in Sebastian Holdings Inc v Deutsche Bank at paragraph 40:

“The Supreme Court emphasised in Re Sigma Finance Corporation [2009] UKSC 2 the need, when looking at a complex series of agreements, to construe an agreement which was part of a series of agreements by taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme.”

I refer also to the statement of principle set out in the 4^th Cumulative Supplement to Dicey, paragraph 12-094, which refers to the need “to seek to locate the centre of [the dispute’s] gravity.”

I have reached the clear conclusion that Lornamead is entitled to bring its claims in the English Proceedings in the English Courts and that the arguments advanced by Kaupthing cannot, as a matter of construction, disentitle Lornamead from doing so. My reasons may be summarised as follows.

First, the dispute which lies at the heart of the English Proceedings is the one which I have briefly described in paragraph 101 above. Fully articulated it can be stated as follows:

“… whether, on the construction of the relevant Finance Documents, and in the events which have happened, the effect of the Transfer Certificate, the Deed of Resignation and Transfer of Security, and/or the TUA and the entry by Lornamead into its new loan facilities and hedging arrangements with GE was such as expressly, or by implication, (i) to release Lornamead and Kaupthing from any further obligations towards one another which they might have had under any of the Finance Documents or under the Transaction Security in respect of the hedging arrangements between them; and (ii) to cancel their respective rights against one another under any of the Finance Documents or under the Transaction Security in respect of such hedging arrangements, whether in accordance with clause 29.5 of the Restated SFA or otherwise.”

Second, it would be incomplete and far too simplistic to characterize the dispute merely as “how much, if anything, is owing to Kaupthing under the Hedging Confirmations”. That would not locate “the central gravity” of the dispute. No issues of interpretation arise in relation to the Hedging Confirmations – and there was no suggestion that, if they were indeed still in force, there would be any dispute as to amounts outstanding thereunder. Nor does such a limited definition address the issue as to whether such continuing “Hedging Debt” remained secured for Kaupthing’s benefit under the terms of the Security Trust Deed.

Third, “the agreements which are at the commercial centre of the transaction” (Footnote: ⁴²) as between the parties are the Restated SFA, the MFA, the 2007 Hedging letter, the Security Trust Deed, the Intercreditor Agreement, the Transfer Certificate and the Deed of Resignation and Transfer of Security. Thus:

Fourth, it is the provisions of all these agreements, and the effect of the transactions taken pursuant to the procedures stipulated in them, which will have to be construed and considered, principally in accordance with English law, in order to resolve the dispute which is the subject of the claim in the English Proceedings. I do not accept Kaupthing’s argument that

“… disputes about the hedging relationship, by contrast, were treated differently. Those were to be the subject to the jurisdiction of the Icelandic Court”.

An analysis of the relevant documents, as I have set out above, shows that the nature, scope and respective obligations of the parties in respect of the hedging relationship were defined in the central documents, not in the Hedging Confirmations which were simply there to “document” the terms of individual transactions; see clause 27.31 (a)(i) of the Restated SFA. Moreover, there is no explanation as to why the Hedging Confirmations were not based on ISDA terms, as they were apparently required to be under the terms of clause 7.2 of the Intercreditor Agreement and the 2007 Hedging Letter, in which case they would almost certainly have been subject to an English Court jurisdiction clause. The terms of the Hedging Confirmations (which incorporate Kaupthing’s standard or “boiler plate (Footnote: ⁴³)” Icelandic jurisdiction clause), do not appear to be in accordance with the envisaged contractual scheme in this respect. Whilst I proceed on the basis that such clause indeed applied to the Hedging Confirmations, I do not accept that the parties can objectively have intended it to apply to the resolution of the current dispute. Indeed, in the context of the other documentation it is somewhat surprising to see such a clause there at all.

Fifth, I do not accept Kaupthing’s semantic arguments in relation to the manner in which Lornamead pleaded its case or to the fact that it amended the Claim Form after it was issued, but before it was served, in order to delete an additional declaration, which was originally included, in the alternative:

“… as to the termination and/or discharge of the Hedging [Confirmations] in accordance with their terms and/or under applicable law and/or an account of amounts properly held to be due and owing between the parties in respect of the Hedging [Confirmations]”.

It is clear from the pleadings, and from Lornamead’s arguments on this application, that the true nature of the claim is as I have characterised it above. The fact that the alternative declaration was removed in order, as Mr. Thanki told me,

“… to ensure that the scope of the current proceedings was indeed limited to those properly governed by English law and falling within the scope of the jurisdiction of the English Court.”

cannot affect the true characterisation of the claim.

Sixth, I do not accept Mr. Lord’s submission that Lornamead’s negative declarations were, when properly analysed, “… nothing other than alleged defences to Kaupthing’s claims under the Hedging Confirmations themselves”. In this context, Mr. Lord relied upon paragraphs 61 to 63 of Thomas LJ’s judgment in Sebastian Holdings where he said:

“(vi)

The effect of the nature of the defence.

61.

I turn next to the analysis premised on the parties having agreed that they would allocate jurisdiction to the contract which was the centre of gravity of the dispute. This is a different analysis, as it focuses not on the underlying nature of the Bank's claim but on the dispute between the parties. It involves the acceptance that, although the Bank was ordinarily entitled to claim under the agreements under which the debt arose and to rely on the jurisdiction clauses in those agreements, the parties intended that there would be circumstances where the Bank did not have that right on the true construction of the series of agreements taken as a whole. For example, if prior to the issue of proceedings a defence to the payment of a debt was known to arise under one of the other agreements, the parties must be taken to have agreed in such circumstances that the claim could not be brought under the agreement under which the debt was owed, but would have to be brought in the forum specified in the agreement by reference to which, on an analysis of the dispute as a whole, the dispute had its centre of gravity.

62.

Again I cannot see how rational businessmen could have agreed this in the face of the clear language of the agreements. First, the question as to whether a claim falls within the jurisdiction clause is an issue that has to be determined at the time the proceedings are issued. In most cases, it is likely to be relatively simple to determine whether a claim is made under a specified agreement and therefore whether jurisdiction is founded. That is certainly so in a case such as the present where there is a debt claimed under a contract.

63.

Businessmen agreeing to different jurisdiction clauses in a series of related contracts cannot have been taken to have intended that the entitlement to bring that claim in the chosen forum in respect of one contract should depend on whether a defence had been raised prior to the bringing of the claim and that the defence to that claim might place the centre of gravity of the dispute as being related to a different contract with a different jurisdiction clause. Not only would it give rise to a complete lack of certainty, but could seriously prejudice an institution such as a bank bringing a claim, if there was a limitation period about to expire or there was otherwise a need to bring a claim urgently.”

The type of situation which Thomas LJ was referring to in these paragraphs in Sebastian Holdings is very different from that in the present case. One cannot, in my judgment, characterise this case as one where Lornamead was simply seeking a negative declaration that it was not liable in respect of sums claimed under the Hedging Confirmations, because, for example, it was alleging that the sums had been paid, or that the particular transactions to which the Hedging Confirmations related had been induced by misrepresentation. On the contrary, as described above, the claim in the English Proceedings is, on proper analysis, one where Lornamead is seeking declaratory relief as to the construction and effect of other documents, all of which are subject to English jurisdiction clauses, which were the basis for the hedging relationship between the parties, and which (together with the TUA) were the transactional documentation effecting the transfer of the facilities from Kaupthing to GE. Nor was I assisted in the circumstances by Mr. Lord’s submissions based on The Tatry (supra) which again involved a different factual scenario.

Seventh, I do not accept Kaupthing’s final submission that, because the English jurisdiction clauses are expressly stated to be for its benefit, and not Lornamead’s, it is entitled under Article 17 to “renounce” the clauses in relation to this dispute and has done so. First, it is clearly too late for it to do so, once proceedings have been issued by Lornamead. But secondly, even if this were wrong, the argument is not sustainable either on the wording of Article 17 of the Lugano Convention or on the wording of the relevant English jurisdiction clauses. Article 17 provides (in so far as material):

“If an agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention.”

This does not confer on Kaupthing an entitlement to “renounce” a jurisdiction clause in its entirety and to dispute the jurisdiction of proceedings properly brought by the other party in accordance with the clause. The article merely provides that the beneficiary of the clause is permitted to elect to bring proceedings arising out of, or in connection with, those agreements in another court of competent jurisdiction, in addition to England. But that provision is clearly, given the wording “in any other court which has jurisdiction by virtue of this Convention” without prejudice to the “first seised” rules of Article 21. It does not entitle Kaupthing unilaterally to challenge proceedings previously brought by Lornamead against Kaupthing in England in accordance with the terms of the English jurisdiction clause and in conformance with Lornamead’s contractual obligation thereunder. Nor do the English jurisdiction clauses confer any such right. They make it clear that Kaupthing can take concurrent proceedings in other jurisdictions only “to the extent permitted by law.” It was not disputed by Kaupthing, that if the English Court was indeed entitled to maintain jurisdiction, it was the Court first seised, and that accordingly it was no longer open to Kaupthing to bring proceedings against Lornamead in relation to the same cause of action in Iceland by virtue of Article 21.

Accordingly, I conclude that the claim in the English Proceedings falls within the English jurisdiction clauses in the Restated SFA, the MFA, the Intercreditor Agreement and the Deed of Resignation and Transfer of Security. I conclude, in the light of the documentation as a whole, that the parties should be taken objectively to have intended that a dispute of the type described in paragraph 105, which is the subject matter of Lornamead’s claim in the English Proceedings, should be subject to the jurisdiction of the English Court as falling within those jurisdiction clauses.

Accordingly, the English Court has exclusive jurisdiction over Lornamead’s claim by virtue of the operation of Article 17 and Article 21 of the Lugano Convention.

It follows that I decide Issue 3 in favour of Lornamead and dismiss Kaupthing’s application based on its Ground 2.

Finally, Kaupthing contends that, even if its first and second grounds are rejected, the proceedings should be stayed and/or no jurisdiction exercised in Lornamead’s favour on case management and/or forum non conveniens grounds, because the Reykjavik District Court is:

“… clearly the forum in which the dispute could most suitably be tried of the interests of the parties and for the ends of justice.”

I can deal with this argument very shortly.

In UBS, Lord Collins said at paragraphs 100 to 103:

“100.

But against that, it is most unusual for an English court to stay proceedings brought in England pursuant to an English jurisdiction agreement. In British Aerospace v Dee Howard [1993] 1 Lloyd's Rep. 368, at 376, Waller J. said (in the context of an exclusive English jurisdiction clause) that it should not be open to a party to start arguing about the relative merits of fighting an action in the foreign jurisdiction as compared with fighting an action in London, where the factors relied on would have been foreseeable at the time that they entered into the contract. That case involved an application to set aside service out of the jurisdiction. It has been approved in this court in the context of an application to stay English proceedings (Ace Insurance SA-NV v Zurich Insurance Co [2001] EWCA Civ 173, [2001] 1 Lloyd's Rep 618, at [62], per Rix LJ) and of an application to restrain foreign proceedings in which the foreign court was asked to prevent a party suing in England pursuant to an English jurisdiction clause (Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan [2002] EWCA Civ 1643, [2003] 2 Lloyd's Rep 571, at [36], per Waller LJ) and it has been applied in many decisions in the Commercial Court.

101.

The next difficulty is that there is an express agreement in the jurisdiction clause the effect of which is that HSH irrevocably waived any claim that proceedings had been brought in an inconvenient forum. In National Westminster Bank v Utrecht-America Finance Co [2001] EWCA Civ 658, [2001] CLC 1372, at [23], Clarke LJ thought it was "fatal" to any forum non conveniens case, whereas in Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan, ante, at [36] Waller LJ did not treat such an agreement as decisive, but thought that it underlined the point that the jurisdiction agreement would be overridden only in exceptional circumstances.

102.

Finally, it is a matter of controversy whether there is any room at all under the Brussels I Regulation regime for a stay on forum conveniens grounds. The effect of the ruling of the European Court in Case C-281/02 Owusu v Jackson [2005] ECR I-1383, [2005] QB 801 is that the Brussels I Regulation precludes a court of a Member State from declining jurisdiction under Article 2 (domicile of the defendant) on the ground that a court of a non-Member State would be a more appropriate forum for the trial of the action. The Supreme Court of Ireland has made a reference to the European Court as to whether the ruling in Owusu v Jackson applies even where proceedings have been commenced in a non-Member State prior to the proceedings in Ireland (the so-called ‘reflexive effect’ of Regulation provisions, which does not arise in the present case): Goshawk Dedicated Receivables Ltd v Life Receivables Ireland Ltd [2009] IESC 7, [2009] ILPr 26.

103.

The prevailing view is that there is no scope for the application of forum conveniens to remove a case from a court which has jurisdiction under the Regulation, even as regards a defendant who is not domiciled in a Member State: see e.g. Dicey, Morris & Collins, Conflict of Laws, 14^th ed 2006, paras 11-023, 12-020, and specifically in relation to jurisdiction agreements, para 12-124, and Briggs, Agreements on Jurisdiction and Choice of Law (2008), para 7.02; and it has been held at first instance that Owusu v Jackson applies to cases where Article 23 applies: Equitas Limited v. Allstate Insurance Company [2008] EWHC 1671, [2009] Lloyd's Rep IR 227, at [64].

104.

I am therefore disinclined (in common with the judge) to express a view on this controversial area where, on my view of the case, it does not arise for decision. For the reasons given on the main point, I would dismiss the appeal.”

All three points are relevant in the present case and are sufficient to dispose of Kaupthing’s third ground in support of its application.

As Lord Collins pointed out, it is very doubtful whether any residual discretion to stay on forum non conveniens grounds has survived the ECJ decision in Owusu v Jackson. (Footnote: ⁴⁴) As Beatson J noted in Equitas, where proceedings are brought in England pursuant to an English jurisdiction clause,

“… the weight of the authorities suggests the court is deprived of its common law discretion to stay proceedings in favour of another jurisdiction on classic forum non conveniens grounds.”

Further, in Jefferies (supra), Cooke J stated at [29] and at [26]:

“The discretionary power should not be used if it conflicts with the Conventions.”

Since I would not exercise the discretion in Kaupthing’s favour and stay the English Proceedings on forum non conveniens/case management grounds, even if the power were available to me, I (like Lord Collins) am not inclined to express a view on this controversial area where, on my view of the case, it does not arise for decision.

Clause 43.1(b) of the Restated SFA provides:

“The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.”

Thus Kaupthing’s third ground – which arises only if it is wrong on its first and second grounds – is advanced in breach of its agreement not to contend that the English courts are inappropriate or inconvenient. Even if, as Waller LJ considered in Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan, (supra) at paragraph 36, such an agreement is not decisive (Footnote: ⁴⁵), there are, in my judgment, no “exceptional circumstances” here such as would justify overriding the English jurisdiction clauses.

First of all, the mere fact that Kaupthing is now subject to a winding–up order does not make it more appropriate that the claim should be determined by the Icelandic Court overseeing the Kaupthing insolvency. Given that, as I have held above, the real dispute is concerned with the interpretation and effect of contracts which are governed by English law, and subject to English jurisdiction clauses, the English Court is the Court best placed to resolve the disputes. Any Icelandic law evidence relating specifically to the Hedging Confirmations is likely to fall within a very small compass. Although the point was made during the course of the hearing that Kaupthing might wish to refer to Icelandic law evidence in relation to the Hedging Confirmations, at any future hearing of Lornamead’s Part 24 application, no indication was given during the course of the hearing as to what issue such evidence might relate.

Second, the premise underpinning Kaupthing’s argument that Lornamead is somehow seeking to “steal a march” on other “creditors” is also false. Lornamead is not one of Kaupthing creditors; on Kaupthing’s case it is a debtor; on Lornamead’s case there is no debt at all. I see no unfairness to other creditors if the claim is allowed to proceed in England. That is particularly so where Kaupthing itself would have been free, had it chosen to do so, to bring proceedings in England. Nor do I see, in the particular circumstances of the case, that as a consequence, there will be any disruption to the orderly progress of Kaupthing’s liquidation if the claim is allowed to proceed in England. The dispute is one confined to its own facts and is not likely to have any wider impact (other than financial) on the liquidation such as would require its resolution in Iceland.

Third, I attach little or no weight to the fact that Kaupthing’s witnesses may be in Iceland, since Lornamead’s witnesses are likely to be in England. The point is neutral for both parties.

Accordingly, I find against Kaupthing in relation to Issue 4.

In the circumstances, and subject to any further submissions on procedure from the parties, it appears to me that the appropriate course in the light of this judgment is:

I will hear submissions from the parties as to which is the appropriate course in this respect.

I should say that, even had I found in Kaupthing’s favour on Issue 1, I would have stayed the English Proceedings. I do not consider that it would have been appropriate, even in that event, to have struck them out. It remains possible that the Winding-up Committee and/or the Icelandic Court might conclude (notwithstanding Professor Gunnarsson’s opinion to the contrary) that, in the light of the contractual jurisdiction clauses, and the fact that the dispute centres on the interpretation and effect of the Restated SFA, the MFA, the Deed of Resignation and Transfer, the Transfer Certificates and the other contractual documentation subject to English Law (rather then the Hedging Confirmations themselves), it was nonetheless appropriate for the dispute to be resolved in the English Court and give leave to do so, in much the same way as an English Court might give leave under section 130, in the reverse situation. That would be, of course, entirely a matter for the Winding-up Committee and/or the Icelandic Court.

I will hear submissions from counsel in relation to any consequential matters at an appropriate date to be fixed.

Finally, I should record my gratitude to counsel and solicitors on both sides for their helpful and clearly presented written and oral submissions.