Heritable Bank Plc v Landsbanki Islands HF
| Jurisdiction | Scotland |
| Judge | Lord Hope,Lord Walker,Lord Kerr,Lord Reed,Lord Carnwath |
| Judgment Date | 27 February 2013 |
| Neutral Citation | [2013] UKSC 13 |
| Court | Supreme Court (Scotland) |
| Docket Number | No 12 |
[2013] UKSC 13
Lord Hope, Deputy President
Lord Walker
Lord Kerr
Lord Reed
Lord Carnwath
Appellant
David Alexander QC
Stephen Robins
Paul O'Brien
( Instructed by Morrison and Foerster (UK) LLP)
Respondent
Gabriel Moss QC
Martin Pascoe QC
Sarah Wolffe QC
Georgina Peters
( Instructed by Freshfields Bruckhaus Deringer LLP)
Heard on 4 and 5 February 2013
Lord Hope (with whom Lord Walker, Lord Kerr, Lord ReedandLord Carnwathagree)
Iceland is one of the most productive countries per capita in the world. It ranks high in economic and political stability. But the global financial crisis of 2008 exposed its dependence on the banking sector, and in the autumn of that year the nation's entire banking system failed. The dispute which has given rise to this appeal is one of the products of that crisis. It has its origin too in the fact that Iceland is a party, as are all the Member States of the European Union, to the Agreement on the European Economic Area ("the EEA Agreement") which was established on January 1 1994.
On 6 December 2002 Annex IX (Financial Services) to the EEA Agreement was amended by the incorporation of Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding-up of credit institutions ("the Directive"). Landsbanki Islands hf ("Landsbanki") and its wholly owned subsidiary Heritable Bank plc ("Heritable") are both credit institutions for the purposes of article 1(1) of the Directive. Landsbanki is a company incorporated under the laws of Iceland with its registered office in Reykjavik. Heritable is a company incorporated under the Companies Act 1985 with its registered office in Glasgow.
Both companies are the subject of proceedings resulting from insolvency which were commenced on 7 October 2008. On that date the Financial Services Authority of Iceland, in the exercise of emergency powers conferred on it the previous day by the Icelandic Parliament, took control of Landsbanki, which was later granted a moratorium on its liabilities. On 29 April 2009, under provisions by which financial undertakings which had been granted a moratorium were deemed to be in a winding-up proceeding subject to the ordinary rules, the District Court of Reykjavik appointed a winding-up board to the company. Landsbanki's winding-up board is the appellant in this appeal. On 7 October 2008 the Court of Session appointed joint administrators to Heritable under paragraph 13 of Schedule B1 to the Insolvency Act 1986 on the application of the Financial Services Authority. The joint administrators of Heritable are the respondents to the appeal.
The Directive was implemented in the United Kingdom by The Credit Institutions (Reorganisation and Winding up) Regulations 2004("the Regulations"). Landsbanki is an EEA credit institution for the purpose of Part 2 of the Regulations. Heritable is a UK credit institution for the purposes of Parts 3 and 4. The issue before the court concerns claims submitted by Landsbanki in the administration of Heritable and claims by Heritable against Landsbanki. It relates to the effect in the administration of Heritable of a decision made by Heritable not to pursue its claims in the winding-up of Landsbanki. Its resolution depends on the proper construction of the Regulations and the Directive.
On 8 December 2008 Landsbanki submitted three claims in the administration of Heritable: (1) a claim for about £86m in respect of a revolving credit facility dated 31 May 2002 which was governed by English law ("the Landsbanki rcf claim"); (2) a contingent claim for £50m under a subordinated loan agreement ("the subordinated debt claim"); and (3) a contingent claim of £1,011,817,245 in respect of liabilities under a guarantee of Heritable's liabilities ("the guarantee claim").
On 6 November 2009 the administrators of Heritable rejected the Landsbanki rcf claim under section 49(2) of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act"), as applied to administrations by rules 2.41(1) and 4.16 of the Insolvency (Scotland) Rules 1986. This was on the ground that Heritable had claims against Landsbanki which equalled or exceeded the amount of the Landsbanki rcf claim which served to extinguish it. This decision was based on the application of the rule of Scots law on the balancing of accounts in bankruptcy. On 26 November 2009 the administrators accepted the subordinated debt claim and the guarantee claim, but valued them at nil under paragraph 3(1) of Schedule 1 to the 1985 Act on the basis that there was no prospect of the relevant contingencies being satisfied. On 4 May 2010 a fourth claim was submitted by the winding-up board of Landsbanki for £17,122,221.9 under a master participation agreement ("the Landsbanki mpa claim"). It also was rejected by the administrators of Heritable.
On 20 November 2009 Landsbanki appealed to the Court of Session against the decision by the administrators of Heritable to reject the Landsbanki rcf claim. This was commenced by way of a note in the petition for the making of an administration order in respect of Heritable. The note was later amended to include an appeal against the decisions to value the subordinated debt claim and the guarantee claim at nil. It has not yet been amended to include an appeal against the rejection of the Landsbanki mpa claim. The issue in the appeal to this court is concerned only with the rejection of the Landsbanki rcf claim by the administrators.
On 30 October 2009 Heritable submitted four claims in the winding-up of Landsbanki: (1) a claim for £661,673,236 as damages for breach of the revolving credit facility dated 31 May 2002 ("the Heritable rcf claim"); (2) a claim of £234,850,801 as damages under the master participation agreement ("the Heritable mpa claim"); (3) a claim for £7,665,032 under certain interest swap transactions in connection with an ISDA Master Agreement dated 23 December 2004 ("the swap claim"); and (4) a claim for £1,099,978 as reimbursement of payments made by Heritable in connection with Landsbanki's Icesave accounts in the United Kingdom ("the Icesave claim"). In each claim letter it was stated that, subject to the extent to which Heritable was required or permitted by the law governing Heritable's administration to set-off any liabilities it owed to Landsbanki against amounts owed by Landsbanki to Heritable, Heritable's claims were to rank as unsecured claims in the winding-up of Landsbanki.
By notices dated 14 January 2010 Landsbanki's winding-up board rejected the Heritable rcf claim, the Heritable mpa claim and the Icesave claim. The swap claim was accepted, but only to the extent of £7,247,284.
The administrators of Heritable objected to the decision by the winding-up board of Landsbanki to reject their claims by a notice of objection dated 22 February 2010. As Landsbanki had already commenced proceedings in the Court of Session, the administrators asked that no further steps be taken in relation to their objection until Landsbanki's appeal before the Court of Session had been finally determined. By letters dated 8 March and 19 March 2010 the winding-up board of Landsbanki declined to accede to this request. On 23 March 2010 the winding-up board referred the administrators' objections to the District Court of Reykjavik under article 120 of the Icelandic Bankruptcy Act 1991("the BA 1991"). On 14 April 2010 the administrators sought a stay of the proceedings before that court pending a final determination of the preliminary issues that had been identified in relation to Landsbanki's appeal before the Court of Session. On 17 May 2010 the District Court of Reykjavik declined to grant a stay of those proceedings.
On 12August 2010 the administrators of Heritable formally withdrew the Heritable claims, including the swap claim, from Landsbanki's winding-up. On September 2 2010 the winding-up board of Landsbanki issued a counterclaim in the District Court of Reykjavik in which it sought a declaration that the Heritable claims had been extinguished by article 118 of the BA 1991. On 14 September 2010 the administrators applied to discontinue the article 120 proceedings before that court in relation to the rejection of Heritable's claims by the winding-up board. Their application was granted on 20 September 2010. The winding-up board appealed against that decision to the Icelandic Supreme Court, but it was affirmed by the Supreme Court on 21 October 2010. It concluded that there was no need to rule on the counterclaim by Landsbanki's winding-up board because it was incompetent.
The argument for Landsbanki's winding-up board in the note which they lodged in the proceedings in the Court of Session was that the decision to reject the Heritable claims in the Icelandic proceedings had effect and was binding in the United Kingdom in terms of regulation 5(1) of the Regulations. The administrators of Heritable were therefore bound to hold that Heritable had no claim against Landsbanki which could operate by way of set-off. It was averred that, as there were no other defences to the Landsbanki rcf claim, the administrators were bound to allow that claim in full. In their answers to the note the administrators took a plea to the relevancy of the note in so far as it relied on the decision in the winding-up of Landsbanki.
A debate took place on the relevancy of the Landsbanki winding-up board's averments before the Lord Ordinary, Lord Glennie, in June 2010. There were two issues. The first was whether, under regulation 5(1) of the Regulations, the...
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