Isis Investments Ltd v Oscatello Investments Ltd and Another (3) Elfar Adalsteinsson (as a representative party) (4) Eliza Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Vos,Lord Justice Jackson,Lord Justice Longmore
Judgment Date27 November 2013
Neutral Citation[2013] EWCA Civ 1493
Docket NumberCase No: A3/2013/0435
Date27 November 2013

[2013] EWCA Civ 1493

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mrs Justice Asplin

HC09C00599

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Longmore

Lord Justice Jackson

and

Lord Justice Vos

Case No: A3/2013/0435

Between:
Isis Investments Limited
Claimant
and
(1) Oscatello Investments Limited
(2) Kaupthing Bank HF
(Appellant)
(3) Elfar Adalsteinsson (as a representative party)
(Respondent)
(4) Eliza Limited
Defendants

Mr Richard Snowden QC and Mr Benjamin Strong (instructed by Sidley Austin LLP) for the Appellant/2 nd Defendant

Mr Charles Samek QC and Mr David Lascelles (instructed by Logos Legal Services Limited) for the Respondent/3 rd Defendant

Lord Justice Vos

Introduction

1

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.

2

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.

3

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:-

i) On 28 th April 2009, Kaupthing filed its Defence and initial Part 20 claims against all the other parties including Mr Adalsteinsson.

ii) On 12 th March 2010, Newey J awarded Mr Adalsteinsson summary judgment on his then existing counterclaim against Isis for the sums due under the sub-participations agreements.

iii) Isis's claim was heavily amended on 13 th July 2012. It widened its allegations beyond the issues relating to the destination of the funds in court, and contended that the key waterfall provisions in clause 6 of what is known as the Framework Agreement of 2007 were not binding or should be set aside. It is common ground that this claim has a potential economic impact on the sub-participants represented by Mr Adalsteinsson.

iv) Kaupthing served its amended defence and counterclaim, including new Part 20 claims against other parties, but now excluding Mr Adalsteinsson, on 5 th October 2012.

v) Also on 5 th October 2012, Mr Adalsteinsson served his amended defence and counterclaim including the new Part 20 claims, which are the ones in the forefront of this appeal. Mr Adalsteinsson broadly adopted Isis's new allegations against Kaupthing, and alleged that Kaupthing was liable in conspiracy to the sub-participants by reason of its alleged breaches of duty to Isis. He made an additional claim to set aside clause 6 of the Framework Agreement as a transaction defrauding creditors under section 423 of the Insolvency Act 1986.

4

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.

The main legislative provisions

5

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:-

i) Article 116(1) of the Icelandic Bankruptcy Act (No. 21/1991), which provides, in English translation, that " [l]egal action shall not be brought against a bankruptcy estate in the district Court unless expressly permitted by law …" ("Article 116").

ii) Article 99(2)(h) of the Icelandic Financial Undertakings Act (No. 161/2002) provides that " [t]he legal effect of a ruling on financial reorganisation on lawsuits, concerning an asset or other right of which a credit institution has disposed of, initiated before the ruling on financial reorganisation was rendered, shall be governed by the law of the state where the lawsuit was initiated" ("Article 99").

6

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".

7

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".

The competing positions of the parties

8

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:-

i) The scheme of the Directive requires a form of universalism allowing only for a single insolvency proceeding within the European Economic Area ("EEA") so as to achieve fairness between creditors of insolvent credit institutions. Mr Adalsteinsson's new Part 20 claims are, in substance, a new lawsuit, which should fall squarely within the regime established by the Directive.

ii) Article 116 (which forms part of English law for this purpose) means that new actions cannot be brought against Kaupthing after its winding up commenced on 22 nd November 2010.

iii) Article 32 of the Directive, which gave rise to Article 99, only provides a narrow exception to the rule in Article 10(2)(e) of the Directive that the law of the home Member State (in this case, Iceland) shall determine the effect of the winding up on proceedings brought by individual creditors.

iv) Thus, the reference to a " lawsuit pending" in Article 10(2)(e) and to a " pending lawsuit" in Article 32 must be construed as referring only to proceedings brought by individual creditors in relation to an asset of the credit institution (Kaupthing in this case), or in relation to a right to participate in the credit institution's estate.

v) Action 599 was only a " pending lawsuit" insofar as it related to the funds in court, to which Kaupthing and Isis and (indirectly) the sub-participants had claims.

vi) The judge was, therefore, wrong to treat Mr Adalsteinsson's commencement of the new Part 20 claims, which were new claims unrelated to the original claims relating to the funds in court, as simply an incident of a continuing English Action 599.

vii) The judge should instead have held that Article 32 (and Article 99) did not apply to exempt the new Part 20 claims from the Icelandic insolvency regime, and that they were barred by Article 116 which prevents new claims being brought against Kaupthing after its insolvency.

9

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".

10

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.

11

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,...

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