ISIS Investments Ltd v Oscatello Investments Ltd and Others

JurisdictionEngland & Wales
CourtChancery Division
JudgeMrs Justice Asplin
Judgment Date30 January 2013
Neutral Citation[2013] EWHC 7 (Ch)
Date30 January 2013
Docket NumberCase No: HC09C00599

[2013] EWHC 7 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL


Mrs Justice Asplin

Case No: HC09C00599

ISIS Investments Limited
(1) Oscatello Investments Limited
(2) Kaupthing HF
(3) Elfar Adalsteinsson (as a representative party for the investors)
(4) Eliza Limited

Thomas Lowe QC and Alexander Winter (instructed by Boodle Hatfield LLP) for the Claimant

William Trower QC and David Allison (instructed by Skadden, Arps, Slate, Meagher and Flom (UK) LLP) for the First and Fourth Defendants

Richard Snowden QC, Ben Strong and Alex Barden (instructed by Weil, Gotshal and Manges) for the Second Defendant

Charles Samek QC and David Lascelles (instructed by Logos Legal Services Limited) for the Third Defendant

Hearing dates: 17 – 19 December 2012

Mrs Justice Asplin

This is the hearing of a Case Management Conference in these proceedings ("Action 599"). Action 599 concerns entitlements to claim a sum in excess of £130 million which is the proceeds of the sale of shares in the supermarket chain Somerfield and of the repayment of an associated loan ("the Fund"). The Fund was paid into Court by the Claimant, Isis Investment Limited ("Isis") pursuant to an order of Sales J dated 2 March 2009.

The Parties


Isis is an investment holding company registered in the Isle of Man and now acts by its liquidator, Mr Shimmin, appointed by the Isle of Man court in March 2010. It is an indirect subsidiary of the Second Defendant, Kaupthing HF ("Kaupthing"). The Fund came into the hands of Isis as a result of the realisation of its shareholding in Tazamia Limited and Violet Equityco Limited and the repayment of part of a £67.15m loan made by Isis to Tazamia Limited.


The First Defendant, Oscatello Investments Limited ("Oscatello"), is a company registered in the British Virgin Islands. It is in liquidation and acts by its liquidators, Mr Akers and Mr McDonald. It was part of an offshore trust structure, TDT, set up by or for the property entrepreneur Robert Tchenguiz. It is a wholly owned subsidiary of the Fourth Defendant, Eliza Limited ("Eliza"). Eliza is also a company registered in the British Virgin Islands. It too is in liquidation and acts by its liquidators, Mr Akers and Mr McDonald.


Kaupthing is the ultimate parent of Isis. It is an Icelandic Bank, which collapsed in October 2008. It formally entered winding up proceedings on 22 November 2010 following a ruling of the district Court of Reykjavik. Prior to its collapse, Kaupthing had advanced very large sums of money to Oscatello.


The Third Defendant, Mr Adalsteinsson is one of a number of persons who entered into sub-participation agreements with Isis in respect of part of a loan of £67.15 million made by Isis to Tazamia Limited. In effect, they are investors in Isis. As a result, they have claims in its liquidation. In total, the amount subject to sub-participation by Isis was £40 million. Mr Adalsteinsson was joined as a party to Action 599 in a representative capacity on behalf of himself and all other persons and entities which invested by way of the sub-participation agreements with Isis. As a term of those agreements, the sub-participants were due to be paid upon receipt of sums by Isis at completion of the Somerfield transaction.

Procedural Background


The parties' respective entitlements to the Fund turn upon clause 6 of a Framework Agreement dated 19 December 2007 which contains an exclusive jurisdiction clause in favour of the English Courts. It imposes a payment waterfall in respect of proceeds received by Isis and also contains an express provision that part of the Violet Economic Return (VER) be held on trust for Oscatello. Isis contends that clause 6 is unenforceable and it is entitled to the Fund. Mr Adalsteinsson agrees with Isis that clause 6 is unenforceable. However, he claims that just over £56m of the Fund is held on trust for the purpose of making distributions to the sub-participants.


Action 599 was commenced in February 2009 and at that time was focussed on a narrow issue of construction arising from clause 6 of the Framework Agreement. That issue was determined in Oscatello's favour at a hearing before Lewison J (as he then was) in March 2011.


However, by an application of 6 March 2012, Isis by its liquidator, Mr Shimmin, sought permission to file and serve an amended Particulars of Claim. The matter came before Floyd J on 21 and 22 March 2012 and he gave permission for the amendments. On that occasion, an application by Oscatello for summary judgment was not pursued.


In his judgment on 23 March 2012, Floyd J set out a short description of the relevant procedural history in this matter in the following form, which I adopt:

"7. In these proceedings, as originally commenced, and as adopted by the liquidator, Isis sought certain declarations as to the interpretation of clause 6 and consequential directions as to the proper persons to whom the VER should be paid out of the money in court. Kaupthing and Oscatello counterclaimed for payment out of the VER to them on the basis of their construction of the agreement. On the pleaded cases no party was alleging in these proceedings (although see the 600 claim below) that the agreement was unenforceable. Oscatello then made an application for summary judgment on its counterclaim. They argued that if they were right as to the construction of the Framework Agreement there was no other defence and the money should be paid out."

8. It is clear that at some stage, the liquidator of Isis formed the view on the information then available to him, that the Framework Agreement was in principle enforceable at the suit of Oscatello, subject to the issue of construction. Indeed Mr Shimmin went as far as to apply to the IOM court for sanction of payments to Oscatello. However the sub-participants made strong representations to the IOM court that he should not do so. This led to a second witness statement on behalf of Isis, in which Mr Shimmin expresses grave doubts about the circumstances in which the Framework Agreement came to be made.

9. In his second witness statement Mr Shimmin described his findings in relation to clause 6 as follows:

"(i) On any view this was an improvident transaction by which Isis sold an interest of which it had already disposed. There was also no justification for prioritising Oscatello over other creditors.

(ii) Oscatello does not appear to have actually ever paid £44.05 million under Clause 6. This seems to have a purely circular payment by and to Kaupthing which could never have benefited Isis.

(iii) The Framework Agreement appears to have been concluded by the directors under pressure from Kaupthing without any real thought being given to the discharge of their fiduciary responsibilities. Kaupthing itself acted as if it was a director of Isis.

(iv) There is a serious indication that by agreeing to pay the VER under Clause 6, Isis was making an unlawful distribution of capital to or for the benefit of its shareholder, Kaupthing and/or one of its ultimate shareholders, Mr Tchenguiz."

10. It was on the basis of these provisional conclusions that Isis resisted Oscatello's summary judgment application when it came before Lewison J (as he then was) on 30 th March 2011. By that stage Isis had also made a cross application for a stay under the Cross Border Insolvency Regulations to enable Mr Shimmin to conduct further investigations as to whether to mount a challenge to the validity of the Framework Agreement.

11. The hearing before Lewison J on 30 th March was accordingly not a protracted one. It emerged that there was no longer a dispute as to how the Framework Agreement was to be construed. Lewison J was, however, disinclined to grant a declaration adequate to require Isis to hand over the VER when doubts remained over the validity of the Framework Agreement. He granted a limited declaration as to the true interpretation of clause 6 on the hypothesis that it was valid and enforceable. He also stayed the proceedings for 3 months, until 30 th June 2011, to enable the liquidator of Isis to conduct further investigations as to the validity of clause 6.

12. The matter came before Peter Smith J on Isis' application to continue the stay. Oscatello renewed its summary judgment application. Both applications now come back before me, some 12 months after the hearing before Lewison J. Oscatello had indicated in advance that they would not ask at this hearing for a final order on its summary judgment application. However it emerged during the course of the hearing that it did contend that the proposed amended pleadings were unarguably barred by a compromise agreement, to which I shall come in due course.

13. The liquidator of Isis has now decided to challenge the framework agreement and has served draft amended particulars of claim (DAPOC). The DAPOC were provided to Oscatello and Kaupthing on 2 nd March 2012. Whilst formulated in that way, the case of invalidity which Isis' liquidator wishes to raise could equally have been pleaded as a defence to Oscatello's counterclaim for payment out of the VER to them.

14. Of necessity, the DAPOC have to traverse a great deal of factual background in what was a complex set of inter-related transactions. Paragraph 7D sets out a summary of at least some of the allegations. In section VIII there is a fuller list of reasons why Oscatello cannot enforce Clause 6 of the Framework Agreement. In summary these are:

i) There was no genuine consideration moving to Isis. The expressed payment of £44.05 million was never made, and Kaupthing simply made circular book entries. The promise of payment was a sham.

ii) Clause 6 was an agreement procured by Kaupthing for Isis to make an unlawful return of capital to Kaupthing/TDT.

iii) The sale of the VER was made in breach of...

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5 cases
  • Isis Investments Ltd v Oscatello Investments Ltd and Another (3) Elfar Adalsteinsson (as a representative party) (4) Eliza Ltd
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    ...the Law Reports. 60 As the judge said, Gloster J's analysis was followed in Isis Investments Limited v Oscatello Investments Limited [2013] EWHC 7 (Ch) and by this court in [2013] EWCA Civ 1493, and in LBI hf v Stanford [2014] EWHC 3921 61 To those authorities I would add the judge's ana......
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    ...been endorsed on several occasions, at both first instance and appellate level: see Isis Investments Ltd v Oscatello Investments Ltd [2013] EWHC 7 (Ch) and [2013] EWCA Civ 1493 (" Oscatello"); and LBI hf v Stanford [2014] EWHC 3921 (Ch) (" 54 Reference has also been made to additional au......
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    ...Mr Allison's skeleton argument. Further details can be seen from the judgment of Asplin J on a case management conference, reported at [2013] EWHC 7 (Ch). 163 The proceedings were commenced in February 2009, but took a very different form. The original claim concerned the true construction......
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