Reclaiming Motion By The Respondents, The Administrators Of Heritable Bank Plc In The Note By The Winding Up Board Of Landsbanki Islands Hf, Noters P1
| Jurisdiction | Scotland |
| Judge | Lord Marnoch,Lord President,Lord Mackay of Drumadoon |
| Judgment Date | 28 September 2011 |
| Neutral Citation | [2011] CSIH 61 |
| Date | 28 September 2011 |
| Court | Court of Session |
| Docket Number | P1590/09 |
| Published date | 28 September 2011 |
| FIRST DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord President Lord Mackay of Drumadoon Lord Marnoch | [2011] CSIH 61 P1590/09 OPINION OF THE COURT delivered by THE LORD PRESIDENT in Reclaiming Motion by joint administrators of Heritable Bank plc Respondents and Reclaimers: against THE WINDING-UP BOARD OF LANDSBANKI ISLANDS HF Noter and Respondent; _______ |
Alt: Currie, Q.C., O'Brien; Maclay Murray & Spens (Noter and Respondent)
28 September 2011
Introduction
[1] The complex background to the present dispute is comprehensively set out in the Opinion of the Lord Ordinary. The respondents and reclaimers ("the reclaimers") are the joint administrators of Heritable Bank Plc ("Heritable"), a company incorporated under the Companies Act 1985 with its registered office in Glasgow. The Noter and respondent ("the respondent") is the winding-up board of Landsbanki Islands HF ("Landsbanki"), a company incorporated under the laws of Iceland with its registered office in Reykjavik. Heritable is a wholly owned subsidiary of Landsbanki. The reclaimers were appointed as administrators of Heritable on 7 October 2008. On the same day the Financial Supervisory Authority of Iceland took control of Landsbanki. On 8 December 2008 the respondent submitted a statement of claims in the Heritable administration for debts it claimed were owed by Heritable to Landsbanki. One of those claims, amounting to around £86 million, related to a revolving credit facility ("the Landsbanki RCF claim"). It also submitted two contingent claims, for £50 million and £1,011,817,245 respectively. On 30 October 2009, the reclaimers submitted claims in the Landsbanki winding-up for debts they claimed were owed by Landsbanki to Heritable. Those claims totalled around £905 million ("the Heritable claims"). The largest of these claims (the Heritable RCF claim) for in excess of £661 million is an illiquid claim for damages - for alleged breach by Landsbanki of the revolving loan facility.
[2] On 6 November 2009 the reclaimers rejected the Landsbanki RCF claim. Applying the principles of balancing of accounts in bankruptcy (anglice, set-off), they indicated that the whole of that claim was extinguished by the Heritable claims against Landsbanki. They did not dispute the Landsbanki RCF claim on any other basis. On 26 November 2009 the contingent claims were accepted, but valued at nil, on the basis that there was no prospect of the contingency being satisfied. On 14 January 2010 the respondent rejected all but one of the Heritable claims. The claim accepted was valued at just over £7 million. The rejection was initially appealed by the reclaimers to the Icelandic District Court.
[3] By way of a Note in the Petition for the making of an administration order in respect of Heritable, the respondent appealed against the reclaimers' refusal of its claims. While the decision as regards the contingent claims has also been challenged, the present reclaiming motion is concerned solely with the Landsbanki RCF claim. Relying on Regulation 5 of The Credit Institutions (Reorganisation and Winding Up) Regulations 2004/1045 ("the 2004 Regulations") the respondents argued that the decision in the Icelandic winding-up proceedings to reject the Heritable claims was binding in the United Kingdom, and that there were therefore no valid claims by Heritable to set off against the Landsbanki RCF claim. The reclaimers raised a plea to the relevancy of the Note as regards the respondent's reliance on Regulation 5 and on the decisions taken in the Landsbanki winding-up proceedings. They sought to have excluded from probation the averments in question. The matter proceeded to debate where the discussion included discussion of the principle of res judicata - resort to the Icelandic court was then thought to be imminent. On 20 July 2010 the Lord Ordinary rejected the arguments presented in support of the plea to the relevancy. This reclaiming motion has been brought against that decision.
The issue in dispute
[4] The issue now in dispute between the parties concerns the effect, in Scots law, of a decision by the respondent in the winding-up proceedings of Landsbanki. In short the dispute may be formulated thus: whether, by virtue of Regulation 5 of the 2004 Regulations, a decision by the respondent made under Icelandic law in the winding-up of Landsbanki as regards the existence and extent of any claims by Heritable against Landsbanki (against which an appeal to the Icelandic court was taken but subsequently abandoned) is decisive for the purposes of the administration proceedings of Heritable in Scotland; or, alternatively, whether the availability of set-off against Landsbanki's claims has to be determined by the reclaimers according to Scots law in the Heritable administration.
Background
The withdrawal of the Heritable claims
[5] There have been significant developments since the Lord Ordinary's decision. On or about 12 August 2010 the Heritable claims were withdrawn in their entirety from the Landsbanki winding-up proceedings. On 20 September 2010 the Icelandic District Court granted the reclaimers' request to discontinue the appeal proceedings before it. That decision was affirmed by the Icelandic Supreme Court on 21 October 2010. There is consensus between the parties that the issue of res judicata is no longer live.
Icelandic Law
[6] In reaching his decision, the Lord Ordinary took as pro veritate the following averments made by the respondent as regards Icelandic law:
"17.1 The winding up of Landsbanki is governed by Chapter XII of Act No.161/2002 Financial Undertakings, as amended. Article 102 of that Act, in the official English translation, provides inter alia:
'The same rules shall apply to the winding-up of a financial undertaking as apply generally to bankruptcy proceedings concerning reciprocal contractual rights and claims against it ...
Provisions of Chapter XVIII of the Act and Part 5 of the Act on Bankruptcy etc shall apply concerning processing of claims against a financial undertaking upon its winding-up, including the effect of failure to submit claims ...'
17.2 The Act on Bankruptcy etc 1991, as amended, ('the AB') provides in Chapter XVIII for the processing of claims against a bankruptcy estate. In particular, Article 116 of the AB provides that an action for payment cannot be commenced against a bankrupt, although pending actions can be continued. Article 117, in the official English translation, provides inter alia:
'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 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 a statement.'
17.3 Article 118 of the AB provides that if a claim is not the subject of a pending action, and is not submitted to the trustee in bankruptcy within the prescribed time, then it shall be 'cancelled with respect to the estate', subject to certain exceptions which do not apply to the Heritable Claims.
17.4 Article 119 of the AB provides that once the period for stating claims is over, the trustee in bankruptcy shall prepare a list of the claims 'stating his independent standpoint as to how each claim shall be recognised.' Article 120 of the AB makes provision for that determination to be challenged by a claimant. It provides inter alia:
'A claimant unwilling to accept the stand taken by the trustee in bankruptcy with respect to recognition of his claim shall state his objections at a meeting of the creditors held to consider the stated claims, or notify of this in a letter to be received by the trustee no later than at that meeting ...
... If an objection is raised at the meeting against the trustee's position as regards the recognition of a claim, and both or all the relevant parties, the objectors and those against whom their objections are directed, are present, the trustee shall endeavour to settle the dispute; if unsuccessful, he shall convene the parties in question to a separate meeting for this purpose. If the dispute cannot be settled in this manner, the trustee shall refer the matter to the district court as provided for in Article 171.
To the extent the trustee's standpoint as regards the recognition of a claim is not challenged as provided for in the first paragraph, it shall be regarded as finally approved during the bankruptcy proceedings.'
[7] The Lord Ordinary also took as pro veritate certain other of the respondent's averments as regards Icelandic law and procedure: the submission of claims in the winding-up of Landsbanki was equivalent to the bringing of a legal action against Landsbanki; any claim of Heritable which was not submitted in the winding-up of Landsbanki had been extinguished altogether and the debt discharged; where a claim is submitted, the winding-up determines the merits of that claim once and for all, subject to any appeal to the Icelandic courts; and the proceedings before the Icelandic District Court were concerned not merely with Heritable's entitlement to rank as a creditor in the winding-up procedure, but with the validity and quantum of its claims.
The 2001 Directive
[8] The 2004 Regulations sought to transpose into United Kingdom law the European Directive of 4 April 2001 on the reorganisation and winding-up of credit institutions (2001/24/EC - "the Directive"). In broad terms this Directive establishes a system for the allocation of jurisdiction for insolvency proceedings involving credit institutions, on its face within the Community but extended by agreement to the European Economic Area (EEA). Subject to certain exceptions, which are not relevant to the present reclaiming motion, it provides for...
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