Lornamead Acquisitions Ltd v Kaupthing Bank HF
| Jurisdiction | England & Wales |
| Judgment Date | 18 October 2011 |
| Neutral Citation | [2011] EWHC 2611 (Comm) |
| Docket Number | Case No: 2010 Folio 551 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 18 October 2011 |
[2011] EWHC 2611 (Comm)
Mrs Justice Gloster DBE
Case No: 2010 Folio 551
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Bankim Thanki Esq, QC and Ben Valentin Esq (instructed by Reed Smith LLP) for the Claimant/Respondent
Timothy Lord Esq, QC and Jeremy Goldring Esq (instructed by Olswang LLP) for the Defendant/Applicant
Hearing dates: 16 and 17 February 2011; and 13 June 2011
MRS JUSTICE GLOSTER, DBE
Mrs Justice Gloster
Introduction
This is a jurisdictional dispute. The defendant, Kaupthing Bank HF ("Kaupthing"), was a bank, which was incorporated in Iceland and formerly licensed to conduct banking business by the Financial Supervisory Authority of Iceland ("FME"). It is now insolvent, having collapsed during the financial crisis of 2008. It has been the subject of insolvency proceedings in Iceland, the District Court of Reykjavik (the "Icelandic Court") having made a Moratorium Order on 24 November 2008 and a winding-up order (expressed to have retrospective effect) on 22 November 2010. The insolvency is international and on a major scale. In excess of 28,000 claims have been lodged, with a face value of about £40 billion, from creditors in 119 countries. Kaupthing is now under the control of a Resolution Committee and a Winding Up Board.
On 13 May 2010 the claimant, Lornamead Acquisitions Limited ("Lornamead"), filed a claim form in the Commercial Court against Kaupthing ("the English Proceedings") seeking (in its subsequently amended form) the following relief:
"1. The claim is for declarations and other related relief as to the correct interpretation of a series of inter-related agreements between the Claimant and the Defendant and others, namely a Deed of Resignation and Appointment and Transfer of Security ('the Deed') dated 15 April 2009, a Senior Term and Revolving Facilities Agreement and a Mezzanine Facility Agreement, each restated on 31 December 2007, and an Amendment and Restatement Agreement and an Intercreditor Agreement each dated 31 December 2007.
2. The Claimant seeks declarations that these agreements, properly construed, had the effect of discharging, terminating or otherwise bringing to an end any liabilities it may have had to the Defendant under various hedging agreements entered into between the Claimant and the Defendant in 2007 and 2008 ('the Hedging Agreements')."
Lornamead is a company incorporated under English law, which heads a group concerned with the manufacture and distribution of personal care products.
On 30 September 2010, Kaupthing issued an application for an order that:
i) the English Proceedings should be struck out or stayed on the basis of Article 116 of the Icelandic Bankruptcy Act (No 21/1991) ("the Icelandic Bankruptcy Act") and Regulation 5(1) of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 ("the 2004 Regulations");
ii) insofar as necessary in the light of (i) above, a declaration that the English Court has no jurisdiction over the English Proceedings under Article 17 of the Lugano Convention or otherwise;
iii) alternatively an order that the Court should not exercise any jurisdiction which it may have and/or should stay the proceedings on forum non conveniens and/or case management grounds.
This judgment determines Kaupthing's application.
Factual background
It is necessary to set out the factual background and the provisions of the relevant documents in some detail in order to understand Lornamead's argument on this application.
Between 2006 and early 2009, Kaupthing provided loan facilities (totalling approximately £100 million) to Lornamead. The banking relationship began in 2006 when Kaupthing refinanced the Lornamead Group's existing bank borrowing. On 22 December 2006, Lornamead and Kaupthing (and various affiliates related to each respectively) executed various documents including:
i) a Senior Term and Revolving Facilities Agreement ("the SFA") 1;
ii) a Security Trust Deed; and
iii) a hedging letter ("the 2006 Hedging Letter").
At that stage, the SFA related to a "Facility A" Term Loan of £39 million and a "Facility B" Term Loan of £39 million as well as a Revolving Facility of £7.5 million.
The SFA was governed by English law and contained an English exclusive jurisdiction clause in the following terms:
" 43.1 Jurisdiction of the English courts
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a ' Dispute').
(b) 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.
(c) This clause 43.1 is for the benefit of the Finance Parties and Secured Parties only. As a result, no
Finance Party or Secured Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties and Secured Parties may take concurrent proceedings in any number of jurisdictions."
The Security Trust Deed was expressed to be governed by English law; clause 16.
The SFA (clause 4.1; schedule 2, part 1, paragraph 3(d)) required Lornamead (as "Parent") to provide Kaupthing (as "Agent") with a hedging letter ("the Hedging Letter") as a condition precedent to Kaupthing's obligation to advance funds under the SFA. The Hedging Letter was described as :
"A letter between the Agent and the Parent in the agreed form dated on or before the date of this Agreement (and executed by the Parent) describing the hedging arrangements to be entered into in respect of the interest rate liabilities of the Borrowers of the Term Facilities under this Agreement."
The SFA also contained the following definitions:
"Hedging Agreement" was defined as:
"… any master agreement, confirmation, schedule or other agreement entered into or to be entered into by the Parent and a Hedge Counterparty for the purpose of hedging interest rate liabilities in relation to all or part of the Term Facilities in accordance with the Hedging Letter delivered to the Agent under clause 4.1 (Initial Conditions precedent)."
"Finance Document" was defined as:
"… this Agreement, the Security Trust Deed, any Accession Letter, any Ancillary Document, any Compliance Certificate, and Fee Letter, any Hedging Agreement 2, any Resignation Letter, any Selection Notice, any Transaction Security Document, any Utilisation Request, any Subordination Deed and any other document designated as a "Finance Document" by the Agent and the Parent."
"Hedge Counterparty" was defined as:
"… a Lender or an Affiliate of a Lender which has acceded to this Agreement and which has become a party to the Security Trust Deed by delivery to the Security Agent of a duly completed accession undertaking in the form required under the Security Trust Deed."
"Lender" was defined as:
"(a) any Original Lender; and
(b) any bank, financial institution, trust, fund or other entity which has become a Party in accordance with clause 29 (Changes to the Lenders)",
which in each case has not ceased to be a Party in accordance with the terms of this Agreement."
"Obligor" was defined as "a Borrower or a Guarantor".
Clause 27.31 of the SFA made provision in respect of "Treasury Transactions" (defined as "any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price") as follows:
"(a) No Obligor shall (and the Parent will procure that no members of the Group will) enter into any Treasury Transaction, other than:
(i) the hedging transactions contemplated by the Hedging Letter and documented by the Hedging Agreements;
(ii) spot and forward delivery foreign exchange contracts entered into in the ordinary course of business and not for speculative purposes; and
(iii) any Treasury Transaction entered into for the hedging of actual or projected real exposures arising in the ordinary course of trading activities of a member of the Group and not for speculative purposes.
(b) The Parent shall ensure that all currency and interest rate hedging arrangements contemplated in the Hedging Letter are implemented in accordance with the terms of the Hedging Letter and that such arrangements are not terminated, varied or cancelled without the consent of the Agent (acting on the instructions of the Majority Lenders)."
In other words, the only type of derivative transactions which Lornamead was allowed to enter into were "Hedging Confirmations" pursuant to the SFA with the Lender.
Clause 29 of the SFA provided a mechanism, inter alia, for changes to the Lender by assignment or by the transfer, by novation, of a Lender's rights and obligations under any Finance Document to another bank or financial institution. Thus clause 29.2(d) provided that a transfer "… will only be effective if the procedure set out in clause 29.5 (Procedure for transfer) is complied with." In particular, clause 29.5 set out the procedure for transfer, which provided for the execution by the Agent of a Transfer Certificate delivered by an Existing Lender and the New Lender and as follows:
"(c) On the Transfer Date:
(i) to the extent that in the Transfer Certificate 3 the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents and in respect of the Transaction Security each of the Obligors and other member of the Group and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and in respect of the Transaction Security and their respective rights...
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