Rawlinson & Hunter Trustees SA v Kaupthing Bank HF & Ors [2011] EWHC 566 (Comm)

[2011] EWHC 566 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 16 March 2011
Before
MR JUSTICE BURTON
Between
Cases Nos: 2010 Folio 784 & 2010 Folio 1246RespondentRAWLINSON & HUNTER TRUSTEES SARespondent(in its capacity as the trustee of the Tchenguiz Discretionary Trust)RespondentKAUPTHING BANK HFApplicantCases Nos: 2010 Folio 773Respondentand Between:RespondentRAWLINSON & HUNTER TRUSTEES SARespondent(in its capacity as the trustee of the Tchenguiz Family Trust)Respondentand othersRespondentKAUPTHING BANK HFFirst Defendant/ApplicantOSCATELLO INVSTMENTS LTD (BVI)Second Defendant
Mr Mark Howard QC and Ms Lucy Frazer (instructed by Edwards Angell Palmer and Dodge UK LLP) for Claimant in Actions 2010 Folio 784 & 1246Mr Gabriel Moss QC and Mr Adam Al-Attar (instructed by Stephenson Harwood) for Claimant in Action 2010 Folio 773Mr Robert Levy QC and Mr Sebastian Prentis (instructed by Weil Gotshal & Manges) for Defendant in all 3 actionsHearing Hearing dates: 9, 10 & 11 February 2011
JudgmentMr Justice Burton :
[1]Two sets of claims have been brought in this Court by trustees relating to the Tchenguiz family interest, one by the Tchenguiz Discretionary Trust (“TDT”), in which the Claimant is represented by Mark Howard QC and Lucy Frazer of Counsel, and one by the Tchenguiz Family Trust (“TFT”) (and others), in which the Claimants are represented by Gabriel Moss QC and Adam Al-Attar of Counsel. Both are brought against the Kaupthing Bank HF, an Icelandic bank, subject to winding-up in Iceland, which I shall call “the Defendant”, although there is a second defendant in the TFT action, not relevant to this application. The claims are each for very substantial damages, of more than £300m, for (inter alia) fraudulent misrepresentations and unlawful interference, and the setting aside of (inter alia) an agreement called the Framework Agreement and of identified Security Documents. The claim forms were issued on 1 and 5 July 2010 (for reasons not relevant to this application, TDT has issued a further claim on 21 October 2010, but it is common ground for the purposes of this application that the July date is the relevant date, although, in the event, whether it is July or October 2010 would not be material for my decision).[2]There were, as is common ground, exclusive jurisdiction clauses in each of the Framework Agreement and the relevant Security Documents, and there is therefore jurisdiction in this Court, pursuant to Article 17 of the Lugano Convention, to which both the United Kingdom and Iceland are signatories, in respect of the Claimants’ claims against the Defendant.[3]The Defendant was, prior to the financial crisis of October 2008, the largest bank in Iceland, and a credit institution within the Banking Consolidation Directive of 20 March 2001 2001/24/EC. It is now in liquidation, and therefore subject to the provisions of Directive 2001/24/OT of the European Parliament and the Council of 4 April 2001 on the Re-organisation and Winding-up of Credit Institutions (“the Directive”), which is not of direct effect, but has been implemented in the UK by the Credit Institutions (Re-organisation and Winding-up) Regulations 2004 (“the Regulations”), and in Iceland by incorporation of provisions in the Financial Undertakings Act (Act No 161/2002) (“the FUA”).[4]The application by Mr Robert Levy QC and Sebastian Prentis of Counsel, on behalf of the Defendant in both actions, is to stay the claim for want of jurisdiction, on the grounds(i) that the Defendant has been “subject to reorganisation and/or winding-up measures in Iceland pursuant to which there is a stay on proceedings against it”, relying on the Regulations, alternatively(ii) in that the Claimants have each (in December 2009) put in, as they were required to do, a proof of debt to the Defendant’s Winding-up Committee that the claim should be struck out as an abuse of process.[5]In order to succeed on the first ground, the Defendant must establish that, at the time when the English claims were commenced by the Claimants (July 2010), the Defendant was subject to an EEA Insolvency Measure, which the English court would recognise. An EEA Insolvency Measure is defined within the Regulations (paragraph 5(6)) as meaning “as the case may be, a directive reorganisation measure or directive winding-up proceedings which have effect in relation to an EEA credit institution by virtue of the law of the relevant EEA state”, in each case as defined by reference to paragraph 2(1) in Article 2 of the Directive, namely:
“‘Reorganisation measures’ shall mean measures which are intended to preserve or restore the financial situation of a credit institution and which could affect third parties’ pre-existing rights, including measures involving the possibility of a suspension of payments, suspension of enforcement measures or reduction of claims; … ‘Winding-up proceedings’ shall mean collective proceedings opened and monitored by the administrative or judicial authorities of a Member State with the aim of realising assets under the supervision of those authorities, including where the proceedings are terminated by a composition or other similar measure.”
[6]Paragraph 5(1) of the Regulations provides that:
“An EEA insolvency measure has effect in the United Kingdom in relation to – (a) any branch of an EEA credit institution, (b) any property or other assets of that credit institution, (c) any debt or liability of that credit institution as if it were part of the general law of insolvency of the United Kingdom.” as if it were part of the general law of insolvency of the United Kingdom.”
[7]The main issue between the parties is whether, at the date of commencement of these proceedings (July 2010), in relation to the Defendant(i) there was a reorganisation within the meaning of the Regulations/Directive or(ii) there were winding-up proceedings within the meaning of the Regulations/ Directive: i) If there were neither, then the issue is, subject to what is said below, straightforwardly resolved. It is common ground, as will be seen, that there were winding-up proceedings in place in Iceland, within the meaning of the Regulations/Directive, as from 22 November 2010. By that time these proceedings were pending. The Claimants then point to the provisions of Article 32 of the Directive and of the Regulations (which are in all material respects identical). The Regulations provide:
“32(1) The effects of a relevant reorganisation or a relevant winding-up on a relevant lawsuit pending in an EEA state shall be determined solely in accordance with the law of that EEA State. (2) In paragraph (1), “relevant lawsuit” means a lawsuit concerning an asset or right of which the affected credit institution has been divested.”
In that case, then, subject to Mr Levy’s abuse argument, the Claimants must succeed by reference to Article 17 of the Lugano Convention. ii) If it be held either that there was a reorganisation measure or there were winding-up proceedings within the meaning of the Directive/ Regulations in place in Iceland prior to July 2010, then, in the alternative, and if necessary, the Claimants rely, pursuant to Article 10 of the Directive, upon the law of the “home member state”, namely Iceland, to show that, under Icelandic law (by reference to Article 99(2)(h) of the FUA), the decision as to whether these proceedings can be pursued is left to the law of the state where these proceedings have been initiated, namely this Court. The Defendant however contends that, at Icelandic law, the claims must at any event be stayed.[8]It is only if the Defendant fails to achieve a stay by reference to the insolvency proceedings as above that its alternative case, that the continuation of these proceedings by the Claimants would be an abuse at common law, arises. I shall return to this later. There were other issues originally raised. As for the Defendant, it was only at the outset of the hearing that it was accepted to be common ground that (subject to its argument as to the Directive, adumbrated above): i) By virtue of the exclusive jurisdiction clauses, Article 17 of the Lugano Convention applies to the English claims, and ii) Article 1(2)(b) of the Lugano Convention does not disapply the Convention to the English claims. iii) The Lugano Convention does not apply to the claims which the Claimant has been required to put forward by way of proof of debt to the Icelandic Winding-up Committee which, upon rejection of that proof, has been referred by the Defendant to the District Court of Reykjavik on 3 August 2010, pursuant to Article 120 of the Bankruptcy Act 1991 (“BA”). Thus no question of competing dates of seisin by the Icelandic and English courts arises. As for the Claimants, two arguments which were raised by TFT (as summarised by Mr Levy in paragraph 77(i) and (ii) of his skeleton argument), were not pursued.[9]There have been similar measures taken in Iceland in respect of other Icelandic banks, in particular Landsbanki, and there have been some court decisions relating to both the Defendant and Landsbanki. In the courts of Iceland, there have been two decisions relating to Landsbanki, that in the District Court of Reykjavik, in Skeifan ehf vLandsbanki Islands hf, upheld in the Icelandic Supreme Court (judgment delivered 24 March 2010). Then there has been a decision in the Paris Court of Appeal in relation to a case called Kepler Capital Markets S.A. v Landsbanki Islands hf (judgment dated 4 November 2010). In addition there have been four other decisions outside Iceland, one relating to the Defendant in the Regional Court of Frankfurt, DZ Bank AG Deutsche Zentralgenossenschaftsbank v Kaupthing Bank hf (issued 10 May 2010), and the other three relating to Landsbanki; in England, Jeffries International Ltd v Landsbanki Islands hf [2009] EWHC 894 (Comm) (judgment 28 April 2009 per Cooke J), in the Amsterdam District Court Pannevis v Landsbanki Islands hf (judgment 8 March 2010) and in the Outer House of the Court of Session in Scotland The Winding-up Board of Landsbanki Islands hf v Mills [2010] CSOH 100 (judgment 20 July 2010 per Lord Glennie). In none of the four latter decisions was there any discussion about, or doubts cast upon, whether there were reorganisation measures or winding-up proceedings within the Directive, nor any of the issues raised which now fall to be decided by me: there was either common ground or the points were not raised or argued.

The Processes in Iceland

[10]It will be necessary to record in a little detail the history of matters in Iceland, which begin with the passage on 6 October 2008 of an Emergency Act (“due to the Unusual Financial Market Circumstances”) Law No 125/2008, giving emergency powers to the Icelandic Financial Services Authority (“the FME”). i) The FME appointed on 9 October a 5-man Resolution Committee to the Defendant, assuming the powers of a general meeting of the Defendant, and immediately dismissing the Defendant’s Board in its entirety, whose powers were to be taken over by the Committee. On 22 October 2008, the FME issued a decision relating to the setting-up of a “New Kaupthing”, to take over and continue the domestic banking operations of the Defendant, such that all domestic assets of the Defendant were transferred to the new company. ii) On 13 November 2008, there was passed an amendment to the FUA (“the first November Amendment”), whose purpose was to preclude the initiation of proceedings against a credit institution subject to a moratorium, and removed the provisions (Article 12(4) and (6)) of the BA, which would otherwise have prevented a moratorium if it could not be shown that “the debtor’s planned measures while financial reorganisation is to be in effect are not deemed … realistic, or likely to bring about a reorganisation of his finances”. iii) The next day, on 14 November 2008, the FME required that the Defendant apply for a moratorium under Chapter 12 of the BA: on 21 November 2008, the Resolution Committee filed an application to the District Court of Reykjavik to request a moratorium: and on 24 November 2008 that Court issued an order approving the application, granting the moratorium until 13 February 2009. The moratorium was extended on 19 February 2009 by the same Court to 13 November 2009, recording that:
“One of the primary responsibilities of the Resolution Committee is to preserve the value of [the Defendant’s] assets until they have been transferred to creditors in one form or another … Asset sales are a very poor option under the present circumstances, as buyers are scarce due to the economic downturn and the difficulties facing most economies of the Western world … As a result, the Resolution Committee is of the opinion that the interest of the Bank’s creditorsare best served by liquidating the Bank’s assets over a longer period … If the petition for an extended moratorium is denied, there is a risk that [the Defendant’s] bankruptcy would result in the default provisions of the agreements of [the Defendant] and/or its subsidiaries taking effect. This would automatically lead to a great loss of value … If [the Defendant] enters into bankruptcy, important loan agreements … will fall due with the result that the Bank’s share capital will become worthless.”
[11]It seems that there were concluded to be concerns, however, as to the constitutionality of a moratorium per se constituting a bar on the initiating of legal proceedings against a financial undertaking in a moratorium, and Mr Gunnarsson, the Defendant’s Icelandic law expert, explains in paragraph 3.10 of his first Report that “it was unconstitutional to bar legal proceedings in the way the [first] November Amendment did”. The result was a further amendment to the FUA by Act No 44/2009 (“the April Amendment”), which repealed paragraphs 5 and 6 of Article 98, being the relevant paragraphs which had sought to stay or bar proceedings against a credit institution in moratorium, and introduced a new statutory structure, which is so important to the resolution of this application that I must set it out (so far as material) in full:
“II The following special rules shall apply to financial undertakings benefiting from a moratorium upon the entry into force of this Act. 1. The authorised debt moratorium shall continue in spite of the entry into force of this Act and may be extended as provided for in the rules referred to in the second paragraph of Article 10. 2. The moratorium shall be subject to provisions of the first paragraph of Article 101, Articles 102, 103 and Article 103a of the [FUA] … as if the winding-up of the undertaking had been ordered by a court ruling on the date this Act enters into force; the winding-up proceedings shall, however, be alluded to as an authorised debt moratorium as long as that authorisation is valid, cf. Point 1. Once this authorisation expires, the undertaking shall, without a specific court ruling, automatically be deemed to be in winding-up proceedings following the general rules, cf. however, Points 3 and 4. Provisions of Chapter IV of the [BA] shall not apply to a debt moratorium as referred to here; the Appointee shall, however, monitor dispositions of the Resolution Committee as provided for in Article 103 of the Act ... 3. The Resolution Committee of a financial undertaking, appointed by the [FME] prior to the entry into force of this Act based on Article 5 of [the Emergency Act], shall continue its work with its name unaltered and fulfil the role intended for the winding-up committee in the third paragraph of Article 9, the second sentence of the fourth paragraph of Article 101, the first sentence of the fifth paragraph of Article 102 and the first to third paragraphs of Article 103 of the [FUA] … Should a seat on the Resolution Committee become vacant following the entry into force of this Act, the [FME] shall appoint a person to fill such position if deemed necessary, having regard to the tasks still unconcluded by the Committee. 4. To carry out tasks of the winding-up committee other than those referred to in Point 3, a District Court judge shall, following a written request from the Resolution Committee, appoint such a committee in accordance with the instructions in the first and third sentences of the fourth paragraph of Article 101 of the [FUA] … The person serving as the undertaking’s Appointee during the debt moratorium shall also automatically take a seat on this committee and shall remain in this position even after the debt moratorium has concluded. III Notwithstanding the fifth paragraph of Article 101 of the [FUA],… the reference date inwinding-up of a financial undertaking shall be determined by the second paragraph of [the First November Amendment] as applicable [i.e. 13 November 2008].”
[12]From that date on, the “winding-up proceedings … alluded to as an authorised debt moratorium” were carried on by the Resolution Committee, which would “continue its work with its name unaltered and fulfil the role intended for the Winding-up Committee”, but with some of its powers delegated to the Winding-up Committee to be appointed by a District Court judge, which duly occurred on 25 May 2009.[13]On 6 July 2009, the Winding-up Committee published a document called “Invitation to lodge a claim – time limits to be observed”. It provided:
“All parties claiming debts or other rights from [the Defendant] or assets controlled by the bank, are hereby invited to submit their claims in writing to the Winding-up Committee of the bank within 6 months of the first publication of this notice in the Icelandic Legal Gazette on 30 June 2009. Accordingly, the last day to submit claims is 30 December 2009 … If a claim is not filed within the aforementioned time limit, the claim against [the Defendant]is considered null and void according to Article 118 of the [BA]. By filing a claim, the creditor is deemed to have waived the right to confidentiality (banking secrecy) with regard to the claim in question.”
[14]Prior to such expiry, the moratorium was further extended by the District Court of Reykjavik until 13 August 2010, on 19 November 2009.[15]As set out in paragraph 8(iii) above, the claims were filed with the Winding-up Committee by the Claimants within the time limit, and, on 15 March 2010, the Winding-up Committee notified them that they would not recognise the claim. On 1 and 5 July 2010 the claims in these proceedings were issued and then duly served. As set out in paragraph 8(iii), the Winding-up Committee referred the rejected proofs to the District Court on 3 August 2010, and there was a first hearing in relation to the disputed proof on 26 October 2010, when a hearing was ordered to take place on 2 February 2011, to determine a request by the Claimants for postponement of the Icelandic claims until a decision was reached in the English proceedings. This application was heard on 2 February and refused on 10 February, although I have not seen a copy of the judgment.[16]In the meanwhile, a significant event occurred, namely the decision of the Paris Court of Appeal on 4 November 2010 in the Landsbanki case referred to in paragraph 9 above. The Winding-up Committee of Landsbanki had brought proceedings in Paris seeking to resist attachments against Landsbanki assets in France, by reference to the equivalent moratorium in relation to that company, and by reference to the April Amendment. The Paris Court of Appeal rejected Landsbanki’s application on two bases. The first was its conclusion that the provisions of Article 138 of Chapter XX of the BA relating to attachment were not incorporated by the April Amendment into the moratorium. This, Mr Moss for TFT has pointed out, is actually inaccurate, as such powers are indeed incorporated by the April Amendment, by reference to the fact that the last paragraph of Article 103 of the FUA, which is incorporated into the moratorium by the April Amendment, expressly grants the powers under Chapter XX of the BA, which includes Article 138. But, significantly, there was a second and important ground upon which the Court refused relief to the Winding-up Committee of Landsbanki, namely that the provisions of the April Amendment “do not constitute measures for reorganisation and winding-up taken by the administrative or judicial authorities as provided for in the [Directive], the decision that renders the rules for winding-up of the moratorium being issued directly by the legislator”. They continue “Whereas such a decision, which only concerns a limited number of Icelandic credit institutions, one of which is the company Landsbanki, cannot be appealed as would be the case for a judicial or administrative decision”: and further record that the provisions originally in the moratorium “that prohibit or suspend any legal action against a credit institution from the moment at which a moratorium comes into effect”, being the fifth and sixth paragraphs of Article 98 of the FUA (see paragraph 11 above), were abolished by the April Amendment.[17]It is clear that this decision of the Paris Appeal Court (though I am told it is under appeal) could not be ignored by the Icelandic legislature. Immediate steps were taken to ‘regularise’ the position. A further amendment to the FUA, Act No 132/2010 (“the second November Amendment”) was enacted. This required the Resolution Committee and Winding-up Committee jointly to request that the company be “placed in winding-up under general rules … with a court ruling” before the moratorium expired. It continued:
“If the court approves the petition, actions taken in the winding-up proceedings during the moratorium period shall remain unaltered and to the extent ranking of claims and other legal affects are determined by the date a court decision on winding-up is pronounced under general rules, this shall continue to be based on the day when [the April Amendment] was adopted.”
[18]Mr Gunnarsson has exhibited what appears to be a parliamentary commentary on the second November Amendment, which reads:
“This amendment should correct the formal flaw of the legislation and the process which the French Court decision was based on. Our main concern is to create protection going forward and our secondary concern is to be able to continue with what has already been done in terms of winding-up in the moratorium without having to repeat important parts of the process.”
[19]Accordingly, an application to the Icelandic court was made by the Defendant to enter into winding-up, and the District Court of Reykjavik made the order on 22 November 2010. The decision of the Court included the following:
“[By the April Amendment] a special rule was established for the initiation of winding-up proceedings of a financial undertaking for which a Resolution Committee had been appointed before the entry into force of the Act. Accordingly, winding-up proceedings for [the Defendant] were initiated on 22 April 2009 and the District Court of Reykjavik appointed a Winding-Up Board for the bank with a letter dated 25 May 2009 … it is the court’s opinion that after the entry into force of [the second November Amendment] it is necessary to provide for winding-up proceedings through a court ruling in order to continue the winding-up proceedings which began last year … [The Defendant] is hereby subjected to winding-up proceedings … This ruling has judicial effect as of 22 April 2009.”

Reorganisation Measure

[20]The first question is whether there was a reorganisation measure within the Directive in place when the English proceedings commenced in July 2010. Mr Moss submits that the reorganisation measure which was introduced in November 2008 by way of the moratorium, was, in fact, never a reorganisation measure within the Directive. It is not in doubt that the Directive distinguishes between a reorganisation measure and winding-up, but Mr Moss points to Recital (6) of the Directive, which refers to reorganisation measures as being “taken … to restore to viability” the relevant credit institutions, which is simply, as he submits, clarificatory of the very definition of reorganisation measures in Article 2, set out in paragraph 5 above, as being “intended to preserve or restore the financial situation of a credit institution”: hence, he submits, the reference in Recital (14) to the fact that “in the absence of reorganisation measures, or in the event of such measures failing, the credit institutions in difficulty must be wound up”, and the reference in Article 12, with regard to the withdrawal of a credit institution’s authorisation, to the “failure of reorganisation measures”. He points out the provisions of Article 98 of the FUA itself, where the definition of financial reorganisation is “measures intended to maintain the credit institution’s financial position or to restore it to normal”. The transfer of the viable assets to, and the continuation of banking business only by, the New Kaupthing company, and the express elimination of the previous provisos, which would have precluded a permanently insolvent credit institution entering a moratorium (referred to in paragraph 10(ii) above) show plainly that this was not a case where it was intended or expected that the moratorium would restore the Defendant to viability, asis also clear from the decision of the District Court of Reykjavik on the moratorium extension in February 2009 (from which I quote in paragraph 10(iii) above).[21]Mr Howard drew attention to the evidence of Mr Gunnarsson, in paragraph 4.3 of his second Report. Mr Gunnarsson addresses the statement by the Claimant’s expert, Mr Tamimi, in paragraph 41 of his first Report, when he refers to the FME’s decision on 22 October 2008, which effectively “placed the bulk of the assets required for continued, sustainable banking operations with New Kaupthing” that “it is clear that the original Kaupthing … was by this time permanently insolvent”, but he does not appear to take issue with such statement, but simply indicates that “it is of no importance from a legal point of view whether Kaupthing was permanently insolvent at the time, or in mere financial distress”. However Mr Howard, while associating himself with Mr Moss’s submission, concludes that it is not necessary to decide whether the moratorium prior to April 2009 was a reorganisation measure within the Directive, given that it so plainly was not so after the April Amendment (to which I shall return). Mr Levy submits that it is not a fundamental part of the definition of a reorganisation measure that the intention would be to restore the credit institution to viability, but he rather emphasises the wide discretion given to home member states as to the method of taking steps short of liquidation, suggested by Recitals (7) and (23) of the Directive. He refers to the passage in Mr Moss’s own book, co-authored with Professor Wessels EU Banking and Insurance Insolvency at 1.88 in which they state “a reorganisation measure can cover the first phase of proceedings, which mixes reorganisation and liquidation when a measure starts with an attempt to restore the financial situation, but, in case of a specific default or failure, is automatically followed by a liquidation proceeding”. He accepts the distinction between a reorganisation measure and a winding-up, but submits that it is their consequence which distinguishes them, and not the intention with which they are embarked upon.[22]I conclude that the Claimants have the balance of the argument in this regard, and, even though there is no authority on the point, I would, if I had to do so, prefer their submissions. But, for reasons which will appear, as Mr Howard submitted, it is so clear to me (as it was clear to the Paris Court of Appeal) that, as from the April Amendment, the exercise was one of winding-up and not a reorganisation measure, that I do not need to resolve the position prior to April 2009, given that the issue is whether, by July 2010, there was still a reorganisation measure in place.[23]The reasons for the April Amendment are manifest from the history that I have set out above, and the documents from which I have quoted: i) Once it became apparent that a moratorium, coupled with a bar or stay to proceedings was, as Mr Gunnarsson has advised, unconstitutional, it was necessary to replace the previous structure. ii) It was equally important not to trumpet to the commercial world that there was now a bankruptcy, for the reasons set out in the decision of 19 February 2009, quoted in paragraph 10(iii) above. In addition, if there were a winding-up, but not if there were, or appeared to be, only a moratorium, the risk of withdrawal of the Defendant’s authorisation would arise. Article 12 of the Directive provides:
“1. Where the opening of winding-up proceedings is decided on in respect of a credit institution, in the absence, or following the failure, of reorganisation measures, the authorisation of the institution shall be withdrawn …”
It appears that, in fact, in Icelandic law, such withdrawal of authorisation was not provided to be automatic. Article 9 of the FUA provides that the FME “may revoke a financial undertaking’s operating licence in whole or in part … (6) if measures adopted on the basis of provisions concerning [FME] intervention in the assets, rights and obligations of a financial undertaking pursuant to Article 100(a) have not been successful, or if a ruling has been rendered concerning the winding-up of the undertaking”. However it is clear that any such risk had to be avoided, just the same as the risks of default on commercial agreements referred to in the February 2009 decision, set out in paragraph 10(iii) above.[24]Mr Levy refers to the April Amendment as ‘reorganisation with knobs on’. He obviously must accept, as is apparent from the structure of the Directive, that there is a distinct and necessary difference between a reorganisation measure and winding-up, and Mr Gunnarsson recognises that fact in paragraph 4.2 of his Report. But he refers to the same paragraph of Mr Moss’s and Professor Wessels’ book in which they say “the lines between ‘reorganisation measures’ and ‘winding-up proceedings’ may sometimes be flexible”. He submits that the April Amendment itself makes it clear that the moratorium will continue “as long as [the] authorisation is valid” (i.e. presumably for the maximum 2 years from November 2008), whereafter “the undertaking shall, without a specific court ruling, automatically be deemed to be in winding-up proceedings following the general rules”, i.e. the bank is still at that date in moratorium, but would in the future move onto winding-up, and hence, as there cannot be both simultaneously, there is, at that stage, moratorium, and therefore cannot at that stage be winding-up. As for Mr Gunnarsson, his conclusion (in paragraph 4.1 of his third Report) is almost whimsical:
“A deemed winding-up order is one thing but a deemed winding-up process is another. I reiterate my understanding of the April Amendment that there was no ‘deemed’ winding-up process but a moratorium process which applied many or most of the substantive rules of winding-up proceedings.”
[25]But prior to that attempted distinction, Mr Gunnarsson himself, in a number of passages in the Reports, had seemingly accepted that, subsequent to the April amendment, the Defendant was in winding-up: i) (Paragraph 5.14 of his first Report) “In spite of the April Amendment, a moratorium remained in force at all times … Moreover … the moratorium will be subject to Articles 101-103a of the [FUA], and this has the effect that it was as if the winding-up of [the Defendant] had been ordered on the date the April amendment took effect. Therefore, it can be said that [the Defendant] is in Winding-Up”. ii) (Paragraph 3.23 of his second Report) “The case at hand concerns the recognition of the winding-up of an Icelandic credit institution in England”. iii) (Paragraph 5.5 of his second Report) “In my opinion it is clear that the English Claim is subject to stay since it was made [in July 2010] after [the Defendant] went into winding-up proceedings”. iv) (Paragraph 4.9 of his third Report) “It would cause tremendous disruption to [the Defendant’s] creditors if this court was to deem there was no winding-up process ongoing in 2009 and until 22 November 2010 (the winding-up process in 2009 already being the grounds for a call for claims and payments from the estate)”.[26]The following factors seem to me to be entirely clear with regard to the April Amendment: i) The April Amendment was necessary because the moratorium had proved unconstitutional and therefore unworkable (see paragraph 11 above). ii) All the significant features of the moratorium were thus swept away by virtue of the enactment that “Provisions of Chapter IV of the [BA] shall not apply to such a debt moratorium as referred to here”. Chapter IV of the BA is the whole section (Articles 19 to 22) of the FUA headed:
“The legal effects of financial reorganisation”
. Mr Gunnarsson, in paragraph 3.31 of his second Report, states that the April Amendment “was intended to build the future legal framework, or as the Trade Commission put it in its [parliamentary] opinion [which he quotes], it can be pointed out that the legislative proposal is the outcome of a comprehensive revision of Chapter XII of the Act on Financial Undertakings [the FUA] and therefore it contains proposals for new rules on the winding-up of financial undertakings”. iii) The April Amendment provided that the effect be “as if the winding-up of the undertaking had been ordered by a court ruling on the date [the April Amendment] enters into force”. iv) The April Amendment did not simply contain, as Mr Gunnarsson described it, “many or most of the substantive rules of winding-up proceedings” (paragraph 24 above), but in reality all its features. They are spelt out in Articles 101, 102, 103 and 103a of the FUA, which were expressly incorporated. Insofar as Mr Levy understandably latched on to the view of the Paris Court of Appeal that at any rate one provision, Article 138 of the BA, was not covered, Mr Moss has satisfied me that it was, as set out in paragraph 16 above, as were all the provisions of Chapter XX of the BA relating to “Rescission of measures taken by a bankrupt etc”. It was a winding-up in all but name. v) So far as that name was concerned, the terms of the April Amendment are pellucid:
“The winding-up proceedings shall, however, be alluded to as an authorised debt moratorium”
. The continued use of the name moratorium was plainly only a label, and one designed, if at all possible, to avoid the unpleasant consequences and risks referred to above. For the same reason the Resolution Committee would “continue its work with its name unaltered and fulfil the role intended for the winding-up committee”. vi) At the end of the ‘winding-up in all but name’, the Defendant would “automatically be deemed to be in winding-up proceedings following the general rules”. Thus, although in the event, as a result of the Paris Court of Appeal decision, it was realised that, for there to be a Directive-compliant winding-up, there would need to be a court order – hence the second November Amendment (of which see further below) – in my judgment, Mr Levy’s attempted contrast between moratorium now and winding-up later is not supportable. What in fact was the case is winding-up under the label moratorium now, automatically disclosed winding-up later. In the meanwhile, as in the event occurred, the winding-up process would continue, with the “reference date in winding-up” being intended to be the commencement of the moratorium, although, in the event, it seems to be accepted (see paragraphs 17 and 19 above) to be the date of the April Amendment.[27]My conclusion as to the April Amendment, which is based not simply upon the views of Mr Tamimi, and the lack of any persuasive view to the contrary by Mr Gunnarsson, but upon the clear wording of the April Amendment itself, is fortified by other evidence: i) The words of the second November Amendment, which I have set out in paragraph 17 above. ii) The words of the District Court judge when making the winding-up order on 22 November 2010, set out in paragraph 19 above. iii) The conclusion of the Paris Court of Appeal, which was plainly predicated upon the basis that there was in existence, as at 4 November 2010, neither a Directive-compliant reorganisation measure nor (as to which see below) a Directive-compliant winding-up. iv) Finally there are the decisions of the Icelandic courts themselves in the case of Skeifan, referred to in paragraph 9 above. Although delivered in relation to Landsbanki, it is plain that the context and the facts were identical. The decisions given in March 2010, i.e. months before the Paris Court of Appeal and the second November Amendment, were, first by the Reykjavik District Court, that the winding-up process of Landsbanki began in April 2009, and then, upholding that decision, by the Icelandic Supreme Court that:
“According to [the April Amendment] the Defendant is considered to have been subject to winding-up proceedings under the rules of Chapter XII of [the BA] as of 22 April 2009.”
[28]I have no doubt that, after 22 April 2009, there was no continuing reorganisation measure, and that the Defendant was in winding-up. Hence, in July 2010, there was no reorganisation measure requiring recognition under the Regulations, extant in Iceland, and the only question would be whether the Defendant was at that stage in a Directive-compliant winding-up.

Directive-Compliant Winding-up as at July 2010

[29]I have already set out in paragraph 5 above the definition of winding-up proceedings for the purposes of the Directive. As from April 2009, there were plainly collective proceedings, a Winding-up Board or Committee was appointed by the Reykjavik District Court on 25 May 2009, and thereafter the winding-up process was carried on, including the notification, referred to in paragraph 13 above, of the requirement to put in proofs of debt, with the requirement that “claims must be filed with the Winding-up Committee within the specified time limit and shall comply with the instructions contained in paragraphs 2 and 3 of Article 117 of [the BA].” There may have thusbeen monitoring by the judicial authorities, but the winding-up was plainly not opened either by the administrative or judicial authorities, but as a result of the legislation contained in the April Amendment. Article 9 of the Directive further emphasises the requirement:
“1. The administrative or judicial authorities of the home Member State which are responsible for winding-up shall alone be empowered to decide on the opening-up proceedings concerning a credit institution … A decision to open winding-up proceedings taken by the administrative or judicial authority of the home Member State shall be recognised, without further formality, in the territory of all other Member States …”
[30]The Paris Court of Appeal set out the reasoning behind the requirement in the passage of its judgment which I have cited in paragraph 16 above. If the winding-up process is opened by the Court, then it can be appealed, or if by an administrative authority then it can be the subject of judicial review. The April Amendment, turning the moratorium into a winding-up by legislation “as if the winding-up of the undertaking had been ordered by a court ruling on the date this Act enters into force” was plainly subject to neither of these safeguards.[31]Mr Levy attempted two arguments in response: i) He submitted that when the post-April Amendment moratorium was submitted to the Court on 19 November 2009, that can be said to be the opening, or rather the re-opening of the winding-up. That is plainly unarguable, as the ruling itself states in terms that what was occurring was that it was being “moved that the moratorium be extended for an additional period of 9 months.” ii) Alternatively, he submits that when the winding-up order was made by the Court on 22 November 2010, the winding-up was retrospective to 22 April 2009, so that it can be said that, retrospectively, the Court had opened the winding-up at that date. I do not conclude that that was what the Icelandic Court was doing, and Mr Levy does not have the benefit of any expert evidence to support such proposition. What the Court was plainly doing was reflecting that the winding-up proceedings had in fact commenced on 22 April 2009 – recognising or confirming reality in that regard – and that it was “necessary to provide for winding-up proceedings through a court ruling in order to continue the winding-up proceedings, which began last year”. Even if that were not the case, I have no doubt whatever that the Directive cannot be so construed as to permit such a retrospective opening (at the unilateral instance of the home court) which would have the effect of disappointing the accrued expectations of those who had issued proceedings against a company, or otherwise acted to its detriment, in the interim.[32]That accordingly resolves the main issue in favour of the Claimants. At the time when the English proceedings commenced in July 2010, there was neither a reorganisation measure nor a winding-up within the meaning of the Regulations/ Directive in Iceland, so that when the winding-up was opened in accordance with the Directive in November 2010, these proceedings were already pending. There was some discussion at the hearing about whether it was thus a concern that there could be a ‘black-hole’, in which an insolvency proceeding could be ‘neither fish nor fowl’, thus losing the protection of the Directive. I am satisfied that this is not a matter for concern, and, if it occurs as a result of a proper construction of what is required for proceedings to comply with the Directive and gain the benefit of the Regulations, then that is all that I need to consider. However it must be said that the Icelandic legislature must have taken to have appreciated that when they commenced a winding-up process without judicial or administrative process, but required that it would be “alluded to” as a moratorium, that might not be without consequence.[33]I have set out paragraph 32 of the Regulations in paragraph 7(i) above. On the basis of the conclusion that I have reached, it is simply necessary for me to be satisfied that the pending lawsuits are of a kind which are “governed solely by the law of the Member State in which” they are pending, namely that they concern “an asset or a right of which the affected credit institution has been divested”. The words are not entirely clear, but it is plain that this relates to a claim against a credit institution and not a claim by that credit institution for e.g. restitution of an asset of which it has been divested. Thus, it is a claim by a creditor. Christopher Clarke J had to consider the meaning of those words within the equivalently worded provision of Article 15 of the Council Regulation (EC) No 1346/2000 on Insolvency Proceedings (“the Insolvency Regulation”) in Syska v Vivendi Universal SA [2008] EWHC 2155 (Comm), [2009] BPIR 163. He reached a very clear conclusion, having considered, not only the English text, but also the text of nine other languages from Portuguese to Bulgarian. He convincingly concluded as follows at paragraph 38:
“The purpose of the Article is to deal with claims against, or relating to, such of the estate of the debtor as is affected by the insolvency. The ‘divestment’ in question is that which takes place by reason of the insolvency proceedings. The expression is not intended to refer to the type of action that is brought by the creditor. That that is so is confirmed by the other language versions.”
[34]As the lawsuits were pending in November 2010, the law of the English courts governs, and in particular Article 17 of the Lugano Convention, by virtue of which the English court has exclusive jurisdiction. Subject to the Defendant’s argument of abuse of process, that disposes of the application.

Icelandic Law

[35]I turn now to deal, because it was thoroughly argued before me, with the fallback argument of the Claimants, in case they should fail, as they have not, on the main issue. Their case is that, even if these claims were not pending at the date of a relevant reorganisation measure/winding-up proceedings, and Article/Regulation 32 did not apply, such that Article 10 of the Directive directs the parties to the law of the home Member State to determine (by subparagraph 2(e)) “the effects of winding-up proceedings on proceedings brought by individual creditors” - namely to Icelandic law - the result is the same.[36]The relevant provision is Article 99(2)(h) of the FUA. It is common ground that Article 116 of the BA is the starting point, which provides that:
“Legal action shall not be brought against a bankruptcy estate in the district court unless expressly permitted by law.”
[37]This leads then to the provisions of Article 99(2)(h), which either do or do not permit such legal action. Although there was a dispute about the precise translation into English of that Article, it is quite clear that the appropriate translation to use is that given by Mr Tamimi at paragraph 64(2) of his first Report, in that it is common ground that the word “pending” is not in fact present in the Icelandic provision, although the Defendant contends that it should be read in. The translation is:
“The legal effect of a ruling on financial reorganisation on lawsuits, concerning an asset or other right which a credit institution has disposed of, shall be governed by the law of the member state where the lawsuit was initiated.”
[38]The first question is the meaning of “has disposed of”. It is clear to me that this must have the same meaning as the equivalent words in Article 32 of the Directive. It is common ground that Article 99(2)(h) was intended to be the provision which transposed Article 32 into Icelandic law, and, in the absence of any other evidence, I would consider that Christopher Clarke J’s conclusions, by reference to all the relevant EU languages, is equally applicable to the meaning of the Icelandic version. There is no other evidence: i) In paragraph 3.8 of Mr Gunnarsson’s third Report he says that “the present claim does not concern an asset or right of which [the Defendant] has been divested. In fact the Claim is a proceeding brought by an individual creditor for damages”. It is significant that he there uses, as he does in paragraph 3.6 of the same Report – “pending lawsuits “concerning an asset or a right in which the credit institution has been divested”” - the very words which are used in the English language version of Article 32, and which were construed by Christopher Clarke J. Despite his (unexplained) assertion, hardly helpful from an expert, simply that “the present claim does not concern” an asset of which the Defendant has been divested (by reason of the insolvency proceedings, as concluded by Christopher Clarke J), Mr Gunnarsson suggests no other interpretation or meaning. ii) Mr Gunnarsson’s case is that Article 98(2)(h) should be construed so as to comply with the Directive. Whatever the (unsuggested) other interpretation might be of the words “has been divested” or “has disposed of”, it is plain that he is suggesting a more restrictive, and hence non-compliant, interpretation of the transposition of the Directive.[39]I accept that, as Mr Levy reminded me, the resolution of foreign law is one of fact (Lazard Bros & Co v Midland Bank Ltd [1933] AC 289). I would not have any difficulty in resolving such first question of fact in favour of the Claimants, were it necessary to do so.[40]The next question relates to the absence of the word pending in Article 99(2)(h). If this is, as the Claimants and their expert Mr Tamimi contend, a deliberate change in the course of the transposition of the Directive into Icelandic law, then that means that, at Icelandic law, unlike domestic actions, foreign actions by creditors are not stayed once insolvency proceedings commence. The Claimants submit that this is not, and should not, be seen as a problem, and Mr Moss draws my attention to the approach of the English court in Gibraltar Residential Properties Ltd v Gibralcon[2004] SA [2010] EWHC 2595 (TCC) per Edwards-Stuart J, in which the English court concluded that it had jurisdiction to hear and determine the claims before it and did so; although the claimants if successful would not be entitled to enforce the English court’s decision, given the existence of insolvency proceedings in Spain, but would be then able to lodge its claim, thus resolved in its favour, in the Spanish insolvency proceedings.[41]Mr Levy relies on Mr Gunnarsson to the contrary: i) Mr Gunnarsson submits that the word pending could and should be read in. The real difficulties facing this suggestion, as I am satisfied from Mr Tamimi’s powerful argument to the contrary, are that: a) The word cannot simply be injected into the Icelandic – it would require a rewriting of the provision: b) just for that very reason it is plain that the wording is deliberately different from a simple Icelandic translation of Article 32: c) Mr Tamimi stresses at paragraph 19 of his first Report that “it is very rare that Icelandic courts come to an interpretation which is in total contradiction to the wording of statutory law”. Mr Gunnarsson generally agrees with this (at paragraph 3.4 of his second Report), subject only to his referring to a decision in the Icelandic Supreme Court, whereby Icelandic law should be interpreted so as to comply with EU/EEA law, i.e. in this case the Directive. Mr Tamimi responds (paragraph 16 of his second Report) that “the Icelandic court’s interpretative freedom is not unrestricted and … it can only interpret Icelandic law in conformity with the Directive … to the extent that such interpretation does not run counter to Icelandic statutory law”. As referred to above, Mr Gunnarsson places a good deal of reliance upon the fact that Icelandic law should be construed so as to comply with the Directive, but even apart from Mr Tamimi’s riposte, I accept Mr Howard’s submission that it is not a non-compliance with the Directive to give a wider (as opposed to a narrower) scope to the provisions of Article 32. ii) Mr Gunnarsson’s alternative submission is to point to the word “war”, meaning “was”, in the translation of the Directive, set out in paragraph 37 above: he suggests that the use of the words “was initiated” carries with it an element of “being pending”. I am wholly unpersuaded that the words “was initiated” have any relevance whatever to whether proceedings were pending at the material time. I find this argument, which Mr Levy did not develop, wholly unpersuasive.[42]If I were therefore required to decide the questions of Icelandic law, in order to resolve this appeal, I would resolve them in favour of the Claimants, but, as it is, I have already concluded in their favour on the main issue.

Abuse

[43]Mr Levy falls back if necessary on English law to argue that there should be a stay or strike-out of these claims, which are otherwise, as I have set out above, the subject of exclusive jurisdiction clauses, properly founded in Article 17 of the Lugano Convention, and unaffected by the Icelandic insolvency proceedings.[44]The way the matter was primarily put was said to be by reference to the decision in BCCI (Overseas) Ltd (In Liquidation) v Habib Bank Ltd [1999] 1 WLR 42, a case which was said to found a submission that it would be an abuse for the claimants to pursue their claims in this country while having lodged their proof of debt in the winding-up process in Iceland. I am satisfied that the BCCI case is of no relevance. In that case, the defendant put in a proof in a liquidation, and when the proof was rejected by the liquidators, the defendant did not take the steps provided by law for it to challenge the rejection of its proof. Park J concluded (at 49F) that “In my judgment it is too late for it now to reassert its debts against the liquidators in a different way, that is by saying it can set them off against the debts owed by it”. In essence, it could be said to have been a case of election, or perhaps estoppel. In this case, the Claimants were required to put in their proofs in the Icelandic winding-up proceedings on pain of losing any rights (and thus suffering a Habib Bank result) and so they did so. The Defendant has subsequently referred the rejected proofs to the District Court of Reykjavik, as set out in paragraph 8(iii) above, and the Claimants have unsuccessfully been attempting to persuade the Icelandic courts not to allow those proceedings to be pursued, pending the decision in this Court. Mr Levy submitted that, in some way, by putting in those proofs without expressly reserving their position to sue in England, the Claimants waived their rights. It is perhaps significant that the “Invitation to lodge a claim” expressly addressed the matter of waiver in the passage which I have set out in paragraph 13 above, but that is not, and it is entirely inconsistent with, any waiver of right to sue. I conclude that there is no basis whatever for Mr Levy’s submission in this regard.[45]At the hearing, however, Mr Levy rather concentrated on developing a proposition that there should be a stay on grounds which he described as “res judicata”. It is perhaps not surprising that he used that phraseology, since it is what was said by Lord Glennie in Landsbanki (referred to in paragraph 9 above). According to paragraph 85 of his judgment, in that case the Noters made averments in relation to a plea of res judicata, based upon a case that the “submission of claims in the winding-up of Landsbanki is equivalent to bringing a legal action against Landsbanki.” Lord Glennie said as follows, at paragraph 87:
“87. The starting point for this argument, which I did not understand [Counsel] to dispute, was that both the Noters and the Administrators were parties to the Icelandic proceedings, in the sense that the Administrators had lodged a claim in the Landsbanki winding up and were now parties to an appeal process. They may have taken part in the process reluctantly, out of concern that a failure to lodge a claim might result in a decision that their claim was extinguished, and that that decision might be recognised and given effect in the UK, but the fact is that they have taken part and they are therefore parties to the Icelandic proceedings. In those circumstances there is a prima facie case that the doctrine of res judicata will apply.”
[46]I can only conclude that Lord Glennie was using the future tense in the last sentence of that paragraph, rather than the subjunctive, on the basis that at some stage there might be res judicata if both proceedings continued. But as of now, there is plainly no res judicata in Iceland; there is not even, if there be such a word, res administrata.[47]Really what Mr Levy’s submission amounted to, as I put to him in the course of the hearing, was a refinement of a lis alibi pendens argument, but this is, in my judgment, no more arguable. i) Insofar as there is a lis in Iceland, it is not one of the Claimants’ making. An administrative proof of debt has been referred by the Winding-up Committee to the District Court, and the Claimants are trying to stay the reference. ii) Again, insofar as the doctrine is relevant, it is necessary to point out that the Claimants have the benefit of an exclusive jurisdiction clause, and it is the Defendant who is resisting the enforcement of that clause in arguable breach of contract. In any event, as to the suggestion of abuse, Toulson LJ in Highland Crusader Offshore Partners LLP v Deutsche Bank AG [2009] 2 Lloyd’s Rep 4617 CA at 619, has recently concluded that there is no rule that contemporaneous prosecution of foreign and English proceedings can be said to be per se vexatious and oppressive. iii) In any event, in a Convention case, there is now little if any room for the operation of the doctrine of lis alibi pendens or forum non conveniens, once jurisdiction is properly founded under the Convention, as it is here. In Jefferies Cooke J, having stated at paragraph 24 that “any stay which had the effect of depriving Jefferies of resort to the Court of the agreed jurisdiction would not only be unjust, but contrary to principle”, approved the words of Lawrence Collins J in Mazur Media Ltd v Mazur Media GmbH [2004] EWHC 1566 at paragraphs 69-70, in which he said:
“I would accept that there is a power to stay English proceedings in favour of insolvency proceedings in a Regulation state to prevent injustice, but it would require exceptionally strong grounds for the English court to exercise that power, particularly where (as regards the contractual claim) the parties have conferred exclusive jurisdiction on the English court. Otherwise, the court would be circumventing the Judgments Regulation by introducing forum non conveniens principles by the back door.”
Plainly the same applies to the Lugano Convention, and in any event, the course adopted in Gibralcon is available.[48]At the end, Mr Levy was driven simply to refer to the words of the Claimants’ solicitor in his witness statement at paragraph 31, namely:
“If the Icelandic claim is stayed, then there will be no duplication of proceedings, and therefore no abuse as submitted by the Defendant.”
[49]It is quite plain that that does not amount to an implied admission that there would be abuse if the stay were not to be granted of the Icelandic proceedings, as it has not been. If there must be duplication of proceedings, and that does not of course need to continue to be the case, then there will not be an abuse at any rate caused by the Claimants’ actions, which have simply been dedicated to enforcing their exclusive jurisdiction clause.

Conclusion

[50]The Defendant’s application is therefore dismissed.

Cited in 4 later judgments