Jurisdiction

Conflict of laws - Civil and commercial matters

Lornamead Acquisitions Ltd v Kaupthing Bank HF: Queen's Bench Division, Commercial Court (Mr Justice Gloster): 18 October 2011

The defendant was a bank incorporated in Iceland. Between 2006 and early 2009, the defendant had provided loan facilities, totalling approximately £100m, to the claimant company, a company incorporated under English law. The parties (and various affiliates related to each respectively) had entered into various inter-related agreements, namely: (a) a deed of resignation and appointment and transfer of security; (b) a senior term and revolving facilities agreement (the SFA); (c) a mezzanine facility agreement (the MFA) (each of those first three had been restated on 31 December 2007); (d) an amendment and restatement agreement; and (e) an intercreditor agreement (the last two were each dated 31 December 2007). The SFA was governed by English law and contained an English exclusive jurisdiction clause.

The defendant subsequently became insolvent, having collapsed during the financial crisis of 2008. It had 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. On 22 November 2010, a winding-up order (expressed to have retrospective effect) was made in respect of the defendant. The insolvency was international and on a major scale. In excess of 28,000 claims had been lodged, with a face value of about £40 billion, from creditors in 119 countries.

The defendant then went under the control of a Resolution Committee and a Winding Up Board. On 12 December 2008, the defendant informed the claimant by letter that it was considering transferring its rights and obligations under the Restated SFA and the MFA to GE Corporate Finance Bank SAS (GE) or one of its affiliates. As foreshadowed in that letter, on 16 December 2008, the defendant and GE entered into a Transfer and Unwind Agreement (the TUA). On 5 April 2009, the defendant executed two transfer certificates (also governed by English law) in favour of GE (as new lender) in respect of the commitment and rights and obligations under the restated SFA and MFA respectively.

On 15 April 2009, the claimant, the defendant and GE executed a deed of resignation and appointment and transfer of security (the deed of resignation and transfer of security), by which the defendant retired from its various roles under the relevant agreements and GE was appointed to each of those roles in the defendant's place.

The deed of resignation and transfer of security was also governed by English law and provided that the English courts had exclusive jurisdiction to settle any dispute arising out of or in connection with it. On 25 June 2009, the claimant executed an amended and restated version of the SFA together with a new hedging letter in favour of GE, governed by English law, pursuant to which the claimant entered into new hedging arrangements with GE to hedge its interest rate liabilities in connection with the loan facilities provided by GE.

By a letter dated 2 March 2010, the defendant made demand: (a) in respect of sums allegedly accrued due from the claimant under 19 allegedly open hedging confirmations; and (b) for the claimant to post collateral in respect of its alleged mark to market contingent liabilities thereunder.

On 11 March, the defendant's Resolution Committee purported to call an event of default, thereby (so it was contended) terminating the hedging confirmations, and subsequently stated its intention to issue proceedings against the claimant to recover the amounts said to be due. By a claim form dated 13 May, the claimant sought declarations in the Commercial Court that the agreements entered into with GE, properly construed, had the effect of discharging, terminating or otherwise bringing to an end any liabilities it might have had to the defendant under the various hedging agreements.

On 30 September, the defendant issued an application for an order staying or striking out the English proceedings on the basis that, having regard to the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, SI 2004/1045 (the regulations), the English court had no jurisdiction to hear the case. In October, the claimant issued an application for summary judgment in relation to its claim and applied for that application to be heard at the same time as the defendant's application. In all the circumstances, the court considered that it was inappropriate for the claimant's summary judgment application to be heard until the defendant's jurisdictional challenge had been determined.

After the conclusion of the hearing on 16 and 17 February 2011, the judge reserved his judgment. However, on 16 March 2011, the Commercial Court handed down judgment against the same defendant in Rawlinson & Hunter Trustees SA (in its capacity as the trustee of the Tchenguiz Discretionary Trust) v Kaupthing Bank HF [2011] All ER (D) 210 (Mar) (Rawlinson) concerning claims for, inter alia, fraudulent misrepresentations and other contract claims brought by certain family trustees against the same defendant.

The judge in that case had decided that at the date of commencement of the proceedings against it, the defendant had not been subject to an insolvency measure in the European Economic Area within the meaning of the regulations and the European Parliament and Council Directive (EC) 2001/24 (on the reorganisation and winding-up of credit institutions) (the 2001 Directive). The proceedings in Rawlinson had been issued in the same period as the claimant's action in the instant case, and Rawlinson was under appeal. The claimant sought to rely on the decision in Rawlinson as an additional answer to the defendant's reliance on the regulations.

In the circumstances, and on the basis of the parties' respective arguments, it fell to be determined whether the judge in the instant case should follow Rawlinson and apply the judge's decision in that case that the defendant in the instant case had not been subject to the relevant insolvency measure in May 2010. It was common ground that the decision in Rawlinson, if correct, was both applicable to, and adversely determinative of, the defendant's application based on its argument in respect of the regulations.

The defendant contended that the judge in the instant case should not follow Rawlinson on the basis that it had been wrongly decided. The defendant's case was that at all times following the making of the moratorium order on 24 November 2008, the insolvency regime to which the defendant had been subject had been a relevant insolvency measure within the 2001 Directive, in particular on the date that the claimant had issued its proceedings, namely 13 May 2010. The application would be dismissed.

There was no statute or common law rule by which one court was bound to abide by the decision of another court of co-ordinate jurisdiction. Where, however, a judge of first instance after consideration had come to a definite decision on a matter arising out of a complicated and difficult enactment, the opinion had been expressed that a second judge of first instance of co-ordinate jurisdiction should follow that decision; and the modern practice was that a judge of first instance would as a matter of judicial comity usually follow the decision of another judge of first instance unless he was convinced that that judgment had been wrong (see [53] of the judgment).

In the instant case, in the interests of judicial comity, and deployment of judicial resources, the appropriate course was for the court to say that, despite its doubt, it was not 'convinced' that Rawlinson had been wrong and that, accordingly, his decision should be followed.

Consequently, the instant case would be approached on the basis that the defendant had not been subject to a reorganisation measure within the meaning of the 2004 regulations and the 2001 directive on 13 May 2010 when the claimant had issued the English proceedings (see [56] of the judgment).

The defendant's application to stay or strike out the English proceedings failed. However, the defendant would be given leave to appeal in relation to its argument in respect of the regulations on the basis that it raised an important issue of law, that was going to be determined by the Court of Appeal in any event. Pending counsel's submissions on the matter, the claimant's summary judgment application would either be determined as soon as practicable or adjourned until after the Court of Appeal's judgment on the defendant's appeal in Rawlinson (see [57], [127] of the judgment). Rawlinson & Hunter Trustees SA (in its capacity as the trustee of the Tchenguiz Discretionary Trust) v Kaupthing Bank HF [2011] All ER (D) 210 (Mar) applied.

Bankim Thanki QC and Ben Valentin (instructed by Reed Smith LLP) for the claimant; Timothy Lord QC and Jeremy Goldring (instructed by Olswang LLP) for the defendant.