Lornamead Acquisitions Ltd v Kaupthing Bank HF

Factual and Procedural Background

This opinion concerns a jurisdictional dispute between Plaintiff, a company incorporated under English law engaged in personal care product manufacture and distribution, and Defendant, a bank formerly incorporated and licensed in Iceland, now insolvent and subject to Icelandic insolvency proceedings. Defendant collapsed during the 2008 financial crisis and has been under a Moratorium Order since November 2008 and a winding-up order with retrospective effect from November 2010. The insolvency proceedings are international, involving tens of thousands of claims from creditors worldwide.

Plaintiff commenced proceedings in the English Commercial Court in May 2010 seeking declarations regarding the interpretation and effect of a series of inter-related agreements, including facility agreements, hedging agreements, and a deed of resignation and transfer of security, all involving Plaintiff and Defendant and others. Plaintiff contended that these agreements discharged any liabilities it may have had to Defendant under various hedging agreements.

Defendant applied to the English Court to strike out or stay the English Proceedings on grounds including the effect of Icelandic insolvency proceedings under the 2004 Regulations, lack of jurisdiction under the Lugano Convention, and forum non conveniens or case management grounds. The Court heard arguments and reserved judgment, which is the subject of this opinion.

Legal Issues Presented

1. Whether the Court should follow a prior judgment holding that Defendant was not subject to an EEA insolvency measure at the time Plaintiff issued proceedings, thereby affecting the application of the 2004 Regulations.
2. If Defendant was subject to an EEA insolvency measure when proceedings were issued, whether Regulation 5(1) of the 2004 Regulations requires the English Proceedings to be stayed.
3. Whether, assuming no EEA insolvency measure applied, the Icelandic Court has exclusive jurisdiction under Article 17 of the Lugano Convention due to the jurisdiction clauses in the Hedging Confirmations, rather than the English jurisdiction clauses in the principal facility agreements and related documents.
4. Whether, assuming English jurisdiction applies, the proceedings should nonetheless be stayed on forum non conveniens or case management grounds.

Arguments of the Parties

Defendant's Arguments

• Regarding Issue 1, Defendant contended that the prior judgment was incorrect and that Defendant was subject to an EEA insolvency measure from April 2009 to November 2010, with the Moratorium Order constituting a reorganisation measure and the winding-up order having retrospective effect.
• On Issue 2, Defendant argued the English Court lacked jurisdiction to hear the claim due to the Icelandic insolvency regime and the 2004 Regulations, which gave effect to the Icelandic Moratorium Order and required claims to be made through Icelandic insolvency procedures. Defendant submitted that Regulation 5(1) must be given broad effect to prevent piecemeal litigation and protect the insolvency estate.
• Defendant maintained that Plaintiff’s argument that no relevant property or assets existed was incorrect and that the Court should not assess the merits of the claim at this stage.
• On Issue 3, Defendant asserted that the disputes concerned the Hedging Confirmations governed by Icelandic law and subject to Icelandic jurisdiction clauses, which under Article 17 of the Lugano Convention gave exclusive jurisdiction to Icelandic Courts. Defendant relied on case law concerning overlapping jurisdiction clauses and the commercial centre of gravity of the dispute.
• Regarding Issue 4, Defendant contended that the Icelandic Court was the more appropriate forum on forum non conveniens and case management grounds.

Plaintiff's Arguments

• On Issue 1, Plaintiff submitted the Court should follow the prior judgment, which was well reasoned, consistent with EEA case law, and supported by Defendant’s own expert evidence. Plaintiff argued Defendant was not subject to an EEA insolvency measure when proceedings were issued.
• On Issue 2, Plaintiff contended Regulation 5(1) had a limited scope and only applied if the insolvent institution had relevant property or assets. Plaintiff argued that Defendant had no such property or assets in respect of the Hedging Confirmations because the rights and obligations had been released or cancelled by the transfer to a third party.
• Plaintiff maintained that the Court could assess whether the claim was arguable for the limited purpose of determining if Regulation 5 applied, without deciding the merits of the case.
• On Issue 3, Plaintiff argued that the claim concerned the interpretation and effect of the transfer provisions in the principal facility agreements and related documents, all governed by English law and subject to English jurisdiction clauses. Plaintiff submitted that the Hedging Confirmations were subordinate documents and that the dispute fell within the English jurisdiction clauses. Plaintiff further contended Defendant could not renounce the English jurisdiction clauses after proceedings had been issued.
• On Issue 4, Plaintiff submitted that forum non conveniens did not apply because the parties agreed the English Courts were the most appropriate forum and that the English Court was best placed to resolve the dispute.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by considering whether to follow the prior decision in Rawlinson, which held that Defendant was not subject to an EEA insolvency measure at the relevant time. Despite some doubts raised by Defendant's counsel, the Court emphasized principles of judicial comity and the importance of consistent decisions among courts of coordinate jurisdiction. Given Rawlinson’s thorough reasoning, supported by expert evidence and consistent with EEA case law, the Court resolved to follow it.

Next, the Court addressed the hypothetical scenario that Rawlinson was wrong and that Defendant was subject to an EEA insolvency measure when proceedings were issued. The Court found that, in such a case, Regulation 5(1) of the 2004 Regulations must be given broad and purposive effect to implement the 2001 Directive. This would require the English Proceedings to be stayed to respect the Icelandic insolvency regime’s moratorium and claims resolution mechanisms, preventing piecemeal litigation that could undermine the insolvency estate and the collective interests of creditors.

The Court rejected Plaintiff’s argument that Regulation 5(1) only applied if Defendant had relevant property or assets in relation to the claim, holding that such a narrow interpretation would undermine the Directive’s purpose and lead to inconsistent treatment across Member States.

On the jurisdictional issue under the Lugano Convention, the Court examined the complex contractual framework and multiple jurisdiction clauses. Applying established principles from UBS and Sebastian Holdings, the Court concluded that the dispute centered on the interpretation and effect of the principal facility agreements and related documents governed by English law and subject to English jurisdiction clauses. The Hedging Confirmations, governed by Icelandic law and jurisdiction, were subordinate and did not govern the present dispute. Accordingly, the English Court had exclusive jurisdiction under Article 17 and Article 21 of the Lugano Convention.

Finally, on forum non conveniens and case management grounds, the Court noted the parties’ agreement that the English Courts were the most appropriate forum and that there were no exceptional circumstances to override this agreement. The Court further observed that the English Court was best placed to resolve the dispute and that Defendant’s witnesses’ location did not weigh in favor of Icelandic jurisdiction. The Court was also mindful of the limited scope for forum non conveniens under applicable EU law and case law.

Holding and Implications

The Court’s final decision was to DISMISS Defendant’s application to strike out or stay the English Proceedings.

The Court granted Defendant leave to appeal on the first issue concerning the applicability of the EEA insolvency measure, recognizing the importance of this legal question and the pending appeal in the related Rawlinson case.

The Court also indicated that Plaintiff’s application for summary judgment would be determined in due course, either before or after the Court of Appeal’s decision on the Rawlinson appeal.

The direct effect of this decision is that the English Proceedings may continue in the English Courts, and the English Court has exclusive jurisdiction over the claims concerning the interpretation and effect of the relevant finance documents and transfer mechanisms. No broader precedent was established beyond the resolution of the jurisdictional and stay issues in this specific insolvency and contractual context.