England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 October 2011

Mrs Justice Gloster:

Introduction

1. 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.
2. 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.

3. 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.

4. This judgment determines Kaupthing's application.

Factual background

5. 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.
6. 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.

7. 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."

8. The Security Trust Deed was expressed to be governed by English law; clause 16.
9. 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."

10. 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".

11. 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)."

12. 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.
13. 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 against one another under the Finance Documents and in respect of the Transaction Security shall be cancelled (being the "Discharged Rights and Obligations");

(ii) each of the Obligors and other members of the Group and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor or other member of the Group and the New Lender have assumed and/or acquired the same in place of that Obligor or other member of the Group and the Existing Lender;

…

(iv) the New Lender shall become a Party as a "Lender"." (emphasis supplied)

14. Lornamead provided Kaupthing with a Hedging Letter in accordance with clause 4.1 and schedule 2, Part 1 of the SFA, namely the 2006 Hedging Letter. As noted above, the provision of the Hedging Letter was a condition precedent of utilisation pursuant to clause 4.1 and schedule 2, Part 1 of the SFA. The 2006 Hedging Letter, which was also governed by English law, was addressed from Lornamead to Kaupthing, stated in terms that it was the Hedging Letter as defined in the SFA and confirmed that, pursuant to clause 27.37 of the SFA:

"… we will as soon as possible and in any event within 60 days of the Closing Date, enter into a Hedging Agreement pursuant to which we will effect interest rate hedging:

(a) for not less than 50 percent of the principal aggregate amount of the Term Loans; and

(b) for a minimum period of three years from the Closing Date."

15. The 2006 Hedging Letter provided that the "Hedging Agreement" would be entered into with Kaupthing as the "Hedge Provider" and that

"… there would be Additional Termination Event provisions allowing for a proportionate reduction in the notional amount of any related trades in the event of a prepayment in full or part of any of the Term Loans, provided that for the purposes of such Additional Termination Event we will be treated as the Affected Party (subject to compliance with our obligations under the Facilities Agreement and this letter)"

16. In the second half of 2007, Lornamead and Kaupthing discussed restructuring the then existing credit facilities provided under the SFA so as to introduce a new Mezzanine facility and to reduce the principal amounts outstanding under the SFA. In order to give effect to this restructuring, on 31 December 2007, Lornamead and Kaupthing executed inter alia an Amendment and Restatement Agreement, an amended and restated version of the SFA ("the Restated SFA"), a Mezzanine Facility Agreement ("the MFA"), an Intercreditor Agreement ("the Intercreditor Agreement"), an amended version of the Security Trust Deed, and a new hedging letter ("the 2007 Hedging Letter").
17. The Restated SFA defined the terms "Hedge Counterparty", "Hedging Agreement", "Hedging Letter" and "Lender" in materially the same way as those terms were defined in the SFA, save that "Hedging Letter" was defined by reference to the Amendment and Restatement Agreement. Kaupthing was also specifically named as a "Hedging Counterparty" to the Restated SFA. It made provision in respect of "Treasury Transactions" in the same form as clause 27.31 of the SFA and for Transfer in the same form as clause 29 of the SFA. The Restated SFA was governed by English law (clause 42) and contained an exclusive jurisdiction clause in favour of the English Courts (clause 43.1) in the same terms as the SFA set out above.
18. The MFA related to a sterling mezzanine loan of £10 million. The MFA defined "Finance Document", "Hedge Counterparty", "Hedging Agreement", "Lender" and "Obligor" in materially the same terms as those terms were defined in the Restated SFA. It made provision (clause 23.31) in respect of Treasury Transactions in materially the same terms as clause 27.31 of the SFA. It made provision (clause 25) for the transfer by novation of a Lender's rights and obligations under any Finance Document to another bank or financial institution in materially the same terms as clause 29 of the SFA including, in particular, at clause 25.5(c) of the MFA the following:

"(c) On the Transfer Date:

(i) to the extent that in the Transfer Certificate 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 against one another under the Finance Documents and in respect of the Transaction Security shall be cancelled (being the "Discharged Rights and Obligations")".

19. The MFA also required, as a condition of utilisation (clause 4.1 and schedule 2, Part 1), Kaupthing and Lornamead to execute a further Hedging Letter in the same form as was required by the SFA. As with the SFA, the MFA was governed by English law (clause 38) and contained an exclusive jurisdiction clause in favour of the English Courts (clause 39.1).
20. The Intercreditor Agreement defined "Finance Documents" as "… the Senior Finance Documents, the Mezzanine Finance Documents, the Loan Note Documents and the Intra-Group Debt Documents". It defined "Senior Finance Documents" and "Mezzanine Finance Documents" as "each "Finance Document" as that term is defined in (respectively) the SFA and the MFA. It defined "Hedging Debt" as:

"the aggregate amount from time to time outstanding of all monies obligations and liabilities (whether actual or contingent) due, owing or incurred by any member of the Group to any Hedge Counterparty under any Hedging Agreement, and all costs, charges and expenses due, owing or incurred under any Hedging Agreement".

21. The Intercreditor Agreement also made provision in clause 7 in respect of "Hedging Debt". Clause 7.1 imposed restrictions on the "Hedge Counterparty" (i.e. Kaupthing) from demanding or receiving payment, or taking enforcement or other action without the consent of the Security Agent under the Security Trust Deed. Hedging Debts were secured under the terms of the Security Trust Deed. Clause 7.2 of the Intercreditor Agreement provided that each Hedge Counterparty and each Obligor agreed that each Hedging Agreement entered into by a Hedge Counterparty should be based on an ISDA Master Agreement^[4] and should :

"Include an "Additional Termination Event" provision with the Parent as the sole Affected Party (as that term is defined in the relevant ISDA Master Agreement) allowing for a proportionate reduction in the notional amount of any relevant trades to reflect a partial prepayment of cancellation of the Term Facilities under the Senior Facilities Agreement, Facility under the Mezzanine Facility Agreement."

22. Clause 7.5 provided that each Hedge Counterparty should be a Senior Lender or an Affiliate of a Senior Lender and that no person would be entitled to share in the Security in respect of the Hedging Debt unless that person was "an Original Hedge Counterparty or has entered into an Accession Deed in the capacity of Hedge Counterparty". Clause 17 provided for the order of application of proceeds of the security in payment of the various debts secured. The Intercreditor Agreement was also governed by English law (clause 37.1) and conferred exclusive jurisdiction on the English Courts to settle any dispute arising out of or in connection with it (clause 37.2).
23. The Amendment and Restatement Agreement provided, inter alia, (schedule 2) for a new Hedging Letter

"… describing the hedging arrangements to be entered into in respect of the interest rate liabilities of the Original Borrowers of the Facilities".

24. On 31 December 2007, Lornamead provided Kaupthing with a new Hedging Letter, namely the 2007 Hedging Letter.
25. Between March 2007 and June 2008, and pursuant to Lornamead's obligations pursuant to the various agreements described above, Kaupthing and Lornamead entered into a number of separate interest rate swap agreements in order to hedge Lornamead's interest rate obligations in respect of the loan facilities inter alia under the Restated SFA and the MFA ("the Hedging Confirmations"). There was no dispute between the parties as to the purpose of the Hedging Confirmations.
26. With one exception, and despite the fact that the Intercreditor Agreement had provided that each Hedging Confirmation should be based on an ISDA Master Agreement, each of the Hedging Confirmations provided as follows:

"This Agreement is supplemented by the General Terms for Securities and Currency Transaction Between Kaupthing Bank and its Clients. In the event of any inconsistency between the provisions of this Agreement and the General Terms, this Agreement shall prevail.

Terms referring to terms in the Facility Agreement shall have the same meaning as stated therein.

This transaction is governed by Icelandic Law. Any legal dispute over this transaction shall be settled at the Reykjavik District Court ("Héraðsdómur Reykjavíkur")."

The only exception was a US dollar swap agreement which was apparently subject to ISDA 2000 terms. There was no explanation in the evidence before me as to why the remaining Hedging Confirmations were not entered into on ISDA terms, notwithstanding the apparent obligation to that effect as provided in the Intercreditor Agreement and the 2007 Hedging Letter.

27. The terms of the Intercreditor Agreement and the Security Trust Deed provided that Lornamead's obligations under the Hedging Letter and the Hedging Confirmations were secured by the Security Trust Deed.
28. On 9 October 2008, following the collapse of the Icelandic banking system, the Icelandic Financial Supervisory Authority appointed a Resolution Committee in respect of Kaupthing. On the same date, Lornamead sought to draw down on the Revolving Credit Facility, but on 10 October 2008, that request was rejected by the Resolution Committee.
29. On 12 December 2008, Kaupthing informed Lornamead by letter that Kaupthing 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. The letter further stated that if such transfers proceeded, they would be made in accordance with clause 29 of the Restated SFA and clause 25 of the MFA. It pointed out that Lornamead's consent was not required to the transfer and that, if Kaupthing reached an agreement with GE, Kaupthing would transfer its rights and obligations under the Restated SFA and the MFA on or after 19 December 2008.
30. As foreshadowed in that letter, on 16 December 2008, Kaupthing and GE entered into a Transfer and Unwind Agreement ("the TUA"), a copy of which was in evidence in redacted form. In so far as material the TUA provided:

i) for the transfer of a "Transferred Commitment" by means of a "Trade Confirmation" to be executed on the Settlement Date (defined as 16 December 2008) in the form set out in schedule 1 to the TUA;

ii) that "Transferred Commitment" means "in respect of [the Senior and Mezzanine facilities, each defined as a "Transferred Facility"], the commitments of Kaupthing under and in respect of such Transferred Facility, as set out in the Trade Confirmation(s) relating to that Transferred Facility";

iii) by clause 3(b), that Kaupthing would sell or participate to GE and GE would buy or participate from Kaupthing each Transferred Commitment;

iv) by clause 5.1(a), that the intention of the Parties was that on the Trade Date (which was defined as 12 December 2008),

v) that "the economic risk and reward of each Transferred Commitment … shall transfer from Kaupthing to GE";

vi) by clause 8(a), that, on the Settlement Date, Kaupthing would resign its appointment as Agent and Security Agent (under the Restated Facilities Agreement) and Agent and Security Agent (under the Mezzanine Facility Agreement) and in each case transfer each such role to GE;

vii) by clause 8(b), that on the "Elevation Date", Kaupthing would resign its appointment under all relevant agency and trustee roles and transfer such roles to GE.

31. There was no discussion between Lornamead and Kaupthing about the transfer of the banking relationship to GE. On or about 16 December 2008, it appears that Kaupthing provided two Loan Market Association Trade Confirmations to GE in respect of the Restated SFA and the MFA respectively ("the LMA Trade Confirmations"). The LMA Trade Confirmations are governed by English law.
32. On 5 January 2009, Kaupthing as "Existing Lender" 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 the MFA respectively. The Transfer Certificates made reference to clause 29.5 and clause 25.5 of those agreements respectively and made clear that the transfers were undertaken pursuant to the procedure there set out. The Transfer Certificates conformed precisely to the form set out in schedule 5 to the Restated SFA and the MFA and duly confirmed that Kaupthing and GE agreed to the transfer by novation of Kaupthing's commitment, rights and obligations in respect of Facility A, Facility B, the Revolving Facility and the Mezzanine Facility, i.e. the entirety of the loan facilities which Kaupthing had previously made available to Lornamead.
33. On 15 April 2009, Kaupthing, Lornamead and GE executed a Deed of Resignation and Appointment and Transfer of Security ("the Deed of Resignation and Transfer of Security"), by which Kaupthing retired from its various roles under the Restated SFA, the MFA and the Security Trust Deed and GE was appointed to each of those roles in Kaupthing's place. The Deed of Resignation and Transfer of Security was also governed by English law and provided that the English Courts have exclusive jurisdiction to settle any dispute arising out of or in connection with it.
34. On 25 June 2009, Lornamead executed an amended and restated version of the SFA together with a new hedging letter in favour of GE ("the 2009 Hedging Letter"). Pursuant to the 2009 Hedging Letter (which is governed by English law), Lornamead entered into new hedging arrangements with GE to hedge its interest rate liabilities in connection with the loan facilities provided by GE.
35. Following the transfer of the Senior and Mezzanine facilities to GE, Lornamead received no further communication from Kaupthing in respect of the various Hedging Confirmations between Kaupthing and Lornamead until a letter dated 2 March 2010. By this letter Kaupthing made demand (a) in respect of sums allegedly accrued due from Lornamead under 19 allegedly open Hedging Confirmations and (b) for Lornamead to post collateral in respect of its alleged mark to market contingent liabilities thereunder. As already stated above, no explanation was given by Kaupthing as to why it had permitted significant sums to accrue in respect of these allegedly open swap contracts over the preceding months without making contact with Lornamead to ascertain why payments were not being made or to assert any default by Lornamead.
36. On 11 March 2010, Kaupthing'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 Lornamead to recover the amounts said to be due.

Procedural history

37. On 13 May 2010, Lornamead filed its claim form in the English Proceedings seeking declaratory relief in the terms which have already been set out in paragraph 2 above. (An amended claim form dated 9 August 2010 deleted an additional claim for an account of any amounts owing under those agreements).
38. The Particulars of Claim, dated 24 September 2010, made it clear that Lornamead was also relying on the effect of the TUA, and the relevant Transfer Certificates executed by Kaupthing in favour of GE pursuant thereto, as the basis for Lornamead's case that, with effect from no later than 5 January 2009, it had been released from any obligations it may have had to Kaupthing, and/or that any rights which Kaupthing may have had under the Hedging Confirmations had been cancelled. In the alternative, the Particulars of Claim plead that the effect of the Deed of Resignation and Transfer of Security, and the mechanisms for which it provided, was that Kaupthing's rights and obligations under the Hedging Confirmations were transferred to GE on the Effective Date as defined in the Deed of Resignation and Transfer of Security.
39. On 19 October 2010, Lornamead issued an application for summary judgment in relation to its claim and applied for that application to be heard at the same time as Kaupthing's application for a strike out and/or a stay. On 21 October 2010, I directed that Lornamead's application should only be heard in the event that Kaupthing's jurisdictional challenge failed. In so ordering, I had regard to the decision of Lewison J in Speed Investments Ltd v Formula One Holdings Ltd [2004] EWHC 1772 (Ch), where he set out the relevant considerations. I took the view that, in all the circumstances, it was inappropriate that such an application should be heard by the Court until Kaupthing's jurisdictional challenge had been determined.
40. On 16 and 17 February 2011, I heard argument in relation to Kaupthing's application to stay or strike out the English Proceedings. At that hearing, Mr. Timothy Lord QC and Mr. Jeremy Goldring, respectively leading and junior counsel on behalf of Kaupthing, contended that the English Proceedings should not be allowed to continue on the basis of the three grounds foreshadowed in Kaupthing's application notice:

i) Ground 1: the effect of the Icelandic insolvency proceedings: Since Kaupthing was subject to an EEA insolvency measure^[5] in Iceland, that had effect in the United Kingdom; accordingly Regulation 5(1) of the 2004 Regulations required the Court to stay or strike out Lornamead's claim, because the English Proceedings were commenced in breach of the mandatory stay arising under the Icelandic insolvency proceedings. Lornamead's position on the merits of its case as to whether the Hedging Confirmations had been discharged was irrelevant. But in any event there had been no express or implied release, discharge or transfer of Kaupthing's rights and obligations under the Hedging Confirmations.

ii) Ground 2: the effect of the Lugano Convention: The Icelandic Court (rather than the English Court) had "exclusive jurisdiction" under Article 17 of the Convention because "the disputes which have arisen" concerned the "legal relationship" constituted by the Hedging Confirmations, which the parties had agreed were to be subject to the jurisdiction of the Icelandic Court, rather than that constituted by the SFA, MFA or the Deed of Resignation and Transfer of Security, which contained English exclusive jurisdiction clauses.

iii) Ground 3: forum non conveniens/case management: In any event, even if, contrary to Kaupthing's primary contentions, the Court had jurisdiction over the claim (in whole or part) and the proceedings were: (a) not prohibited by the 2004 Regulations; and/or (b) governed by English rather than Icelandic jurisdiction agreements, then nonetheless the proceedings should be stayed and/or no such jurisdiction should be exercised in Lornamead's favour on the basis of forum non conveniens.

41. In their skeleton argument dated 14 February 2011, Mr. Bankim Thanki QC and Mr. Ben Valentin, leading and junior counsel on behalf of Lornamead respectively, responded to these three grounds in summary as follows:

i) Ground 1: the effect of the Icelandic insolvency proceedings: Kaupthing's contention was incorrect because: (i) so far as material, Regulation 5(1) provided that such an insolvency measure only had effect "in relation to … any property or other assets of [Kaupthing]"; and (ii) the essence of Lornamead's claim, to which there was no arguable defence, was that Kaupthing had no such "property or other assets" in relation to which the applicable insolvency measure could take effect. That was because, in the events which happened, the effect of the relevant contractual documentation was that Lornamead's obligations under the Hedging Confirmations had been released, discharged or cancelled with effect from 5 January 2009. A defence which had no realistic prospect of success could not be characterised as "property" or "assets" within the meaning of Regulation 5(1). However, Lornamead also expressly reserved the right to argue at a future date in relation to Kaupthing's Ground (1), in the event that judgment was handed down to that effect in Rawlinson and Hunter Trustees SA v Kaupthing Bank HF ("Rawlinson")^[6], that there was, in any event, no relevant EEA insolvency measure in place in Iceland (for the purpose of the 2004 Regulations) between April 2009 and November 2010; that, accordingly, Kaupthing only became subject to an EEA insolvency measure in November 2010; but, by then, Lornamead's English Proceedings were already "pending" so that, under Article 32 of the Directive 2001/24/EC dated 4 April 2001 on the reorganisation and winding up of credit institutions ("the 2001 Directive"), the effect of those proceedings was to be determined by English law, as the law where the lawsuit was "pending".

ii) Ground 2: The effect of the Lugano Convention: Kaupthing's contention was based on a mis-characterisation of the dispute, which was clearly concerned with the proper construction of the Restated SFA and the MFA, and other contractual documentation, which were the framework agreements at "the commercial centre of the transaction".^[7] In any event, if Lornamead was correct, the Hedging Confirmations no longer existed.

iii) Ground 3: Forum non conveniens/case management. Kaupthing's argument that, in any event, the Court should decline to exercise jurisdiction on forum non conveniens and/or case management grounds was misconceived given that: (i) the parties had themselves expressly agreed that the English Court was the appropriate forum for the resolution of their dispute and cannot now argue the contrary;^[8] (ii) England was in any event the most convenient forum for the proceedings; and (iii) there was no scope for forum non conveniens arguments where the English Court was first seised and had exclusive jurisdiction under the Lugano Convention.

42. After the conclusion of the hearing on 16 and 17 February 2011, I reserved judgment. Shortly thereafter, on 16 March 2011, Burton J handed down his judgment in Rawlinson (Rawlinson & Hunter Trustees SA v Kaupthing Bank HF [2011] EWHC 566 (Comm)). In that case, trustees holding interests on behalf of the Tchenguiz family had commenced proceedings on 1 and 5 July 2010 against Kaupthing. The trustees sought substantial sums (exceeding £300 million) for, amongst other things, alleged fraudulent misrepresentation and other claims relating to contracts which were subject to exclusive jurisdiction clauses in favour of the English Court. Kaupthing had applied for a stay on the basis that its insolvency proceedings in Iceland had effect in England by virtue of Regulation 5(1). Burton J dismissed Kaupthing's application.
43. In summary, Burton J held that:

i) Between April 2009 and November 2010 (and, specifically, in July 2010, when the trustees had commenced their proceedings), Kaupthing had not been subject to an EEA insolvency measure within the meaning of the 2004 Regulations and the 2001 Directive, because the effect of the amendment to its insolvency law passed by the Icelandic parliament in April 2009 (the "April Amendment") was that the regime to which Kaupthing was then subject was neither a "reorganisation measure" nor "winding up proceedings" within the meaning of the 2001 Directive.^[9]

ii) Kaupthing only became the subject of an EEA insolvency measure on the making of the Winding Up Order by the Icelandic Court on 22 November 2010, but by then the trustees' proceedings were already pending so that, under Article 32 of the Directive, the effect of that measure was to be determined by English law, as the law where the lawsuit was pending^[10].

iii) Under English law, the effect of Article 17 of the Lugano Convention was that the English Court had exclusive jurisdiction^[11].

44. On 25 March 2011, Burton J refused an application by Kaupthing for permission to appeal against his order. A further application for leave to appeal was made to the Court of Appeal on 8 April 2011. On 6 May 2011, Longmore LJ granted permission to appeal. The material part of his reasons were as follows:

"This Court will take some persuading that the decision of the Paris Court of Appeal of 4^th November 2010 in Kepler v Landsbanki is not to be followed but I cannot say that the grounds of appeal are not realistically arguable and they do raise some points of some potential importance on the Credit Institutions Directive and (by necessary inference) also the Insolvency Regulation 1346/2000."

45. Longmore LJ's reference to the decision of the Paris Court of Appeal was to the decision^[12] referred to by Burton J in paragraphs 9 and 16 of Rawlinson to the effect 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".

46. The present position is therefore that Burton J's decision is under appeal and, as at the date of the hearing before me, the hearing date for the appeal was unknown. I am told that the appeal has now been listed for a hearing between 14 and 16 November 2011. However, as Lornamead's proceedings were issued in the same period as the trustee claimants in Rawlinson (i.e. between April 2009 and November 2010), Lornamead sought to rely on the decision in Rawlinson as an additional answer to Kaupthing's reliance on the 2004 Regulations.
47. On 17 March 2011, I was informed that Lornamead was considering making additional submissions to me in the light of Burton J's judgment in Rawlinson. On 25 March 2011, I received short additional written submissions from Lornamead, based on Rawlinson. Lornamead submitted that, in the event that Kaupthing wished to challenge any of the conclusions reached by Burton J in Rawlinson, I should direct that there should be a further oral hearing. In response, Kaupthing made it clear that it was proposing to challenge Burton J's conclusions in Rawlinson and, accordingly, requested that there should be a further oral hearing before me. In the event, because of problems relating to counsel's availability (not the Court's), that further hearing did not take place until 13 and 14 June 2011. Shortly before that hearing, I received further lengthy written submissions from both parties in relation to Rawlinson.

Issues to be decided

48. In the circumstances, and on the basis of the parties' respective arguments, the issues which I have to decide on Kaupthing's application to stay or strike out Lornamead's English Proceedings can be summarised as follows:

i) Issue 1: Should I follow Burton J's judgment in Rawlinson and apply his decision that Kaupthing was not subject to an EEA insolvency measure in May 2010?

ii) Issue 2: On the hypothesis that Burton J's decision in Rawlinson is wrong, and Kaupthing was indeed subject to an EEA insolvency measure in May 2010, when Lornamead issued the English Proceedings, does Regulation 5(1) of the 2004 Regulations have effect so as to require this Court to stay the English Proceedings?

iii) Issue 3: On the hypothesis that Kaupthing was not subject to an EEA insolvency measure in July 2010, does the Icelandic Court (rather than the English Court) nonetheless have exclusive jurisdiction under Article 17 of the Lugano Convention, because the disputes which have arisen are subject to the Icelandic Court jurisdictional clauses in the Hedging Confirmations, rather than the English Court jurisdiction clauses contained in the Restated SFA, the MFA, the Deed of Resignation and Transfer of Security and the other relevant contractual documentation?

iv) Issue 4: On the like hypothesis, and on the hypothesis that the proceedings were governed by English, rather than Icelandic, jurisdiction agreements, should, nonetheless, the proceedings be stayed on the basis of forum non conveniens and/or for case management reasons?

Issue 1: Should I follow Burton J's judgment in Rawlinson and apply his decision that Kaupthing was not subject to an EEA insolvency measure in May 2010?

Kaupthing's submissions on Issue 1

49. It was common ground that the decision in Rawlinson, if correct, is both applicable to, and adversely determinative of, Kaupthing's application based on its first ground, as set out above. As Lornamead's proceedings were begun in the same period as the trustees' proceedings in Rawlinson, i.e. between April 2009 and November 2010, Burton J's decision, if applied, would equally preclude Kaupthing's reliance on the 2004 Regulations. Both parties agreed that I should decide the additional point raised by Lornamead on the basis of Rawlinson.
50. Mr. Goldring, in his well-presented written and oral arguments on behalf of Kaupthing, submitted that the Court should not follow Rawlinson because Burton J's conclusion - that Kaupthing had not been subject to an EEA insolvency measure in July 2010 - was wrong. He submitted that:

i) Burton J reached a result that meant that, for the period from April 2009 to November 2010:

a) the English Court, at the same time, had no jurisdiction to make either a winding up order, an administration order or appoint provisional liquidators, so that no English law insolvency protection was available to Kaupthing.

b) Kaupthing's insolvency proceedings in Iceland were deprived of all effect in the EEA, outside Iceland, notwithstanding that it was, on any view, a massively insolvent credit institution that, in a time of major financial crisis, required protection for the benefit of its creditors;

ii) These consequences were so surprising that they suggest an error in the approach adopted by Burton J.

iii) The errors occurred at two levels: in the judge's general approach and in his detailed analysis of the events in Iceland.

iv) First, so far as Burton J's general approach to the characterisation of the Icelandic proceedings for the purposes of 2001 Directive was concerned, that was flawed; he failed to take the broad and flexible approach that was necessary to allow that legislation to fulfil its purpose as a cross-border insolvency code for credit institutions within the EEA. In consequence, Burton J reached a surprising result that elevated the interests of individual litigants against the insolvent estate over the collective interests of its creditors.

v) Secondly, in concluding that Kaupthing was not subject to any EEA insolvency measure between April 2009 and November 2010, Burton J erred. In summary, he should have concluded that:

a) Kaupthing was subject to a directive reorganisation measure on the date that the proceedings were issued and at all times between April 2009 and November 2010, notwithstanding the April Amendment.

b) In the alternative, Kaupthing was, throughout that time, or at the very latest following the Icelandic Court's order of 19 November 2009, subject to directive winding up proceedings in that period.

c) In the further alternative, the Winding Up Order made in November 2010 was (on its terms) effective retrospectively as of 22 April 2009, so that Kaupthing's insolvency process for that reason also constituted a directive winding up proceeding from 22 April 2009.

vi) Accordingly, in short, at all times following the making of the Moratorium Order on 24 November 2008, the insolvency regime to which Kaupthing was subject was an EEA insolvency measure. In particular it was subject to such a measure on the date that Lornamead issued its proceedings, namely 13 May 2010.

Lornamead's submissions on Issue 1

51. Mr. Thanki QC and Mr. Valentin, on behalf of Lornamead, in their similarly well-presented arguments, contended that I should follow and apply Rawlinson, not only because it was correctly decided, but also because Kaupthing had identified no good, or sufficient, reason for this Court to depart from a decision of the same Court, in circumstances where that decision:

i) was made after hearing full argument on the point in issue from three separately represented parties over the course of three days;

ii) was set out in a cogent and fully reasoned judgment, with its conclusions expressed in the clearest and strongest terms;

iii) was consistent with the decision of the Paris Court of Appeal dealing with very similar issues in Kepler, it being plainly desirable that a consistent approach to the interpretation of the Directive was adopted throughout the EEA; and

iv) was supported by reference, among other things, to the evidence of Kaupthing's own expert on Icelandic law, upon whose evidence Kaupthing also relied in the present case. Moreover, no criticism had been made by Kaupthing of Burton J's summary of the evidence made available to him in Rawlinson, including the evidence of Kaupthing's expert, Professor Gunnarsson.

Discussion and determination of Issue 1

52. It is not necessary to repeat Burton J's rehearsal of the judicial and statutory processes which took place in Iceland between 24 November 2008 and 13 May 2010; that is set out at paragraphs 10 – 19 of his judgment.
53. Volume 11, paragraph 98 of Halsbury's Laws states as follows:

"98. Decisions of co-ordinate Courts.

There is no statute or common law rule by which one Court is bound¹ to abide by the decision of another Court of co-ordinate jurisdiction². Where, however, a judge of first instance after consideration has come to a definite decision on a matter arising out of a complicated and difficult enactment, the opinion has been expressed that a second judge of first instance of co-ordinate jurisdiction should follow that decision³; and the modern practice is that a judge of first instance will as a matter of judicial comity⁴ usually follow the decision of another judge of first instance unless he is convinced that that judgment was wrong⁵ …. (emphasis supplied.)

…

In The Makedonia [1958] 1 QB 365, [1958] 1 All ER 236, Pilcher J did not follow a prior decision of a Court of co-ordinate jurisdiction (The Telemachus [1957] P 47, [1957] 1 All ER 72) on the ground that it was wrong, although in Re Cohen, National Provincial Bank Ltd v Katz [1960] Ch 179, [1959] 3 All ER 740, Danckwerts J felt bound to follow a decision of Harman J which had been doubted, although not overruled, in a dissenting Court of Appeal judgment. It is undesirable that different judges of the same division should speak with different voices: Re Howard's Will Trusts, Levin & Bradley [1961] Ch 507 at 523, [1961] 2 All ER 413 at 421, per Wilberforce J; Alma Shipping Co SA v VM Salgaoncar E Irmaos Ltda [1954] 2 QB 94 at 104, [1954] 2 All ER 92 at 97, per Devlin J. See also Osborne to Rowlett (1880) 13 ChD 774; Gathercole v Smith (1881) 44 LT 439; affd on appeal 17 ChD 1, CA.6; Minister of Pensions v Higham [1948] 2 KB 153, [1948] 1 All ER 863; applied in Colchester Estates (Cardiff) v Carlton Industries plc [1986] Ch 80, [1984] 2 All ER 601; itself applied in Re Cromptons Leisure Machines Ltd [2006] EWHC 3583 (Ch), [2006] All ER (D) 178 (Dec)."

54. Mr. Goldring's carefully structured argument has indeed raised doubts in my mind as to the correctness of Burton J's decision in Rawlinson. In particular, I was impressed by Mr. Goldring's submissions to the effect that:

i) A wider and more purposive approach to the interpretation of Article 2 of the 2001 Directive was required, than that applied by Burton J, in order to give effect to its clear intention that there should be a cross-border, unified and universal administration of the affairs of insolvent credit institutions within the EEA. The English Courts exercising insolvency jurisdiction have long emphasised the importance of a co-ordinated approach that recognises the insolvency regime in a debtor's place of incorporation: see e.g. McGrath v. Riddell [2008] UKHL 21; [2008] 1 WLR 852, [6] and [7], per Lord Hoffmann (set out in paragraph 64 below).

ii) Kaupthing was subject to a reorganisation measure from 24 November 2008, which continued after 22 April 2009, because the Moratorium Order of 24 November 2008 was indeed a "reorganisation measure" within the 2001 Directive. It was clearly intended, by the imposition of a complete moratorium, to preserve the value of the assets of Kaupthing's estate for the benefit of its creditors and to oversee any operations necessary to achieve this result: Gunnarsson Report, paragraph 5.1.6. The fact that it did not "restore" Kaupthing's financial situation was irrelevant. The aims of "preserving" or "restoring" the financial situation of a credit institution were alternatives. This was made plain by the use of the word "or". To treat the two terms as synonymous (as Burton J effectively did) renders one redundant and unnecessary. This cannot have been the intent of the 2001 Directive. There can therefore be no requirement that measures which are intended to "preserve" the financial situation of a credit institution must also have the effect, or be intended to have the effect, of "restoring" the financial situation of that credit institution.

iii) There was no good reason why a "reorganisation measure" should necessarily be required to be intended or expected to result in the rescue or return to viability of the insolvent credit institution, and Burton J's conclusion to the contrary could have surprising and highly undesirable consequences for the UK. Mr. Goldring gave examples to demonstrate this proposition.

iv) The April Amendment did not deprive the Moratorium Order of its character as a reorganisation measure. The April Amendment continued the existing moratorium on the commencement of proceedings and enforcement actions and thus continued the "reorganisation measures" then in force in relation to Kaupthing: see Gunnarsson Report, paragraph 5.1.8 and following. Moreover the Moratorium Order continued to constitute a reorganisation measure after the April Amendment.

v) Further, Burton J erred in approaching this issue on the basis that the Moratorium Order could at any time fall within the definition of only either "reorganisation measures" or "winding-up proceedings" in Article 2 of the 2001 Directive. The terms were not necessarily mutually exclusive and should not be treated as creating two distinct categories of insolvency proceedings. The purpose of the 2001 Directive was not to harmonise national laws regarding insolvency measures in relation to credit institutions (see Recital (6)), but rather to provide mutual recognition in Member States of insolvency processes in respect of credit institutions implemented in the home Member State of the credit institution, and thereby to give effect to the principles of unity and universality. To treat "reorganisation measures" and "winding-up proceedings" as if they were mutually exclusive would not necessarily reflect distinctions drawn in Member States' domestic laws. Instead, the terms "reorganisation measures" and "winding-up proceedings" were to be read together as describing the full range of insolvency processes which Member States might individually decide to impose on insolvent credit institutions subject to their supervision.

vi) In any event, even if Burton J were correct that, following the April Amendment, Kaupthing's Icelandic insolvency regime was not to be characterised as a reorganisation measure, those proceedings were nonetheless winding up proceedings.

vii) There was no reason why measures which begin as "reorganisation measures" should not be transmuted into "winding-up proceedings" should the circumstances so require. The fact that there will not necessarily be a "bright line" between reorganisation measures and winding-up proceedings, and that insolvency measures may move from reorganisation measures into winding-up proceedings, was recognised in Moss & Wessels, EU Banking and Insurance Insolvency (2006, OUP) at p. 38, paragraph 1.88.

"The lines between 'reorganisation measures' and 'winding-up proceedings' may sometimes be flexible. A reorganisation measure can cover the first phase of proceedings, which mixes reorganization and liquidation, when a measure starts with an attempt to restore the financial situation but, in case of specific default or failure, is automatically followed by a liquidation proceeding. Where a composition or 'accord-type' of measure may follow, it too does not seem necessary to mark out clear lines of division, as a 'composition' is in the definition a part of a winding-up proceeding. The other two elements (collectiveness, opening and monitoring) form a basic foundation to enable a proper interpretation."

viii) The reasoning of the Paris Court of Appeal in its decision in SA Kepler v Capital Markets v Landsbanki Islands HF (04.11.10) was not persuasive. It would appear that the Paris Court of Appeal did not consider the facts that the Icelandic District Court had, first, ordered the appointment of a winding-up committee to Kaupthing on 25 May 2009 and, second, ordered the extension of the Moratorium Order on 19 November 2009, which, of themselves were sufficient to constitute a judicial "opening" of proceedings.

55. I should say, however, that I did not find Kaupthing's submission that the winding up order made on 22 November 2010 was retrospective in any way persuasive.
56. Following the approach set out in the passage quoted from Halsbury (supra), and in circumstances where:

i) Burton J's decision:

a) was made after hearing full argument on the point in issue from three separately represented parties over the course of three days;

b) was set out in a cogent and fully reasoned judgment, with its conclusions expressed in the clearest and strongest terms; and

c) was supported by reference, among other things, to the evidence of Kaupthing's own expert on Icelandic law, on whose evidence Kaupthing also relies in the present case;

ii) Burton J's decision was clearly "a definite decision on a matter arising out of a complicated and difficult enactment", which, moreover, affected the recognition of Kaupthing's insolvency status, in relation to which it was highly unsatisfactory to have differing views at first instance;

iii) there are clearly arguments to the contrary to those presented by Mr. Goldring;

iv) the decision in Rawlinson will now fall to be considered by the Court of Appeal in any event;

I have concluded that, in the interests of judicial comity, and deployment of judicial resources, the appropriate course is for me to say that, despite my doubts, I am not "convinced" that Burton J was wrong and that, accordingly, I should follow his decision. I therefore approach this case on the basis that Kaupthing was not subject to a reorganisation measure within the meaning of the 2004 Regulations and the 2001 Directive on 13 May 2010 when Lornamead issued the English Proceedings.

57. On that basis, Kaupthing's application to stay or strike out the English Proceedings based on Ground 1 fails.

Issue 2: On the hypothesis that Burton J's decision in Rawlinson is wrong, and Kaupthing was indeed subject to an EEA insolvency measure in May 2010, does Regulation 5(1) of the 2004 Regulations have effect so as to require this Court to stay the English Proceedings?

58. However, it nonetheless remains necessary for me to decide Issue 2, because of the possibility that the Court of Appeal may allow Kaupthing's appeal from Burton J's decision in Rawlinson, and thus hold that, on 13 May 2010, Kaupthing was indeed subject to an EEA insolvency measure within the meaning of the 2004 Regulations and the Directive.
59. In order to understand the parties' respective submissions, it is necessary to summarise the relevant European, United Kingdom and Icelandic statutory regimes.

The European cross-border insolvency regime for credit institutions, including banks

60. The following summary is largely taken from Kaupthing's original skeleton argument, which Lornamead accepted correctly set out the position, save that Lornamead did not accept that Regulation 5 gives direct and automatic effect to an EEA insolvency measure in the unqualified manner suggested by Kaupthing. Nor did Lornamead accept that the regime created by the 2001 Directive was intended to apply the principles of unity and universalism to re-organisation measures and winding up proceedings. Mr. Thanki submitted that such suggestion was undermined by the fact that Kaupthing itself was clearly prepared to litigate its disputes in England where it considered it to be in its interests to do so: see, for example, Kaupthing Bank HF v Exista HF & Another 2010 Folio 988, a claim started by Kaupthing against an Icelandic and a Dutch defendant in the Commercial Court as recently as 18 August 2010.

The Insolvency Regulation

61. Neither the Brussels Convention, the Lugano Convention nor EC Regulation No 44 of 2001 (the "Judgments Regulation") applies to:

"… bankruptcy, proceedings relating to the winding up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings"^[13].

62. Instead, the primary European instrument dealing with cross-border insolvency is the EC Regulation No 1346/2000 of 29 May 2000 on insolvency proceedings (the "Insolvency Regulation"), which came into force on 31 May 2002 in relation to members of the EC (except Denmark). However, the Insolvency Regulation specifically did not apply to insolvency proceedings concerning four types of financial institutions, including credit institutions, which, unlike ordinary companies, were subject to special regulatory regimes: see Article 1(2) of the Insolvency Regulation. Recital 9 of the Insolvency Regulation (last sentence) made plain the reason for that:

"Such undertakings should not be covered by this regulation since they are subject to special arrangements and, to some extent, the national supervisory authorities have extremely wide-ranging powers of intervention."

The 2001 Directive

63. As regards credit institutions^[14], the gap in legislation relating to cross-border insolvency was filled by the 2001 Directive, which formed part of the EC legislative framework on the co-ordination of laws, regulations and administrative provisions with regard to the taking up and pursuit of the business of credit institutions, which is found in Directive 2000/12/EC (the "2000 Banking Directive")^[15]. As such, it was adopted, not only by the members of the EC bound by the Insolvency Regulation, but also by members of the EEA, who had adopted the EC framework on the co-ordination of credit institutions.
64. It has long been established under English law that the English Courts will generally recognise and respect insolvency proceedings ongoing in the place of a company's incorporation, and seek to co-ordinate any English proceedings with them. As Lord Hoffmann put it in McGrath v. Riddell (supra):

"6. Despite the absence of statutory provision, some degree of international co-operation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely that bankruptcy (whether personal or corporate) should be unitary and universal. There should be a unitary bankruptcy proceeding in the Court of the bankrupt's domicile which receives world-wide recognition and it should apply universally to all the bankrupt's assets.

7. This was very much a principle rather than a rule. It is heavily qualified by exceptions on pragmatic grounds; elsewhere I have described it as an aspiration: see Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26; [2007] 1 AC 508, 517 at paragraph 17. Professor Jay Westbrook, a distinguished American writer on international insolvency has called it a principle of 'modified universalism': see also Professor Ian Fletcher, Insolvency in Private International Law (2nd ed 2005) at pp. 15-17. Full universalism can be attained only by international treaty. Nevertheless, even in its modified and pragmatic form, the principle is a potent one."

65. In relation specifically to credit institutions, the 2001 Directive, which is based on international agreements, replaces the common law of modified universalism, with a purer form of unity and universalism, in which there can only be a single insolvency proceeding within the EEA, based in the credit institution's home Member State, which has automatic effect, and extends to all branches, throughout all states within it^[16]. This is made plain both by the recitals to, and articles of, the 2001 Directive. As Lord Glennie put it in Landsbanki Islands HF v. Mills [2010] Scot CS CSOH 100^[17]:

"61. Taking the 2001 Directive as a whole, there can be no doubt that its purpose is to ensure that administration or winding up proceedings are dealt with exclusively in the home state of the credit institution, and to ensure that such proceedings, and the decisions taken in those proceedings, are recognised and given full effect in other states within the Community."

66. The 2001 Directive sets out a coherent and detailed code governing the insolvency of banks. The starting point is that the 2001 Directive has the objective of extending the co-ordinated cross-border position established by the 2000 Banking Directive prior to insolvency, to the position after insolvency.
67. Under the 2000 Banking Directive (and earlier directives) the principle was that, prior to insolvency, only the regulatory authority in the bank's home Member State could grant authorisation, and that such authorisation would allow a bank to conduct business throughout Europe, subject to regulation by its home Member State. The 2001 Directive applies the same principle following an insolvency, as explained in Recital (4):

"It would be particularly undesirable to relinquish such unity between an institution and its branches where it is necessary to adopt reorganisation measures or open winding-up proceedings."

68. Under the 2001 Directive, the principles of unity and universalism are applied both to "re-organisation measures" and to "winding up proceedings". As to re-organisation measures, which are defined, in Article 2, as

"… 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".

Recitals (6) and (7) explain the position:

"(6) The administrative or judicial authorities of the home Member State must have sole power to decide upon and to implement the reorganisation measures provided for in the law and practices in force in that Member State. Owing to the difficulty of harmonising Member States' laws and practices, it is necessary to establish mutual recognition by the Member States of the measures taken by each of them to restore to viability the credit institutions which it has authorised.

(7) It is essential to guarantee that the reorganisation measures adopted by the administrative or judicial authorities of the home Member State and the measures adopted by persons or bodies appointed by those authorities to administer those reorganisation measures, including measures involving the possibility of a suspension of payments, suspension of enforcement measures or reduction of claims and any other measure which could affect third parties' existing rights, are effective in all Member States."

69. Article 3 (headed "Adoption of reorganisation measures - applicable law") gives effect to those principles:

"1. The administrative or judicial authorities of the home Member State shall alone be empowered to decide on the implementation of one or more reorganisation measures in a credit institution, including branches established in other Member States.

2. The reorganisation measures shall be applied in accordance with the laws, regulations and procedures applicable in the home Member State, unless otherwise provided in this Directive.

They shall be fully effective in accordance with the legislation of that Member State throughout the Community without any further formalities, including as against third parties in other Member States, even where the rules of the host Member State applicable to them do not provide for such measures or make their implementation subject to conditions which are not fulfilled.

The reorganisation measures shall be effective throughout the Community once they become effective in the Member State where they have been taken."

70. As to winding up proceedings, which are defined, in Article 2, as:

"… 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".

Recitals (14) and (16) deal with winding up proceedings:

"(14) In the absence of reorganisation measures, or in the event of such measures failing, the credit institutions in difficulty must be wound up. Provision should be made in such cases for mutual recognition of winding-up proceedings and of their effects in the Community.

…

(16) Equal treatment of creditors requires that the credit institution is wound up according to the principles of unity and universality, which require the administrative or judicial authorities of the home Member State to have sole jurisdiction and their decisions to be recognised and to be capable of producing in all the other Member States, without any formality, the effects ascribed to them by the law of the home Member State, except where this Directive provides otherwise."

71. Article 9 (1) provides (in so far as relevant):

"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 of winding-up proceedings concerning a credit institution, including branches established in other Member States.

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, within the territory of all other Member States and shall be effective there when the decision is effective in the Member State in which the proceedings are opened."

72. Article 10 provides:

"1. A credit institution shall be wound up in accordance with the laws, regulations and procedures applicable in its home Member State insofar as this Directive does not provide otherwise.

2. The law of the home Member State shall determine in particular:

…

(d) the effects of winding up proceedings on current contracts to which the credit institution is party;

(e) the effects of winding up proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending, as provided for in Article 32;

(f) the claims which are to be lodged against the credit institution and the treatment of claims arising after the opening of winding up proceedings …"

73. The basic rule for both reorganisation measures and winding up proceedings is that the "laws, regulations and procedures" of the insolvency proceedings of the home Member State (i.e. the lex concursus) will be effective across all Member States, including in relation to proceedings against the credit institution, save where the Directive provides otherwise. The latter is a reference to Articles 20 to 32 of the Directive, which specify those limited areas where the lex concursus will not apply^[18].
74. Article 32 deals with "Lawsuits pending":

"The effects of insolvency proceedings on a lawsuit pending concerning an asset or right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending."

75. Thus, save in relation to certain lawsuits which were already pending when the insolvency proceedings began, the law of the home Member State will determine the effect of the insolvency regime on proceedings ongoing elsewhere in the EEA. The logic of this distinction was explained by Longmore LJ in Syska v. Vivendi Universal SA [2009] EWCA Civ 677; [2009] 2 All ER (Comm) 891 (Court of Appeal), especially paragraph 16^[19]:

"Of course if no claim has been initiated before insolvency proceedings are opened, it is entirely appropriate that the lex concursus should determine how any subsequent litigation or arbitration should proceed. But if litigation or arbitration has begun before insolvency occurs, the natural expectation of businesses would be that it should be that law that should determine whether the proceedings should continue or come to a shuddering halt."

76. On the hypothesis that there was an EEA insolvency measure in place in May 2010, Lornamead accepted that it could not rely on Article 32.

The 2004 Regulations

77. Member States were required to bring into force the laws, regulations and administrative provisions necessary to comply with the 2001 Directive. On 5 May 2004, the 2004 Regulations were brought into force in the UK for that purpose.
78. Part 2 of the 2004 Regulations, which is the part relevant for present purposes, deals with "EEA credit institutions": that is EEA undertakings, other than UK credit institutions^[20], as defined in the 2000 Banking Directive, namely credit institutions subject to the regulation of a Member State other than the UK. The 2001 Directive is implemented, in relation to such institutions, by two provisions:

i) Regulation 3 prevents an EEA credit institution from being the subject of a UK insolvency process, whether by Court order (see Regulation 3(1)), or out of Court (see Regulation 3(5) and (6)). Thus, such an institution can never obtain the protection of (for example) an administration order or a winding up order, both of which would give rise to an automatic statutory stay on proceedings^[21].

ii) Regulation 5 fills the gap that would otherwise arise in relation to such a company, by giving any ongoing reorganisation measure or winding up proceedings, as defined by the 2001 Directive, applicable to an EEA credit institution, direct effect in the UK^[22]. Regulation 5(1) provides:

"(1) An EEA insolvency measure has effect in the United Kingdom in relation to –

(a) any branch^[23] 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."

79. Thus, an EEA insolvency measure, which will necessarily be governed by the insolvency law of the EEA state in question, has effect in the UK as if it were part of the English statutory insolvency regime. As the Explanatory Note to the 2004 Regulations puts it: "EEA reorganisation measures and winding up proceedings are to be recognised in the UK."

The Icelandic regime

80. There was no material dispute between the parties as to the measures which had been taken by the relevant judicial or administrative authorities in Iceland, or their effect as a matter of Icelandic law. Thus Lornamead did not challenge the expert evidence of Professor Gunnarsson, Kaupthing's expert, in relation to the existence or effect of the measures as a matter of Icelandic law. The dispute focussed on whether there was a relevant EEA insolvency measure in place in Iceland (for the purpose of the 2004 Regulations) between April 2009 and November 2010 and whether Regulation 5 applied to the dispute as between Kaupthing and Lornamead.
81. The FME issued a commercial banking licence to Kaupthing, on 11 January 2002, which was its single passport to operate throughout the EEA. It had received an investment banking licence in 1997.
82. The 2000 Banking Directive and 2001 Directive were implemented in Iceland, by Act 161/2002 on Financial Undertakings (the "Financial Undertakings Act"), and by an amending statute which took effect on 1 January 2005. Chapter XII ("Financial Organisation, Winding Up and Merger of Financial Undertakings") sets out the rules for the re-organisation or winding up of financial undertakings. It applied certain provisions of the Icelandic Bankruptcy Act, but did not originally allow financial institutions to use a Court-supervised process called the moratorium procedure. After the collapse in the Icelandic banking system in October 2008, there were several amendments to Icelandic insolvency law for banks, implemented through changes to the Financial Undertakings Act, designed to deal with the extreme financial difficulties of Kaupthing, Landsbanki Íslands hf and Glitnir Bank hf in particular. Since the start of the financial crisis, Kaupthing has been subject of intervention under that law by both the FME and the Icelandic Court.
83. On 9 October 2008, a resolution committee was appointed over Kaupthing pursuant to an Emergency Act of 6 October 2008 (Act No 129/2008), which amended the Financial Undertakings Act, authorising the FME to take emergency measures, such as (for example) to take over the management of an institution by appointing a resolution committee.
84. On 24 November 2008, on an application by Kaupthing, the Icelandic Court made a Moratorium Order. This order followed a further amendment to the Financial Undertakings Act by an Act of 13 November 2008, which allowed a financial institution to obtain such an order under the provisions of the Bankruptcy Act.
85. The Moratorium Order dealing with Kaupthing was extended by the Icelandic Court by successive orders, on 19 February 2009, 13 November 2009 and 18 August 2009. Meanwhile, the precise rules applicable to the Moratorium Order were amended by the April Amendment. This provided that, where (as in Kaupthing's case) a moratorium was in place, it would continue notwithstanding the Act. In relation to such a moratorium, the Act applied certain provisions dealing with the winding up of companies in the Financial Undertakings Act as if a winding up order had been made on the date the Act came into force. Thus, a Moratorium Order made by the Icelandic Court would continue, subject to the application of those provisions of the Financial Undertakings Act. An important change was that the provisions relating to stay of proceedings brought by claimants against the insolvent bank were narrowed. A broad stay, introduced by the November 2008 Act, which had extended to prohibit the continuation of proceedings commenced before the moratorium and was held to be unconstitutional, was replaced by the narrower stay under Article 116 of the Bankruptcy Act described below.
86. The relevant rules applicable to a Moratorium Order made following the November 2008 Act and the April Amendment, including that in respect of Kaupthing, may be summarised as follows. Articles 116 and 117 of the Bankruptcy Act, which apply to a financial undertaking which is the subject of a winding up, also apply to financial undertakings benefiting from a Moratorium Order. The key parts of Articles 116 and 117, in English translation, are as follows (emphasis added):

"Article 116

Legal action shall not be brought against a bankruptcy estate in the district Court unless expressly permitted by law, except for criminal litigation in which a request is made for criminal sanctions applicable to bankruptcy estates. In such event, the action may be brought in the district where the bankruptcy proceedings take place.

A legal action brought against a bankrupt before the Court order declaring the bankruptcy was issued may be continued until adjudication, provided the plaintiff notifies the trustee in bankruptcy of the action …

Article 117

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 shall be in writing, mentioning in clear manner in whose interest it is submitted. It shall state the claim as clearly as possible, including its amount, with interest, in Icelandic krónur, and the priority requested for the claim in the order of claims, or, as the case may be, delivery of a specified chattel, determination of particular rights against the estate, release from a particular obligation to the estate, an obligation of the estate to perform, or desist from, some particular act, payment of costs of collection or for representation of interests linked to the claim, etc. ...

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 the statement."

87. Article 171 of the Bankruptcy Act provides:

"If a dispute arises relating to bankruptcy proceedings which, according to the provisions of this Act, the trustee in bankruptcy shall refer to the district Court for a resolution, or if the trustee considers that a district Court resolution is needed for resolving any other disputes that may arise in the course of bankruptcy proceedings, he shall direct a written request to this effect to the district Court that appointed him."

88. According to Professor Gunnarsson, the Icelandic regime may be summarised as follows:

i) Proceedings initiated against the insolvent entity before the granting of the Moratorium Order may therefore continue ^[24].

ii) But the position in relation to post-Moratorium Order proceedings is different. Civil legal actions cannot be brought against the financial undertaking after the making of the Moratorium Order unless expressly permitted by law (and no current Icelandic law permits such a legal action). Thus claims against the financial undertaking must be made by statement to the winding up committee before the relevant bar date pursuant to Article 117. Any dispute would be dealt with by the Icelandic Court following a referral by the trustee in bankruptcy under Article 171 of the Bankruptcy Act, which could manage the claim in an efficient fashion^[25]. Articles 174 to 178 set out the relevant procedure.

iii) Thus any jurisdiction agreement entered into prior to the Moratorium Order is not binding on the insolvent credit institution, notwithstanding that such an institution could on the basis of such an agreement issue legal proceedings in another jurisdiction^[26].

iv) The stay applies not only to money or debt claims, but also to other forms of relief including negative declaratory relief: see the broad wording of Article 117, paragraph 2 and Professor Gunnarsson's first report, (second) paragraph 6.2 and (first) paragraph 6.3.1.

v) In short, in relation to post-Moratorium Order claims, Icelandic law imposes a gateway requiring a claimant against the insolvent entity first to file a claim with the insolvency office-holder, and then for the Court to deal with any disputes arising from the submission of such a claim.

vi) Article 99 of the Financial Undertakings Act made plain that it was intended that, with limited exceptions similar to those set out in the 2001 Directive, the opening of a financial re-organisation of a credit institution with its head office in Iceland was to have effect throughout the EEA^[27]. One of the exceptions (Article 99(h)) dealing with lawsuits pending at the date of the opening of the proceedings, appears to reflect Article 32 of the 2001 Directive. Thus, the effect of Icelandic law is that the prohibition on the commencement of legal action against an insolvent credit institution after the making of a Moratorium Order applies across the EEA.

89. On 22 November 2010, on an application by Kaupthing, the Icelandic Court made a winding up order against Kaupthing. This followed a further amendment to the Financial Undertakings Act, post-dating the issue of Kaupthing's application to this Court. That amendment did not change the scope of the prohibition on proceedings against an insolvent company.

The parties' submissions on Issue 2

Kaupthing's submissions on Issue 2

90. Mr. Lord and Mr. Goldring, on behalf of Kaupthing, submitted that the English Court had no jurisdiction to entertain the English Proceedings for the following reasons:

i) First, Lornamead's proceedings, which were initiated after the Moratorium Order was made on 24 November 2008, would have been barred in Iceland by Article 116 of the Bankruptcy Act and, if brought, would have been struck out by the Icelandic Court^[28]. Instead, Lornamead was obliged to make a claim to the Winding Up Board, with any dispute to be referred to the Icelandic Court. Professor Gunnarsson's uncontested evidence was plain: see, in particular, paragraph 6.1.5, 6.2.1 and 6.3.1 of Professor Gunnarsson's first report.

ii) Second, as a matter of Icelandic law (though this was not crucial to the argument) the Moratorium Order, in implementing the 2001 Directive, was intended to have extra-territorial effect: Article 99 of the Financial Undertakings Regulation.

iii) Third, applying the provisions of the 2001 Directive, the "laws, regulations and procedures" applicable in Iceland in relation to Kaupthing's insolvency process, including the initiation of proceedings against Kaupthing, were also (save in respect of the specific matters dealt with in Articles 20 to 32, which were irrelevant) effective in England:

a) The 2001 Directive provided conflict of law rules setting out which "laws, regulations and procedures" were to apply to the various issues arising following the insolvency of a bank.

b) The general principle was that the law of the place of the opening of proceedings (or lex concursus) would apply.

c) The general principle applied to the issue in the current case.

d) The effect of the 2001 Directive was that the issue of whether Lornamead was free to initiate proceedings against the insolvent bank after the opening of insolvency proceedings was governed by the laws, regulations and procedures of Iceland as the jurisdiction of the relevant insolvency process. This followed both from the general words of Article 3 and Article 10, and the specific and narrow carve-out in Article 32 dealing only with certain lawsuits pending.

iv) Fourth, the obvious effect of Regulation 5(1) of the 2004 Regulations, which was in itself in very broad terms and must be construed purposively to implement the 2001 Directive as the dominant text, was to give all aspects of the Icelandic insolvency process which might be relevant in the UK, effect in the UK as though part of UK insolvency law, including in particular the moratorium on claims. Such a construction gave full force to the universal and unitary insolvency process designed for EEA banks in the UK. The Icelandic Moratorium Order became as much a part of English insolvency law as an administration order made under the Insolvency Act, filling the gap left by the removal of power to make such an order in Regulation 3. Thus the Icelandic Court could fulfil the role of the Companies Court in a purely domestic insolvency, and be seized of all new proceedings in order to see that the insolvent bank's affairs were wound up in a dignified and orderly way.

v) In relation to Lornamead's argument that Regulation 5 did not apply (because Kaupthing's claim under the Hedging Confirmations was "misconceived and therefore worthless", and therefore there was no "property or other assets" on "which any insolvency measure could bite in relation" to Lornamead's claim), Kaupthing submitted that such argument had no support from the wording of Regulation 5, and was wrong for several reasons.

vi) By contrast (and although irrelevant in view of the above policies and rules), there was nothing unjust in Kaupthing's approach. A claimant was not denied access to a Court, but could use the procedure laid down in Iceland. There was nothing surprising in that. Lornamead chose to enter into transactions with an Icelandic incorporated bank and agreed to a jurisdiction clause conferring jurisdiction on the Icelandic Courts. Moreover, it did so at a time when the 2001 Directive and the Regulations were already in force. It followed that, if Kaupthing were to be subject to an insolvency process, Icelandic law and procedure would apply. The injustice arises if Lornamead were to be allowed to sidestep the framework for the insolvency proceedings unfolding in Iceland in relation to Kaupthing so as to gain some advantage over other claimants, and, in the process, subvert the clearly established regime that governs such matters as laid down within the EU and the EEA.

vii) Lornamead's position on the merits was irrelevant to the current application. The Court was not required, or entitled, when considering the arguments on jurisdiction arising on the application, to determine whether Lornamead was correct. Further, as a matter of principle Kaupthing should not be required to contest the merits of the case until jurisdiction has been established. Its comments were not a submission to the jurisdiction.

viii) However, without prejudice to that primary position, on a proper analysis of the relevant documentation, there had been no express release or discharge of Kaupthing's rights and obligations under the Hedging Confirmations; while the Transfer Certificates released Kaupthing's rights and obligations as Lender under the facilities, and the Deed of Resignation and Transfer of Security had the effect that Kaupthing was replaced as Security Agent, Senior Agent and Mezzanine Agent, neither, on their true interpretation had the effect of impliedly discharging or transferring Kaupthing's rights and obligations under the Hedging Confirmations as Hedging Counterparty. Moreover, were the Court to entertain the merits of the dispute, whether on a Part 24 application or otherwise, it might well be necessary for Kaupthing to adduce expert evidence of Icelandic law, in relation to the circumstances in which the Hedging Confirmations could be discharged or cancelled, since they were indubitably governed by Icelandic law.

Lornamead's submissions on Issue 2

91. Mr. Thanki and Mr. Valentin, on behalf of Lornamead, submitted that Regulation 5, on its true construction, had a limited application and was not engaged in the present case. That was because, on analysis, Kaupthing had no property or assets in relation to the Hedging Confirmations, in relation to which the EEA insolvency measure could take effect. In support of this contention they submitted:

i) The scheme created by Regulation 5(1) required the EEA insolvency measure to be given effect in relation to one of the identified "categorisations" in sub-paragraphs (a) to (c). If the Regulation had been intended to have had the broad and unlimited effect in the United Kingdom contended for by Kaupthing, Regulation 5 could simply have provided that an EEA insolvency measure "has effect in the United Kingdom as if it were part of the general law of insolvency of the United Kingdom", but it did not say that. The language used in sub-paragraphs (a), (b) and (c) introduced a deliberate qualification to the matters in relation to which the relevant measure was to be given effect in the United Kingdom. The only relevant sub-paragraph here was sub-paragraph (b).^[29] So far as (b) was concerned, that required the English Court to assess whether the credit institution had relevant property or other assets upon which Regulation 5(1) could bite.

ii) Such qualification was entirely consistent with the regime embodied in the 2004 Regulations and in the 2001 Directive, which it was designed to implement. The Home Member State of a credit institution subject to an EEA insolvency measure had no interest in preventing a foreign Court exercising jurisdiction over a claim which it was clear would have no effect on the branch, property, assets, debts or liabilities of that Credit Institution. The mischief identified in paragraph 11 of Kaupthing's Skeleton:

"… to protect creditors and ensure an orderly and equitable working out of the insolvency proceedings without certain claimants stealing a march on others by advancing claims outside such proceedings",

had no application where the claim was unarguable and would have no effect on the foreign insolvency proceedings or involve Lornamead stealing a march on any of Kaupthing's creditors (or debtors, for that matter).

iii) The words "property" and "assets" were not defined in the 2004 Regulations, but, unless they were to be deprived of their natural meaning, they could not include a right which no longer existed in a contract which had been unarguably cancelled and all liability under it discharged. Giving the words their natural meaning, such a non-existent, cancelled, right could not accurately be characterised as either the "property" or an "asset" of the relevant Credit Institution.

iv) In order to assess whether a contractual right had been cancelled (such that it could no longer be characterised as the property or asset of the Credit Institution), the Court applying Regulation 5(1) had to assess whether the position was sufficiently clear as to justify that characterisation. The appropriate test to be applied was whether the position was such that the party contending that there was no "property" or "asset" would succeed in establishing that position to the Court's satisfaction on an application for summary judgment. There was no relevant "property" or "asset" in circumstances where there was no realistic prospect of succeeding in establishing the existence of the contract on which the claim might have been based.

v) In the present case, the position was sufficiently clear. Lornamead would be entitled to summary judgment in relation to the declaratory relief it seeks. In those circumstances, Regulation 5(1) had no application to Lornamead's claim in the English Proceedings, because they were not concerned with any "property" or "asset" of Kaupthing in respect of which the EEA insolvency measure took effect.

vi) Kaupthing's submission that this argument was flawed - because it invited the Court to assume that Lornamead was correct in its case on the merits before the merits had been determined – was not correct. Lornamead invited the Court to make no such assumption, but rather to consider Lornamead's arguments in relation to the cancellation or discharge of the Hedging Confirmations, for the sole purpose of forming a view as to whether the test laid down by Regulation 5 was actually met in this case.

vii) If it were suggested that this approach involved the Court embarking on a review of the merits of the claim before jurisdiction had been established, that would be wrong; Kaupthing's reliance on the 2004 Regulations was not a jurisdictional objection at all, because it invited the Court to strike out the Claim, a course which assumes that the Court already has jurisdiction. There was therefore no bar to the Court undertaking the assessment suggested at this stage, which was a necessary assessment to make in order to determine whether the "property" or "asset" test in Regulation 5(1) was satisfied.

92. Mr. Thanki and Mr. Valentin also made detailed submissions as to the interpretation and effect of the various contractual documentation, to support Lornamead's contention that, as a result of the transfer to GE and the operation of the relevant provisions in inter alia the Restated SFA, the MFA, and the Deed of Resignation and Transfer of Security, Kaupthing had no claim against Lornamead in respect of the Hedging Confirmations, because those agreements were cancelled with effect from 5 January 2009. In brief summary these were:

i) The transfer to GE took place pursuant to the mechanism in Clause 29.5 of the Restated SFA and Clause 25.5 of the MFA. This was clear from the Transfer Certificates dated 5 January 2009, which followed the form prescribed by Schedule 5 in both agreements and which give effect to the transfer contemplated in the TUA, as well as from the relevant clauses in the Restated SFA and the MFA, which made explicit provision for the means by which an existing lender might transfer its rights and obligations.

ii) The effect of Clause 29.5(c)(i) of the Restated SFA and Clause 25.5(c)(i) of the MFA was that, by no later than the date of the Transfer Certificates (i.e. 5 January 2009), insofar as any rights and obligations under the Finance Documents were agreed to be transferred to GE:

a) Lornamead was released from any further obligations it may have had to Kaupthing under the Finance Documents;

b) The respective rights of Lornamead and Kaupthing against one another under the Finance Documents were cancelled.

iii) Since the Hedging Confirmations were "Finance Documents" (as defined in the Restated SFA and the MFA), with effect from no later than 5 January 2009, Lornamead was released from any obligations it may have had to Kaupthing under those Hedging Confirmations; and any rights Kaupthing may have had against Lornamead under those Finance Documents were cancelled.

iv) Those conclusions were based on the natural and ordinary meaning of Clause 29.5(c)(i) of the Restated SFA and Clause 25.5(c)(i) of the MFA. These provisions were engaged when an Existing Lender (Kaupthing) "seeks to transfer by novation its rights and obligations" under any of the Finance Documents. The provisions were therefore engaged in this case when Kaupthing sought to transfer to GE, by executing the Transfer Certificates in the form prescribed by Schedule 5, its rights and obligations under the Restated SFA and the MFA. The facilities transferred to GE were Facility A, Facility B, the Revolving Facility and the Mezzanine Facility – that is each and every one of the loan facilities which Kaupthing had previously made available to Lornamead. No sums remained outstanding by Lornamead to Kaupthing in respect of these facilities and Kaupthing retained no obligation to make any facilities available to Lornamead. On a proper construction of these clauses, once the Transfer Certificates were executed, "each of the Obligors and other members of the Group [i.e. Lornamead] and the Existing Lender [i.e. Kaupthing] shall be released from further obligations towards one another under the Finance Documents [i.e. including the Hedging Confirmations] … and their respective rights against one another under the Finance Documents … shall be cancelled."

v) For those reasons, Regulation 5 provided no basis for striking out the claim.

Discussion and determination of Issue 2

93. There was no argument presented to me, on Lornamead's behalf, to the effect that Article 116 only prohibited actions brought in an Icelandic District Court and did not prohibit actions brought in other Member states, whether pursuant to contractual jurisdiction clauses or otherwise. In other words, Lornamead accepted that the Icelandic insolvency regime, as a matter of Icelandic law, prohibited the commencement of Court actions - in any jurisdiction - against Kaupthing after the date of the Moratorium Order. Thus the only issue in contention was whether Regulation 5 applied at all in the circumstances of the case.
94. In my judgment, Kaupthing's arguments in relation to Issue 2 are correct. If Kaupthing were indeed subject to a EEA insolvency measure in May 2010, any attempt by this Court to determine the merits of Lornamead's claim in the English Proceedings, even for the so-called limited purpose of deciding whether Kaupthing had any "property or assets", would undermine the purpose of the 2001 Directive, namely to give effect throughout the EEA to all aspects of the relevant insolvency regime of a credit institution's home state, as part of one universal and unitary process, including its moratorium and dispute resolution mechanisms. It would also undermine the role of the Icelandic Court, as the supervisory Court of Kaupthing's insolvency. Accordingly, in my judgment, were the Court of Appeal to allow the appeal from Burton J's judgment, and to hold that Kaupthing was subject to a EEA insolvency measure in May 2010, this Court should stay the English Proceedings pursuant to Regulation 5, so that Lornamead's claim can be resolved in Kaupthing's liquidation in accordance with the Icelandic insolvency procedure.
95. My reasons for this conclusion may be summarised as follows:

i) Regulation 5(1) of the 2004 Regulations, must be construed purposively to implement the 2001 Directive as the dominant text: see The Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481, [31] (per Lord Steyn); Litster v. Forth Dry Docks [1990] 1 AC 546, at 559D-F (per Lord Oliver). That is a broad and far-reaching obligation: see the summary of principles in Vodafone 2 v. HMRC [2009] EWCA 446; [2010] 2 WLR 288, [37] to [38] (per Sir Andrew Morritt, C).

ii) It is critical to the analysis to appreciate that, because of Regulation 3 of the 2004 Regulations, no administration or winding up order (whether ancillary or otherwise) could ever be made by the English Court in relation to a non-UK credit institution, such as Kaupthing, or its branch in the UK. Thus, recourse to the Home State's insolvency regime is a practical means of avoiding predatory, "first-come, first-served", action by creditors, or, indeed, debtors, and the dissipation of the insolvent credit institution's (necessarily limited) resources in litigation expenditure.

iii) A reality check is to see how one might have approached the problem if Kaupthing had been a UK credit institution, subject to a UK winding up or administration order. In those circumstances, there would have been an automatic statutory stay under the Insolvency Act, preventing proceedings without the leave of the Companies Court. Thus, if an English winding up order had been made, section 130(2) would have applied with the effect that

"no action or proceeding shall be proceeded with or commenced against the company or its property except by leave of the Court and subject to such terms as the Court might impose".

In those circumstances, Lornamead could not have issued proceedings without the Court's leave, whether in Iceland or in England. There would have been a statutory gateway, designed to protect the interests of the insolvent estate and the general body of creditors, preventing a free-for-all of proceedings. As Widgery LJ said in Langley Constructions (Brixham) Ltd v. Wells [1969] 1 WLR 503, at 508 (speaking of s 231 of the Companies Act 1948, a statutory predecessor to s 130(2)):

"The purpose of s 231 is clear and has not been challenged in argument. It is, in my judgment, to ensure that, when a company goes into liquidation, the assets of the company are administered in an orderly fashion for the benefit of all creditors, and that particular creditors should not be able to obtain an advantage by bringing proceedings against the company. What is contemplated is that the Companies' Court shall be seized of all these matters and shall see that the affairs are wound up in a dignified and orderly way."

iv) In such circumstances, how would an English Court have viewed the determination by (say) an Icelandic Court, in proceedings started by a Lornamead-type party in Iceland, without the English Court's leave, of the issue whether the insolvent credit institution, subject to an English winding-up order, in fact had any claim at all? Not favourably, I suggest. If the English Court, for example, took the view that the claim was subject to an Icelandic jurisdiction clause, it might well give leave to the claimant, particularly if it was not a creditor, to start such proceedings in Iceland, if an application for leave to do so was made. But that would be an exercise of the Court's supervisory powers over the credit institution's insolvency measures. The fact that the proceedings were issued by a party claimed by the insolvent credit institution to be a debtor, rather than a creditor, makes little difference to the analysis. The orderly process of a winding up (or other insolvency procedure) could be equally be disrupted, and the insolvent's estate dissipated, by proceedings for declaratory relief brought in different jurisdictions by persons claiming that they were not debtors of the estate. An English supervisory court would want to ensure that actions against the insolvent credit institution were properly co-ordinated and disciplined.

v) Thus principles of comity reinforce an interpretation of Regulation 5 that would reflect the mirror image of the situation that the English Court would expect to pertain as a result of the universal application of the section 130 regime throughout the EEA, in the event of the winding up of a UK credit institution.

vi) The language of the 2001 Directive provides no support for a result whereby a foreign insolvency regime would have a different effect in England than in the home member state in a fundamental respect, because of a requirement for the insolvent credit institution to satisfy a "merits" criterion, before applying for a stay in accordance with its own domestic insolvency regime. Its effect would be that the scope of the stay on proceedings would be significantly narrower in the UK than in Iceland. But that, in my judgment, would subvert the fundamental purpose of the 2001 Directive, which is to provide a unified and universal regime, by instead fragmenting the effect of the Home State insolvency in relation to a very important aspect of an insolvency regime, namely protection from claims.

vii) To put it another way, a narrow definition, which gave an EEA insolvency measure only limited effect in the UK, would subvert the universal insolvency of banks across the EEA, and undermine the purpose of the 2001 Directive, by allowing differential treatment of claimants dependent on whether they sought to proceed in the home Member State or another state in the EEA. It would be wrong in principle under the 2001 Directive, if a claimant under a contract were entitled to initiate proceedings in the UK, when it would have no such right in the lex concursus. Recital (16) makes plain that cross-border equality of treatment is an important principle of the 2001 Directive.

viii) Moreover, a credit institution subject to an EEA insolvency measure which was denied full effect in the UK would be exposed to the risk of uncontrolled litigation. Unlike an ordinary company, there would be no prospect (because of Regulation 3) of obtaining any insolvency protection at all, whether from an administration or a winding up order. The obvious consequence for a credit institution such as Kaupthing, which had numerous trading relationships with banks and others throughout the EEA prior to its collapse, might be a flood of claims in different jurisdictions in the EEA, from debtors claiming, for example, that because of misrepresentation, or other avoidance grounds, they no longer had any liability to the insolvent institution. But that is precisely the sort of dispute that is likely to arise in the context of the insolvency of a credit institution. It is also notable that neither the 2001 Directive, nor the 2004 Regulations, provide any sort of carve out, or statutory exception, for claims simply on the grounds that are governed by contractual exclusive jurisdiction clauses. That is despite the fact that, at least as a matter of Icelandic law, the insolvent credit institution remains free to take advantage of such a clause and to bring a claim in a foreign jurisdiction, outside the winding up proceedings.

ix) Again there is nothing in the language of the 2001 Directive or Regulation 5 which suggests that it is necessary, or permissible, for the foreign Court, where a claim is brought against a foreign credit institution, to carry out some sort of an assessment of the merits of such a claim in order to determine whether it was subject to an insolvency stay or not. That, in my view, would defeat the purpose of a stay, since it would require the insolvent estate to litigate the very battle which a stay permits it to avoid, and, instead, resolve by a process in the winding up. Obviously, in a situation where there is a dispute whether, for example, the claim is a reservation of title claim within Regulation 27, or a netting agreement claim within Regulation 34, of Part 4 of the 2004 Regulations, there may need to be some judicial determination of the characterisation of the claim by the foreign Court to ascertain whether it falls within the exception. But neither the 2001 Directive, nor the 2004 Regulations, suggests that the foreign Court has to be satisfied to any particular standard that the insolvent credit institution is currently a debtor or creditor of the claimant, or is currently an owner of property or other assets. There is no doubt that Kaupthing indeed once had rights under the Hedging Confirmations; for the foreign Court to require it to demonstrate that it remains the owner of such rights, before implementing the Icelandic Moratorium and claims dispute resolution mechanism, prescribed by Articles 116 and 117 of the Icelandic Bankruptcy Act, would, as Kaupthing submitted, run the risk of subverting the whole purpose of the Directive, since the English Court would in fact be deciding the very issue in contention in the proceedings. To do so would be usurping the role of the Winding Up Committee in the Icelandic winding up proceedings and/or that of the relevant Icelandic district Court, as the supervisory Court of the winding-up.

x) Nor, contrary to Lornamead's submissions, can Kaupthing's claim under the Hedging Confirmations be characterised as so "misconceived and therefore worthless" to amount to some sort of abuse of process, which might justify refusing a stay (a hypothetical point which I need not, and do not, decide).

96. It is not appropriate for me, in the light of my conclusion that I should, if the Rawlinson appeal were successful, stay the English Proceedings, to express any view at this stage as to whether Lornamead will succeed on its application under Part 24 for summary judgment, or whose submissions in relation to the argument on the merits I prefer. That is particularly so in circumstances where, as I have indicated, Mr. Lord adverted to the possible need for Icelandic law evidence in relation to the Hedging Confirmations, if a hearing of the Part 24 application were to take place. What I can say is that the position is not so clear cut as might first appear, given, inter alia:

i) The fact that there are clearly arguments both ways as to whether the Transfer Certificates merely released Kaupthing's obligations qua Lender (broadly those rights and obligations under the facility agreement in question) but had no effect on its rights and obligations under the Hedging Confirmations;

ii) Clause 29(5) and sub-clause 5(c) of the Transfer Certificates provides that any release only operates:

"… to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents and in respect of the Transaction Security". (emphasis supplied)

iii) Neither of the Transfer Certificates makes any express reference to the Hedging Confirmations but refer instead to the loan facilities as the subject matter of the transfer.

iv) There are arguments both ways as to the commercial likelihood of the Hedging Confirmations being cancelled by implication as part of the novation arrangements with GE.

v) There are arguments both ways as to whether Kaupthing's rights and obligations as Hedge Counterparty were affected by the Deed of Resignation and Transfer of Security.

97. Accordingly, I decide Issue 2 in favour of Kaupthing.

Issue 3: On the hypothesis that Kaupthing was not subject to an EEA insolvency measure in July 2010, does the Icelandic Court (rather than the English Court) nonetheless have exclusive jurisdiction under Article 17 of the Lugano Convention?

Kaupthing's submissions on Issue 3

98. Kaupthing's ground of objection under this head was that the Court, in any event, had no jurisdiction to try the claim on an ordinary application of the Lugano Convention. In particular, it contended that the disputes which were the subject matter of the claim were properly to be construed and characterised as concerning the Hedging Confirmations rather than any of the agreements with an English jurisdiction clause. That had the result that, applying Article 17 of the Lugano Convention, the Icelandic Courts had exclusive jurisdiction to determine them.
99. In support of this contention, Mr. Lord and Mr. Goldring made the following submissions:

i) The relevant principles applicable under Article 17 to a situation where there were a number of contracts between the same parties with different choice of jurisdiction clauses, were derived from the following judgments, which concerned the equivalent Article of the Brussels I (or Judgments) Regulation: Rix J (as he then was) in Credit Suisse First Boston (Europe) Ltd. v. MLC Bermuda Ltd ^[30]; and Lord Collins of Mapesbury in UBS AG v HSH Nordbank AG^[31].

ii) When construing multiple jurisdiction clauses, the Court was required to apply the following principles of construction, as described by Lord Collins in UBS, (supra), at paragraphs 94 to 95:

a) As a matter of construction, where a dispute fell within the wording of two or more jurisdiction agreements, it should be governed by the jurisdiction clause in the contract which was closer to the claim.

b) Where there were numerous jurisdiction agreements which might overlap, the parties must be presumed to have been acting commercially and not to have intended that similar claims should be the subject of inconsistent jurisdiction clauses.

c) Where the parties had entered into a complex transaction or series of transactions, it was the jurisdiction clause in the agreement which was at the commercial centre of the transaction or the disputes between the parties which the parties must have intended to apply to such dispute.

iii) Those principles were considered and applied most recently by the Court of Appeal in Sebastian Holdings Inc v. Deutsche Bank^[32], an authority which provided a clear answer in the present case; see per Thomas LJ, at [39] to [49]. Reference was also made to the 4^th Cumulative Supplement to Dicey, paragraph 12-094, which takes account of such decision.

iv) Applying those principles, there were two essential reasons, in accordance with Article 17 of the 1988 Lugano Convention, why the Icelandic Court had exclusive jurisdiction over this matter and the English Court had none:

v) First, the crucial starting point was that under the transaction documentation, Kaupthing undertook several distinct legal relationships with Lornamead. In that context, the commercial rationale of the various jurisdiction clauses in the current case was straightforward:

a) Disputes about the loan relationship under the SFA and MFA were to be subject to the jurisdiction of the English Courts. Thus, if there was a dispute as to whether a sum was due under the loan agreement, or as to whether an event of default had occurred, such disputes would fall within the relevant jurisdiction clause.

b) Similarly, disputes over Kaupthing's role as agent under the SFA and MFA were to be subject to the jurisdiction of the English Courts. No doubt it was for that reason that the Security Trust Deed was drafted in the same way.

c) Disputes about the hedging relationship, by contrast, were treated differently. Those were to be the subject to the jurisdiction of the Icelandic Court. It was entirely rational for that distinction to be drawn, because the hedging relationship was a distinct one.

vi) Secondly, the disputes in the current case concerned the hedging relationship, rather than the loan obligations, or Kaupthing's role as agent under the facilities:

a) Thus the two declarations sought in the amended claim form demonstrated that Lornamead's purpose in these proceedings was to obtain negative declaratory relief as to its alleged non-liability under the Hedging Confirmations. Paragraphs 30 to 34 of the Particulars of Claim make it quite clear that it is the Hedging Confirmations and liabilities thereunder which form the substance and centre of gravity of these proceedings.

b) The parties must be presumed to have been acting commercially, and not to have intended that similar claims should be the subject of inconsistent jurisdiction clauses. The heart of this dispute and its centre of gravity concerned the Hedging Confirmations and Kaupthing's money claim thereunder: see paragraphs 30-34 of the Particulars of Claim. It was the jurisdiction clauses in those agreements which were closer to the claim and which the parties must have intended to apply to this sort of dispute.

c) Lornamead's negative declarations were, when properly analysed, nothing other than alleged defences to Kaupthing's claims under the Hedging Confirmations themselves. In paragraphs 61 to 63 of Sebastian Holdings, Thomas LJ rejected the notion that defences could dislodge the jurisdiction clause which would otherwise apply to an underlying claim. Reference was also made to The Tatry.^[33] Those were binding decisions on this Court and were a complete answer to the present case.

d) Moreover, the deletion by Lornamead, in its Amended Claim Form, of the third declaration it had originally sought (relating to the termination of the Hedging Confirmations and/or an account thereunder), was in effect an acknowledgment that a dispute going directly to the Hedging Confirmations and the liabilities thereunder fell outside any English jurisdiction clause.

vii) Finally, and additionally, the English jurisdiction clauses were expressly stated to be for the benefit of Kaupthing and not Lornamead. Kaupthing was, therefore, entitled as a matter of contract to renounce such a jurisdiction clause in relation to this dispute, and had done so. Therefore Article 17(1) was not engaged in any event.

Lornamead's submissions on Issue 3

100. In response to Kaupthing's submissions, Mr. Thanki and Mr. Valentin submitted as follows:

i) There was only one claim before the Court – Lornamead's claim – and that was a claim in which the Court was invited to make declarations in respect of the interpretation and effect of the transfer provisions in the Restated SFA and the MFA, both of which were contracts containing English jurisdiction clauses. There was no claim before the English Court (or the Icelandic Court for that matter) seeking relief in respect of the interpretation or effect of the Hedging Confirmations.

ii) Kaupthing's reliance on the statements of the applicable principles found in UBS AG v HSH Nordbank AG^[34] and Sebastian Holdings Inc v Deutsche Bank was misplaced.^[35] The principles from those cases which were of particular relevance could be summarised in the following way:

a) Whether a jurisdiction clause applied to a dispute was a question of construction.^[36] The essential task was to construe the jurisdiction agreement in the light of the transaction as a whole.^[37]

b) Where the parties had entered into a complex transaction, while they are to be presumed to have been acting commercially and not to have intended that similar claims should be the subject of inconsistent jurisdiction clauses, it was the jurisdiction clauses in the agreements which were at the commercial centre of the transaction which the parties must have intended to apply to the relevant dispute.^[38]

c) The question as to whether a claim fell within a jurisdiction clause was an issue that had to be determined at the time the proceedings were issued.^[39]

iii) In the present case, the Restated SFA and the MFA were the agreements at the commercial centre of the transaction between Lornamead and Kaupthing, and the interpretation, and effect, of the transfer provisions and mechanisms contained in those agreements was the only issue which the Court would have to determine.

iv) Although it was obviously the case, in principle, that the parties were to be presumed to have been acting commercially and not to have intended that similar claims should be the subject of inconsistent jurisdiction clauses, here the parties' lending relationship was documented in a large series of documents, in virtually all of which the parties chose English law and the jurisdiction of the English Court. This even included the Hedging Letters, pursuant to which the Hedging Confirmations were executed. By contrast, only the Hedging Confirmations were governed by Icelandic law. The issue in these proceedings was: were the parties' right and obligations under the Hedging Confirmations cancelled when the relevant transfer occurred, by operation of the transfer provisions in the Restated SFA and the MFA? That dispute fell clearly within the scope of the English jurisdiction clauses and there was no practical difficulty in that claim being tried in England, even if other claims relating to the Hedging Confirmations might, at least during the currency of those agreements, potentially have been litigated in the Icelandic Courts.

v) In relation to Kaupthing's final and opportunistic contention (that the English jurisdiction clauses were expressly stated to be for the benefit of Kaupthing, and not Lornamead, and that Kaupthing had now indicated that it wanted to "renounce" the clauses, and had done so):

a) It was too late for the point to be taken as it had never been taken throughout the extensive discussions in correspondence as to the proper scope of the claim and the jurisdiction of the English Court, prior to the issue of proceedings.

b) The point was in any event misconceived as neither Article 17 of the Lugano Convention nor the jurisdiction clauses in the restated SFA or the MFA conferred on Kaupthing an entitlement to renounce a jurisdiction clause in its entirety

vi) Accordingly, the English Court had exclusive jurisdiction over Lornamead's claim by virtue of the operation of Article 17 of the Lugano Convention. Furthermore, as the English Court was first seised, it was in any event no longer open to Kaupthing to bring proceedings against Lornamead in relation to the same cause of action in Iceland by virtue of Article 21 of the Lugano Convention.

Discussion and determination of Issue 3

101. The question here, in my view, is whether the claim in the English Proceedings falls within the English jurisdiction clauses in the Restated SFA, the MFA, the Intercreditor Agreement and the Deed of Resignation and Transfer of Security or within the Icelandic jurisdiction clauses in the Hedging Confirmations. That question turns on whether, in the light of the documentation as a whole, the parties should be taken objectively to have intended that, in the event that, following a transfer by novation of the "Existing Lender's" "rights and obligations under the Finance Documents and in respect of the Transaction Security" ^[40], pursuant to the relevant terms of the Restated SFA and the MFA, there was a dispute about whether the parties' rights and obligations under any "Finance Document" (as defined) had been cancelled, released, or discharged, or whether the security for such obligations had been released, that dispute should be subject to the jurisdiction of the English Court, or to that of the Icelandic Court.
102. The guiding statement of principle is that of Lord Collins of Mapesbury in UBS AG v HSH Nordbank AG^[41] at paragraph 95:

"In this case it is not necessary to go so far. Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses. The jurisdiction clause in the Dealer's Confirmation is a "boiler plate" bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes. Where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint and reflected in the draft particulars of claim in England.. "

103. Moreover, as Thomas LJ pointed out in Sebastian Holdings Inc v Deutsche Bank at paragraph 40:

"The Supreme Court emphasised in Re Sigma Finance Corporation [2009] UKSC 2 the need, when looking at a complex series of agreements, to construe an agreement which was part of a series of agreements by taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme."

I refer also to the statement of principle set out in the 4^th Cumulative Supplement to Dicey, paragraph 12-094, which refers to the need "to seek to locate the centre of [the dispute's] gravity."

104. I have reached the clear conclusion that Lornamead is entitled to bring its claims in the English Proceedings in the English Courts and that the arguments advanced by Kaupthing cannot, as a matter of construction, disentitle Lornamead from doing so. My reasons may be summarised as follows.
105. First, the dispute which lies at the heart of the English Proceedings is the one which I have briefly described in paragraph 101 above. Fully articulated it can be stated as follows:

"… whether, on the construction of the relevant Finance Documents, and in the events which have happened, the effect of the Transfer Certificate, the Deed of Resignation and Transfer of Security, and/or the TUA and the entry by Lornamead into its new loan facilities and hedging arrangements with GE was such as expressly, or by implication, (i) to release Lornamead and Kaupthing from any further obligations towards one another which they might have had under any of the Finance Documents or under the Transaction Security in respect of the hedging arrangements between them; and (ii) to cancel their respective rights against one another under any of the Finance Documents or under the Transaction Security in respect of such hedging arrangements, whether in accordance with clause 29.5 of the Restated SFA or otherwise."

106. Second, it would be incomplete and far too simplistic to characterize the dispute merely as "how much, if anything, is owing to Kaupthing under the Hedging Confirmations". That would not locate "the central gravity" of the dispute. No issues of interpretation arise in relation to the Hedging Confirmations – and there was no suggestion that, if they were indeed still in force, there would be any dispute as to amounts outstanding thereunder. Nor does such a limited definition address the issue as to whether such continuing "Hedging Debt" remained secured for Kaupthing's benefit under the terms of the Security Trust Deed.
107. Third, "the agreements which are at the commercial centre of the transaction"^[42] as between the parties are the Restated SFA, the MFA, the 2007 Hedging letter, the Security Trust Deed, the Intercreditor Agreement, the Transfer Certificate and the Deed of Resignation and Transfer of Security. Thus:

i) The various Hedging Confirmations were entered into pursuant to the various stipulations and obligations contained in the Restated SFA and the MFA, which were subject to English law and English jurisdiction clauses, and the 2007 Hedging Letter, which was governed by English law.

ii) These agreements contained mandatory provisions as to the period during which the hedging arrangements contemplated in the 2007 Hedging Letter were to stay in force, and the circumstances in which, and the conditions subject to which, they could be terminated, varied or cancelled; see e.g. clause 27.31 of the Restated SFA and clause 4 of the 2007 Hedging Letter. They contained a prohibition on Lornamead (or any of its subsidiaries) from entering into any hedging transactions other than those "contemplated by the Hedging Letter and documented by the Hedging Agreements (i.e. the Hedging Confirmations); see clause 27.31(b) of the Restated SFA. They contained provisions, conditions and procedures governing the unilateral transfer by novation of Kaupthing's rights and obligations under the "Finance Documents" by means of a Transfer Certificate (also subject to English law), and in respect of the "Transaction Security"; they provided for the release, discharge and cancellation as between Kaupthing and Lornamead of their respective rights against each other in respect of such "Finance Documents" and "Transaction Security" as were transferred.

iii) Lornamead's Hedging Debts were secured under the Security Trust Deed, which was also subject to English law. Clause 9 contained provisions relating to the transfer of the security to an assignee or Transferee in the event of a transfer and novation by Kaupthing by means of the relevant Transfer Certificate mechanism.

iv) The Intercreditor Agreement contained provisions restricting the enforcement by the Hedge Counterparty (defined as Kaupthing "… or any other Lender which has acceded to this Agreement and which has become a party to the Security") of the Hedging Confirmations, restricting Lornamead from entering into any "Hedging Agreement until the proposed Hedge Counterparty had entered into an Accession Deed in that capacity" and restricting any person from sharing in the security until likewise it had entered into such a deed. It also provided for Lornamead's Hedging Debt to be secured and for the order in which the proceeds of the security were to be applied in payment of its various debts including the Hedging Debts. The Intercreditor Agreement likewise had an English jurisdiction clause.

v) The Deed of Resignation and Transfer of Security transferred all the Transaction Security to GE as Successor Security Agent. It likewise had an English jurisdiction clause.

108. Fourth, it is the provisions of all these agreements, and the effect of the transactions taken pursuant to the procedures stipulated in them, which will have to be construed and considered, principally in accordance with English law, in order to resolve the dispute which is the subject of the claim in the English Proceedings. I do not accept Kaupthing's argument that

"… disputes about the hedging relationship, by contrast, were treated differently. Those were to be the subject to the jurisdiction of the Icelandic Court".

An analysis of the relevant documents, as I have set out above, shows that the nature, scope and respective obligations of the parties in respect of the hedging relationship were defined in the central documents, not in the Hedging Confirmations which were simply there to "document" the terms of individual transactions; see clause 27.31 (a)(i) of the Restated SFA. Moreover, there is no explanation as to why the Hedging Confirmations were not based on ISDA terms, as they were apparently required to be under the terms of clause 7.2 of the Intercreditor Agreement and the 2007 Hedging Letter, in which case they would almost certainly have been subject to an English Court jurisdiction clause. The terms of the Hedging Confirmations (which incorporate Kaupthing's standard or "boiler plate^[43]" Icelandic jurisdiction clause), do not appear to be in accordance with the envisaged contractual scheme in this respect. Whilst I proceed on the basis that such clause indeed applied to the Hedging Confirmations, I do not accept that the parties can objectively have intended it to apply to the resolution of the current dispute. Indeed, in the context of the other documentation it is somewhat surprising to see such a clause there at all.

109. Fifth, I do not accept Kaupthing's semantic arguments in relation to the manner in which Lornamead pleaded its case or to the fact that it amended the Claim Form after it was issued, but before it was served, in order to delete an additional declaration, which was originally included, in the alternative:

"… as to the termination and/or discharge of the Hedging [Confirmations] in accordance with their terms and/or under applicable law and/or an account of amounts properly held to be due and owing between the parties in respect of the Hedging [Confirmations]".

It is clear from the pleadings, and from Lornamead's arguments on this application, that the true nature of the claim is as I have characterised it above. The fact that the alternative declaration was removed in order, as Mr. Thanki told me,

"… to ensure that the scope of the current proceedings was indeed limited to those properly governed by English law and falling within the scope of the jurisdiction of the English Court."

cannot affect the true characterisation of the claim.

110. Sixth, I do not accept Mr. Lord's submission that Lornamead's negative declarations were, when properly analysed, "… nothing other than alleged defences to Kaupthing's claims under the Hedging Confirmations themselves". In this context, Mr. Lord relied upon paragraphs 61 to 63 of Thomas LJ's judgment in Sebastian Holdings where he said:

"(vi) The effect of the nature of the defence.

61. I turn next to the analysis premised on the parties having agreed that they would allocate jurisdiction to the contract which was the centre of gravity of the dispute. This is a different analysis, as it focuses not on the underlying nature of the Bank's claim but on the dispute between the parties. It involves the acceptance that, although the Bank was ordinarily entitled to claim under the agreements under which the debt arose and to rely on the jurisdiction clauses in those agreements, the parties intended that there would be circumstances where the Bank did not have that right on the true construction of the series of agreements taken as a whole. For example, if prior to the issue of proceedings a defence to the payment of a debt was known to arise under one of the other agreements, the parties must be taken to have agreed in such circumstances that the claim could not be brought under the agreement under which the debt was owed, but would have to be brought in the forum specified in the agreement by reference to which, on an analysis of the dispute as a whole, the dispute had its centre of gravity.

62. Again I cannot see how rational businessmen could have agreed this in the face of the clear language of the agreements. First, the question as to whether a claim falls within the jurisdiction clause is an issue that has to be determined at the time the proceedings are issued. In most cases, it is likely to be relatively simple to determine whether a claim is made under a specified agreement and therefore whether jurisdiction is founded. That is certainly so in a case such as the present where there is a debt claimed under a contract.

63. Businessmen agreeing to different jurisdiction clauses in a series of related contracts cannot have been taken to have intended that the entitlement to bring that claim in the chosen forum in respect of one contract should depend on whether a defence had been raised prior to the bringing of the claim and that the defence to that claim might place the centre of gravity of the dispute as being related to a different contract with a different jurisdiction clause. Not only would it give rise to a complete lack of certainty, but could seriously prejudice an institution such as a bank bringing a claim, if there was a limitation period about to expire or there was otherwise a need to bring a claim urgently."

The type of situation which Thomas LJ was referring to in these paragraphs in Sebastian Holdings is very different from that in the present case. One cannot, in my judgment, characterise this case as one where Lornamead was simply seeking a negative declaration that it was not liable in respect of sums claimed under the Hedging Confirmations, because, for example, it was alleging that the sums had been paid, or that the particular transactions to which the Hedging Confirmations related had been induced by misrepresentation. On the contrary, as described above, the claim in the English Proceedings is, on proper analysis, one where Lornamead is seeking declaratory relief as to the construction and effect of other documents, all of which are subject to English jurisdiction clauses, which were the basis for the hedging relationship between the parties, and which (together with the TUA) were the transactional documentation effecting the transfer of the facilities from Kaupthing to GE. Nor was I assisted in the circumstances by Mr. Lord's submissions based on The Tatry (supra) which again involved a different factual scenario.

111. Seventh, I do not accept Kaupthing's final submission that, because the English jurisdiction clauses are expressly stated to be for its benefit, and not Lornamead's, it is entitled under Article 17 to "renounce" the clauses in relation to this dispute and has done so. First, it is clearly too late for it to do so, once proceedings have been issued by Lornamead. But secondly, even if this were wrong, the argument is not sustainable either on the wording of Article 17 of the Lugano Convention or on the wording of the relevant English jurisdiction clauses. Article 17 provides (in so far as material):

"If an agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention."

112. This does not confer on Kaupthing an entitlement to "renounce" a jurisdiction clause in its entirety and to dispute the jurisdiction of proceedings properly brought by the other party in accordance with the clause. The article merely provides that the beneficiary of the clause is permitted to elect to bring proceedings arising out of, or in connection with, those agreements in another court of competent jurisdiction, in addition to England. But that provision is clearly, given the wording "in any other court which has jurisdiction by virtue of this Convention" without prejudice to the "first seised" rules of Article 21. It does not entitle Kaupthing unilaterally to challenge proceedings previously brought by Lornamead against Kaupthing in England in accordance with the terms of the English jurisdiction clause and in conformance with Lornamead's contractual obligation thereunder. Nor do the English jurisdiction clauses confer any such right. They make it clear that Kaupthing can take concurrent proceedings in other jurisdictions only "to the extent permitted by law." It was not disputed by Kaupthing, that if the English Court was indeed entitled to maintain jurisdiction, it was the Court first seised, and that accordingly it was no longer open to Kaupthing to bring proceedings against Lornamead in relation to the same cause of action in Iceland by virtue of Article 21.
113. Accordingly, I conclude that the claim in the English Proceedings falls within the English jurisdiction clauses in the Restated SFA, the MFA, the Intercreditor Agreement and the Deed of Resignation and Transfer of Security. I conclude, in the light of the documentation as a whole, that the parties should be taken objectively to have intended that a dispute of the type described in paragraph 105, which is the subject matter of Lornamead's claim in the English Proceedings, should be subject to the jurisdiction of the English Court as falling within those jurisdiction clauses.
114. Accordingly, the English Court has exclusive jurisdiction over Lornamead's claim by virtue of the operation of Article 17 and Article 21 of the Lugano Convention.
115. It follows that I decide Issue 3 in favour of Lornamead and dismiss Kaupthing's application based on its Ground 2.

Issue 4: On the like hypothesis, and on the hypothesis that the proceedings were governed by English, rather than Icelandic, jurisdiction agreements, should, nonetheless, the proceedings be stayed on the basis of forum non conveniens/or case management considerations?

116. Finally, Kaupthing contends that, even if its first and second grounds are rejected, the proceedings should be stayed and/or no jurisdiction exercised in Lornamead's favour on case management and/or forum non conveniens grounds, because the Reykjavik District Court is:

"… clearly the forum in which the dispute could most suitably be tried of the interests of the parties and for the ends of justice."

117. I can deal with this argument very shortly.
118. In UBS, Lord Collins said at paragraphs 100 to 103:

"100. But against that, it is most unusual for an English court to stay proceedings brought in England pursuant to an English jurisdiction agreement. In British Aerospace v Dee Howard [1993] 1 Lloyd's Rep. 368, at 376, Waller J. said (in the context of an exclusive English jurisdiction clause) that it should not be open to a party to start arguing about the relative merits of fighting an action in the foreign jurisdiction as compared with fighting an action in London, where the factors relied on would have been foreseeable at the time that they entered into the contract. That case involved an application to set aside service out of the jurisdiction. It has been approved in this court in the context of an application to stay English proceedings (Ace Insurance SA-NV v Zurich Insurance Co [2001] EWCA Civ 173, [2001] 1 Lloyd's Rep 618, at [62], per Rix LJ) and of an application to restrain foreign proceedings in which the foreign court was asked to prevent a party suing in England pursuant to an English jurisdiction clause (Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan [2002] EWCA Civ 1643, [2003] 2 Lloyd's Rep 571, at [36], per Waller LJ) and it has been applied in many decisions in the Commercial Court.

101. The next difficulty is that there is an express agreement in the jurisdiction clause the effect of which is that HSH irrevocably waived any claim that proceedings had been brought in an inconvenient forum. In National Westminster Bank v Utrecht-America Finance Co [2001] EWCA Civ 658, [2001] CLC 1372, at [23], Clarke LJ thought it was "fatal" to any forum non conveniens case, whereas in Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan, ante, at [36] Waller LJ did not treat such an agreement as decisive, but thought that it underlined the point that the jurisdiction agreement would be overridden only in exceptional circumstances.

102. Finally, it is a matter of controversy whether there is any room at all under the Brussels I Regulation regime for a stay on forum conveniens grounds. The effect of the ruling of the European Court in Case C-281/02 Owusu v Jackson [2005] ECR I-1383, [2005] QB 801 is that the Brussels I Regulation precludes a court of a Member State from declining jurisdiction under Article 2 (domicile of the defendant) on the ground that a court of a non-Member State would be a more appropriate forum for the trial of the action. The Supreme Court of Ireland has made a reference to the European Court as to whether the ruling in Owusu v Jackson applies even where proceedings have been commenced in a non-Member State prior to the proceedings in Ireland (the so-called 'reflexive effect' of Regulation provisions, which does not arise in the present case): Goshawk Dedicated Receivables Ltd v Life Receivables Ireland Ltd [2009] IESC 7, [2009] ILPr 26.

103. The prevailing view is that there is no scope for the application of forum conveniens to remove a case from a court which has jurisdiction under the Regulation, even as regards a defendant who is not domiciled in a Member State: see e.g. Dicey, Morris & Collins, Conflict of Laws, 14^th ed 2006, paras 11-023, 12-020, and specifically in relation to jurisdiction agreements, para 12-124, and Briggs, Agreements on Jurisdiction and Choice of Law (2008), para 7.02; and it has been held at first instance that Owusu v Jackson applies to cases where Article 23 applies: Equitas Limited v. Allstate Insurance Company [2008] EWHC 1671, [2009] Lloyd's Rep IR 227, at [64].

104. I am therefore disinclined (in common with the judge) to express a view on this controversial area where, on my view of the case, it does not arise for decision. For the reasons given on the main point, I would dismiss the appeal."

119. All three points are relevant in the present case and are sufficient to dispose of Kaupthing's third ground in support of its application.
120. As Lord Collins pointed out, it is very doubtful whether any residual discretion to stay on forum non conveniens grounds has survived the ECJ decision in Owusu v Jackson.^[44] As Beatson J noted in Equitas, where proceedings are brought in England pursuant to an English jurisdiction clause,

"… the weight of the authorities suggests the court is deprived of its common law discretion to stay proceedings in favour of another jurisdiction on classic forum non conveniens grounds."

Further, in Jefferies (supra), Cooke J stated at [29] and at [26]:

"The discretionary power should not be used if it conflicts with the Conventions."

121. Since I would not exercise the discretion in Kaupthing's favour and stay the English Proceedings on forum non conveniens/case management grounds, even if the power were available to me, I (like Lord Collins) am not inclined to express a view on this controversial area where, on my view of the case, it does not arise for decision.
122. Clause 43.1(b) of the Restated SFA provides:

"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."

Thus Kaupthing's third ground – which arises only if it is wrong on its first and second grounds – is advanced in breach of its agreement not to contend that the English courts are inappropriate or inconvenient. Even if, as Waller LJ considered in Sabah Shipyard (Pakistan) Ltd. v Islamic Republic of Pakistan, (supra) at paragraph 36, such an agreement is not decisive^[45], there are, in my judgment, no "exceptional circumstances" here such as would justify overriding the English jurisdiction clauses.

123. First of all, the mere fact that Kaupthing is now subject to a winding–up order does not make it more appropriate that the claim should be determined by the Icelandic Court overseeing the Kaupthing insolvency. Given that, as I have held above, the real dispute is concerned with the interpretation and effect of contracts which are governed by English law, and subject to English jurisdiction clauses, the English Court is the Court best placed to resolve the disputes. Any Icelandic law evidence relating specifically to the Hedging Confirmations is likely to fall within a very small compass. Although the point was made during the course of the hearing that Kaupthing might wish to refer to Icelandic law evidence in relation to the Hedging Confirmations, at any future hearing of Lornamead's Part 24 application, no indication was given during the course of the hearing as to what issue such evidence might relate.
124. Second, the premise underpinning Kaupthing's argument that Lornamead is somehow seeking to "steal a march" on other "creditors" is also false. Lornamead is not one of Kaupthing creditors; on Kaupthing's case it is a debtor; on Lornamead's case there is no debt at all. I see no unfairness to other creditors if the claim is allowed to proceed in England. That is particularly so where Kaupthing itself would have been free, had it chosen to do so, to bring proceedings in England. Nor do I see, in the particular circumstances of the case, that as a consequence, there will be any disruption to the orderly progress of Kaupthing's liquidation if the claim is allowed to proceed in England. The dispute is one confined to its own facts and is not likely to have any wider impact (other than financial) on the liquidation such as would require its resolution in Iceland.
125. Third, I attach little or no weight to the fact that Kaupthing's witnesses may be in Iceland, since Lornamead's witnesses are likely to be in England. The point is neutral for both parties.
126. Accordingly, I find against Kaupthing in relation to Issue 4.

Disposition

127. In the circumstances, and subject to any further submissions on procedure from the parties, it appears to me that the appropriate course in the light of this judgment is:

i) to dismiss Kaupthing's application to strike out or stay the English Proceedings;

ii) to give Kaupthing leave to appeal in respect of Issue 1, on the grounds that it raises an important issue of law, that is going to be determined by the Court of Appeal in any event;

iii) either:

a) to determine Lornamead's Part 24 application as soon as practicable; (this should be reserved to me as I have heard, and am familiar with, many of the relevant arguments, other than any further arguments that Kaupthing has indicated it may wish to raise as a matter of Icelandic law, or that either party may wish to raise otherwise); or

b) to adjourn the determination of Lornamead's Part 24 application until after the Court of Appeal's judgment on Kaupthing's appeal in Rawlinson;

128. I will hear submissions from the parties as to which is the appropriate course in this respect.
129. I should say that, even had I found in Kaupthing's favour on Issue 1, I would have stayed the English Proceedings. I do not consider that it would have been appropriate, even in that event, to have struck them out. It remains possible that the Winding-up Committee and/or the Icelandic Court might conclude (notwithstanding Professor Gunnarsson's opinion to the contrary) that, in the light of the contractual jurisdiction clauses, and the fact that the dispute centres on the interpretation and effect of the Restated SFA, the MFA, the Deed of Resignation and Transfer, the Transfer Certificates and the other contractual documentation subject to English Law (rather then the Hedging Confirmations themselves), it was nonetheless appropriate for the dispute to be resolved in the English Court and give leave to do so, in much the same way as an English Court might give leave under section 130, in the reverse situation. That would be, of course, entirely a matter for the Winding-up Committee and/or the Icelandic Court.
130. I will hear submissions from counsel in relation to any consequential matters at an appropriate date to be fixed.
131. Finally, I should record my gratitude to counsel and solicitors on both sides for their helpful and clearly presented written and oral submissions.

Note 1    The SFA was subsequently amended on 29 March 2007, 8 May 2007 and amended and restated on 31 December 2007.    [Back]

Note 2    Words underlined are my emphasis.    [Back]

Note 3    The reference to “Transfer Certificate” was to another defined term in the SFA, which means a certificate substantially in the form set out in schedule 5 to the SFA (or any other form agreed between the Agent and the Parent).    [Back]

Note 4    Either the 1992 Master Agreement or the 2002 Master Agreement published by the International Swaps and Derivatives Association. These would have been likely to have included exclusive English jurisdiction clauses.    [Back]

Note 5    Defined in Regulation 5(1) of the 2004 Regulations as “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”.    [Back]

Note 6    2010 Folio 773. This was a case heard over three days in the Commercial Court by Burton J the week before the hearing in front of me, in which this particular point arose for determination. Burton J reserved his judgment.    [Back]

Note 7    To adopt the words of Lord Collins in UBS AG v HSH Nordbank [2009] 2 Lloyd’s Rep 272, at [95].    [Back]

Note 8    For example, Clause 43.1(b) of the Restated SFA provides: “The Parties agree that the Courts of England are the most appropriate and convenient Courts to settle Disputes and accordingly no Party will argue the contrary.”    [Back]

Note 9    See paragraph 32 of Burton J’s judgment.    [Back]

Note 10    See paragraph 33 of Burton J’s judgment.    [Back]

Note 11    See paragraph 34 of Burton J’s judgment.     [Back]

Note 12    Kepler Capital Markets SA v Landsbanki Islands HF (judgment dated 4 November 2010)    [Back]

Note 13    See Article 1 of the Brussels Convention and of the 1988 Lugano Convention; Article 1 (2)(b) of the Judgments Regulation.    [Back]

Note 14    Defined under the 2000 Banking Directive as an “undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own accounts”. Specific provision was also made in relation to, for example, insurance undertakings.     [Back]

Note 15    The 2000 Banking Directive was subsequently amended to become Directive (EC) 2006/48, which, in the 2004 Regulations, is called the ‘banking consolidation directive’.     [Back]

Note 16    The principle is not applicable to ordinary companies. The Insolvency Regulation contemplates that there may be both primary proceedings in a company’s centre of main interest, and secondary proceedings in states where that company has an establishment: see Article 3(1).     [Back]

Note 17    Lord Glennie was sitting in the Outer House of the Court of Session. His decision is the subject of an appeal to the Inner House, where judgment is awaited.    [Back]

Note 18    No argument was addressed on behalf of Lornamead to the effect that it could rely on any of the other articles (such as Articles 21, 25 or 27) to disapply the effect of the Icelandic Moratorium Order.     [Back]

Note 19    The case concerned the equivalent provisions in the Insolvency Regulation, namely Art 4.2(f) (the equivalent to Art 10(2)(e) in the 2001 Directive) and Art 15 (the equivalent to Art 32).     [Back]

Note 20    Parts 3 and 4 deal with UK credit institutions; that is institutions whose head office is in the UK with permission to accept deposits or issue electronic money under Part 4 of the Financial Services and Markets Act 2000.    [Back]

Note 21    The relevant provision in relation to administration is paragraph 43 of Schedule B1. That in relation to winding up is section 130(2).     [Back]

Note 22    See the definitions of ‘EEA insolvency measure’ and ‘relevant EEA state’ in Regulation 5(6).     [Back]

Note 23    As defined in Article 1(3) of Directive 2000/12/EC as amended.    [Back]

Note 24    This was the situation that was the subject of the decision of Cooke J in Jefferies International Ltd v. Landsbanki Islands HF [2009] EWHC 894 (Comm). In that case, the claimant had commenced proceedings on 20 November 2008 [11], but Landsbanki was not granted a Moratorium until 5 December 2008. Under the November amendment, pre-Moratorium proceedings were prohibited from continuing, but the provision having that effect was repealed by the April amendment. As a result, by the time the matter came before Cooke J a few days later, there was no provision of Icelandic law that prohibited pre-Moratorium proceedings from continuing. The position in this case is different. Lornamead did not issue its proceedings before the date of Kaupthing’s Moratorium.    [Back]

Note 25    See paragraphs 6.1.5, 6.2.1 to 6.2.2 and 6.3.1 of Professor Gunnarsson’s first report.     [Back]

Note 26    See paragraphs 6.2.1 – 2 of Professor Gunnarsson’s first report.    [Back]

Note 27    See paragraph 6.1.1 of Professor Gunnarsson’s first report.    [Back]

Note 28    This has been specifically tested in the Supreme Court in Iceland in Skeifan ehf v Landsbanki Islands hf, Case No. 157/2010, as described in paragraph 6.1.3 of Professor Gunnarsson’s first report.    [Back]

Note 29    I record that there was no argument before me that sub-paragraph (a) was applicable or could be relied upon by Kaupthing. It was not suggested that there was any branch office of Kaupthing involved in the relevant transactions or that sub-paragraph (a) could be invoked in relation to Kaupthing’s head office in Iceland.    [Back]

Note 30    [1999] 1 Lloyd’s Rep. 767.    [Back]

Note 31    [2009] EWCA Civ 585, [2009] 2 Lloyd’s Rep. 272.     [Back]

Note 32    [2010] EWCA Civ 998.     [Back]

Note 33    (ECJ) Case C- 406/92 [1999] QB 515.    [Back]

Note 34    [2009] 2 Lloyd’s Rep. 272; [2009] EWCA Civ 585.    [Back]

Note 35    [2010] EWCA Civ 998.    [Back]

Note 36    UBS, at paragraph 95.    [Back]

Note 37    UBS, at paragraph 83.    [Back]

Note 38    UBS, at paragraph 95.    [Back]

Note 39    Sebastian Holdings, at [62].    [Back]

Note 40    See clause 29.5(c) of the Restated SFA and clause 25.5(c) of the MFA.     [Back]

Note 41    [2009] EWCA Civ 585, [2009] 2 Lloyd’s Rep. 272.     [Back]

Note 42    See per Lord Collins in UBS (supra).    [Back]

Note 43    Seeibid.    [Back]

Note 44    Case C-281/02; [2005] QB 801.    [Back]

Note 45    Seecontra National Westminster Bank v Utrecht-America Finance Co , [2001] CLC 1372, at paragraph 23, per Clarke LJ.    [Back]