Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 100
P1590/09	OPINION OF LORD GLENNIE in the Note of THE WINDING-UP BOARD OF LANDSBANKI ISLANDS HF Noters; against MARGARET MILLS, PATRICK BRAZZILL, THOMAS BURTON and ALAN BLOOM, the Joint Administrators of Heritable Bank Plc Respondents: ­­­­­­­­­­­­­­­­­________________

Noters: Currie Q.C., O'Brien; Maclay Murray & Spens LLP

Respondents: Sellar Q.C., Ower; Shepherd & Wedderburn

20 July 2010

Introduction

General

[1] Heritable Bank Plc ("Heritable") is a company incorporated under the Companies Acts, with its registered office in Glasgow. It is a wholly owned subsidiary of Landsbanki Islands HF ("Landsbanki"), a limited liability company incorporated under the laws of Iceland whose registered office is in Reykjavik. Both companies are the subject of insolvency proceedings in the widest sense of that expression. Heritable is presently in administration in Scotland. Landsbanki is being wound up in Iceland.

[2] The parties to the present proceedings, which arise in the form of a Note presented in the Petition for the making of an Administration Order in respect of Heritable, are the Winding-Up Board of Landsbanki (as Noters) and the Administrators of Heritable (as respondents).

[3] The Winding-Up Board of Landsbanki has submitted claims in the Heritable Administration. Conversely, the Administrators of Heritable have submitted claims in the Landsbanki winding up. The issue before the court is as to the effect in the Heritable Administration of a decision made in the Landsbanki winding up. But the question might have arisen the other way round in the Icelandic courts.

[4] In the Heritable Administration, one of Landsbanki's claims has been rejected by the Administrators, applying the principles of insolvency set off. They do not dispute Landsbanki's claim on its merits. But they say that Heritable has a claim against Landsbanki, which is equal to or greater than Landsbanki's claim against Heritable, and that, taking this claim into account, Landsbanki's claim against Heritable is extinguished. The validity of this decision to reject Landsbanki's claim therefore clearly depends entirely upon an assessment of the merits of Heritable's claims against Landsbanki.

[5] At the same time, in the Landsbanki winding up in Iceland the Winding-Up Board of Landsbanki have rejected the Heritable Claims against Landsbanki. That decision is subject to appeal in the Icelandic courts. That appeal has not yet been heard.

[6] By this Note, the Winding-Up Board of Landsbanki ("the Noters"), appeal against this rejection of their claim in the Heritable Administration. They argue that the decision in the Icelandic winding up rejecting the Heritable Claims has effect and is binding in the United Kingdom in terms of Regulation 5 of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004/1045 ("the 2004 Regulations"). On that basis, they contend, the Administrators of Heritable are bound to hold that Heritable have no claim against Landsbanki. It follows, they say, that there are no valid claims by Heritable against Landsbanki capable of operating by way of insolvency set off; and, since there are no other defences to Landsbanki's claim, the Heritable Administrators are bound to allow Landsbanki's claim in full.

[7] As I have already indicated, the Administrators of Heritable have appealed the decision in Iceland to the Icelandic courts. The arguments are, therefore, not restricted to the question of what recognition or effect is to be given in the Heritable Administration in Scotland to the decision of the Winding-Up Board of Landsbanki. They cover also the question of what recognition or effect is to be given to any decision of the relevant Icelandic court on the appeal from the decision of the Winding-Up Board.

[8] I was informed by Mr Sellar QC, who appeared on behalf of the Administrators of Heritable, that a decision of this court on this point may be a factor in assisting the Administrators to decide whether or not to pursue their appeal in Iceland. As I understand it, they do not anticipate making any recovery in the Landsbanki winding up in Iceland - their interest in pressing that appeal is only because of the impact that it may have, if the Noters' arguments are correct, on the Administration of Heritable in Scotland. Indeed, they would not have made any claim at all in the Landsbanki winding up but for the fact that, under Icelandic insolvency law, a failure to lodge a claim within the required time results in the claim being extinguished. The concern on the part of the Administrators was that, if they did not lodge a claim in the Icelandic proceedings, not only would it be extinguished by operation of Icelandic law so far as the Icelandic proceedings were concerned, but that extinguishment of the claim would be recognised and given effect in the UK in the same manner as a decision on the claim in the winding up..

[9] In their Answers to the Note, the Administrators have tabled a plea to the relevancy of the Note in so far as it relies on the decision taken in the Landsbanki winding up. I heard a debate on that plea. The discussion involved a consideration of the 2004 Regulations and the European Directive to which they were intended to give effect (Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions, hereafter "the 2001 Directive") as well as questions of res judicata and its application in the field of insolvency.

[10] Before considering the arguments, I should first set out the background in a little more detail.

The Heritable Administration

[11] Heritable entered administration on 7 October 2008 pursuant to an order of the Court of Session made in a petition brought by the Financial Services Authority. The respondents to this Note ("the Administrators") were appointed by the Court under the provisions of paragraph 13 of Schedule B1 to the Insolvency Act 1986.

[12] On 8 December 2008, Landsbanki submitted a statement of claim in the Administration of Heritable in respect of the following debts allegedly owed by Heritable to Landsbanki:

(a) a claim for about £81 million and €6,381,500 (approximately £86 million in total) relating to a £400 million revolving credit facility dated 31 May 2002 ("the Landsbanki RCF Claim");

(b) a contingent claim for £50 million relating to a sum drawn down under a subordinated loan agreement dated 13 August 2001 ("the Subordinated Debt Claim"); and

(c) a contingent claim of £1,011,817,245 in respect of its potential liabilities under a guarantee which it provided in 2004 in respect of Heritable's liabilities to its creditors ("the Guarantee Claim").

These three claims are together referred to as "the Landsbanki Claims". The contingent claims referred to in (b) and (c) above, namely the Subordinated Debt Claim and the Guarantee Claim, are referred to as "the Contingent Claims".

[13] By a decision letter dated 26 November 2009, the Administrators (through their solicitors) accepted the contingent claims referred to in (b) and (c) above, namely the Subordinated Debt Claim and the Guarantee Claim (hereinafter "the Contingent Claims") as contingent claims, but valued them both at nil on the basis that there was no prospect of the contingency being satisfied.

[14] By a letter dated 6 November 2009, the Administrators rejected the Landsbanki RCF Claim on the basis that Heritable had cross claims ("the Heritable Claims") against Landsbanki, which entitled them to apply insolvency set off in respect of the liabilities of Landsbanki to Heritable. They did not, and do not, dispute the Landsbanki RCF Claim on any other basis, but they contend that, by reason of insolvency set off, the whole of Landsbanki's claim is extinguished.

[15] By this Note, Landsbanki seek to appeal both against the rejection of the Landsbanki RCF Claim pursuant to section 49(6)(b) of the Bankruptcy (Scotland) Act 1985 and also against the valuation at nil of the Contingent Claims pursuant to paragraph 3(3) of Schedule 1 to that Act. The provisions of the Bankruptcy Act 1985 are in each case applied to administration by rules 2.41 and 4.16 of the Insolvency (Scotland) Rules 1986. For present purposes I am concerned only with the appeal against the rejection of the Landsbanki RCF Claim.

[16] The Heritable Claims, on the basis of which the Administrators, applying insolvency set off, rejected the Landsbanki RCF Claim in the Heritable Administration, are described in the following section of this Opinion.

The Landsbanki Winding Up
[17] On 7 October 2008, the same day as the Order was made in Scotland putting Heritable into Administration, the Financial Supervisory Authority of Iceland ("FME"), exercising powers under Article 100 of Act No.161/2002, as amended, took control of Landsbanki. On 29 April 2009, the District Court of Reykjavik appointed the Winding-Up Board to Landsbanki. In so doing, it was exercising powers under Act No.161/2002 (as amended by Act No.44/2009, which took effect as from 22 April 2009), and was acting on a written request from the bank's Resolution Committee. The Winding-Up Board is comprised of three Supreme Court Attorneys in Iceland. Its functions include responsibility for handling claims presented against Landsbanki in the winding up.

[18] On 30 April 2009, the Winding-Up Board of Landsbanki issued a notice inviting creditors of Landsbanki to lodge their claims. That notice was published in the Legal Gazette in Iceland on the same day. The time limit for lodging claims was six months. All claims had to be submitted before midnight on 30 October 2009.

[19] On 30 October 2009, the Administrators of Heritable submitted claims in the Landsbanki winding up. Those claims (hereafter referred to as "the Heritable Claims") were: the Heritable RCF Claim, valued at £661,673,236.00; the MPA Claim, valued at £234,850,801.09; the Icesave Claim, valued at £1,099,978.07; and the Swap Claim, valued at £7,665,032.40. They total approximately £905 million. I do not need to go into the details of these claims for present purposes.

[20] By letter dated 14 January 2010, the Winding-Up Board of Landsbanki rejected all the Heritable Claims except for the Swap Claim, which they accepted to the extent of £7,247,284.58. In the course of this Opinion I shall refer to the Heritable Claims being rejected by the Winding-Up Board; to avoid constant repetition, I shall not refer on each occasion to the acceptance of this relatively small Swap Claim.

Icelandic Law

[21] In paragraph 17 of the Note, the Noters make the following averments of Icelandic law in relation to the winding up of Landsbanki:

"17.1 The winding up of Landsbanki is governed by Chapter XII of Act No.161/20021 Financial Undertakings, as amended. Article 102 of that Act, in the official English translation, provides inter alia:

'The same rules shall apply to the winding-up of a financial undertaking as apply generally to bankruptcy proceedings concerning reciprocal contractual rights and claims against it ...

Provisions of Chapter XVIII of the Act and Part 5 of the Act on Bankruptcy etc shall apply concerning processing of claims against a financial undertaking upon its winding-up, including the effect of failure to submit claims ...'

17.2 The Act on Bankruptcy etc 1991, as amended, ("the AB") provides in Chapter XVIII for the processing of claims against a bankruptcy estate. In particular, Article 116 of the AB provides that an action for payment cannot be commenced against a bankrupt, although pending actions can be continued. Article 117, in the official English translation, provides inter alia:

'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 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 a statement.'

17.3 Article 118 of the AB provides that if a claim is not the subject of a pending action, and is not submitted to the trustee in bankruptcy within the prescribed time, then it shall be 'cancelled with respect to the estate', subject to certain exceptions which do not apply to the Heritable Claims.

17.4 Article 119 of the AB provides that once the period for stating claims is over, the trustee in bankruptcy shall prepare a list of the claims 'stating his independent standpoint as to how each claim shall be recognised.' Article 120 of the AB makes provision for their determination to be challenged by a claimant. It provides inter alia:

'A claimant unwilling to accept the stand taken by the trustee in bankruptcy with respect to recognition of his claim shall state his objection at a meeting of the creditors held to consider the stated claims, or notify of this in a letter to be received by the trustee no later than at that meeting ...

... If an objection is raised at the meeting against the trustee's position as regards the recognition of a claim, and both or all of the relevant parties, the objectors and those against whom their objections are directed, are present, the trustee shall endeavour to settle the dispute; if unsuccessful, he shall convene the parties in question to a separate meeting for this purpose. If the dispute cannot be settled in this manner, the trustee shall refer the matter to the district court as provided for in Article 171.

To the extent the trustee's standpoint as regards the recognition of a claim is not challenged as provided for in the first paragraph, it shall be regarded as finally approved during the bankruptcy proceedings.'

I take those averments pro veritate for the purpose of this debate.

[22] In paragraph 17.5 of the Note, the Noters make a number of averments applying the law as there set out to the claims advanced by Heritable in the Icelandic winding up. They say that the submission of claims in the winding up of Landsbanki is equivalent to the bringing of a legal action against Landsbanki. Any claim of Heritable which was not submitted in the winding up of Landsbanki has been extinguished. The claims which have been submitted have been adjudicated upon. The Heritable Administrators have appealed against that determination and the matter has been referred to the Icelandic District Court. The proceedings before the Icelandic court are concerned not merely with Heritable's entitlement to rank as a creditor in the winding up procedure, but with the validity and quantum of the claims. Those averments also have to be taken pro veritate.

[23] In his Note of Argument for the debate, Mr Currie QC, for the Noters, pointed out that the procedure for submitting and determining claims under Icelandic insolvency law go beyond merely ascertaining whether a creditor is entitled to participate in a dividend. If a claim is not submitted, then (subject to certain exceptions) that claim is extinguished altogether. The debt is discharged. Where a claim is submitted, the winding up determines the merits of that claim once and for all, subject to any appeal to the Icelandic courts. This, he submitted, is in contrast to the procedures in Scotland, where claims are adjudicated upon for the purposes of determining whether they qualify for a dividend in respect of a particular accounting period: see Bankruptcy (Scotland) Act 1985, section 49(2), as applied to administrations by Rules 2.41(1) and 4.16(1) of the Insolvency (Scotland) Rules 1986.

[24] While I must take the Noters' averments about Icelandic law and procedure pro veritate, the contrast with the law and procedure in Scotland was challenged in the Supplementary Note of Argument submitted by Mr Sellar QC, for the Administrators, who pointed out that in Scotland, if no claim was made and the insolvent estate was distributed, any liability of that estate was, in effect, discharged. In the course of argument, he went further and submitted that, as a matter of law (and not merely in consequence of the estate of the insolvent being exhausted) a refusal to admit a claim in a liquidation or administration in Scotland, assuming that refusal was not overturned on appeal, meant that the claim could not thereafter be raised in any proceedings against the company, even if it emerged solvent from the liquidation or administration. On that basis, there was not in fact any great difference between the two systems. I accept that submission, though I am not sure it has any major impact of the arguments presented to me.

The Issues at Debate

[25] In their Note, in addition to the points of detail specific to the individual cross claims advanced by the Administrators for the purpose of applying insolvency set off, the Noters rely upon the rejection of the Heritable Claims in the Landsbanki winding up in two ways:

(1) first, they say that since the Landsbanki winding up is an "EEA insolvency measure" within the meaning of Regulation 5 of the 2004 Regulations, decisions made in that winding up, including the rejection of the Heritable Claims, must be given effect in the United Kingdom as if they were part of the general law of insolvency of the United Kingdom; and

(2) second, they say that any determination of the Icelandic court will found a plea of res judicata in this court in relation to the merits of the Heritable Claims (and, if Heritable abandons its appeal, then the determination by the Winding-Up Board of Landsbanki will be binding for the same purposes).

The Administrators dispute both of these propositions.

[26] I shall deal with the arguments separately under each head.

Regulation 5(1)
The 2004 Regulations

[27] It is not in dispute that the main aim of the 2004 Regulations is to provide a coherent system for the allocation of jurisdiction within the EEA for dealing with questions arising out of the insolvency of credit institutions within the EEA. To this end, Part 2 of the Regulations deals directly with "Jurisdiction in Relation to Credit Institutions". Within Part 2, Regulation 3 prohibits a court in the UK from making a winding up order, appointing a provisional liquidator or making an administration order in relation to an EEA credit institution or any branch of an EEA credit institution. Regulation 5 then deals with the recognition in the UK of insolvency measures in EEA states. Iceland is, of course, in the EEA.

[28] The precise terms of Regulation 5 are of some importance. It provides as follows:

"Reorganisation measures and winding-up proceedings in respect of EEA credit institutions effective in the United Kingdom

5(1) An EEA insolvency measure has effect in the United Kingdom in relation to -

(a) any branch of an EEA credit institution,
(b) any property or other assets of that credit institution,
(c) any debt or liability of that credit institution,

as if it were part of the general law of insolvency of the United Kingdom."

(2) Subject to paragraph (4) -

(a) a competent officer who satisfies the condition mentioned in paragraph (3); or

(b) a qualifying agent appointed by a competent officer who satisfies the condition mentioned in paragraph (3),

may exercise in the United Kingdom, in relation to the EEA credit institution which is subject to an EEA insolvency measure, any function which, pursuant to that measure, he is entitled to exercise in relation to that credit institution in the relevant EEA State.
(3) The condition mentioned in paragraph (2) is that the appointment of the competent officer is evidenced -

(a) by a certified copy of the order or decision by a judicial or administrative authority in the relevant EEA State by or under which the competent officer was appointed; or

(b) by any other certificate issued by the judicial or administrative authority which has jurisdiction in relation to the EEA insolvency measure,

and accompanied by a certified translation of that order, decision or certificate (as the case may be).

(4) In exercising the functions of the kind mentioned in paragraph (2), the competent officer or qualifying agent -

(a) may not take any action which would constitute an unlawful use of force in the part of the United Kingdom in which he is exercising those functions;

(b) may not rule on any dispute arising from a matter falling within Part 4 of these Regulations which is justiciable by a court in the part of the United Kingdom in which he is exercising those functions; and

(c) notwithstanding the way in which functions may be exercised in the relevant EEA State, must act in accordance with relevant laws or rules as to procedure which have effect in the part of the United Kingdom in which he is exercising those functions.

(5) For the purposes of paragraph (4)(c), "relevant laws or rules as to procedure" means -

(a) requirements as to consultation with or notification of employees of an EEA credit institution;

(b) law and procedures relevant to the realisation of assets;

(c) where the competent officer is bringing or defending legal proceedings in the name of, or on behalf of an EEA credit institution, the relevant rules of court.

(6) In this regulation -

"competent officer" means a person appointed under or in connection with an EEA insolvency measure for the purpose of administering that measure;

"qualifying agent" means an agent validly appointed (whether in the United Kingdom or elsewhere) by a competent officer in accordance with the relevant law in the relevant EEA State;

"EEA insolvency measure" means, as the case may be, a directive reorganisation measure or directive winding-up proceedings which have effect in relation to an EEA credit institution by virtue of the law of the relevant EEA State;

"relevant EEA State", in relation to an EEA credit institution, means the EEA State in which that credit institution has been authorised in accordance with Article 4 of the banking consolidation directive.

[29] The term "credit institution" is not given a free-standing definition in the Regulations. However, a "UK credit institution" is defined as an undertaking whose head office is in the UK with permission under Part 4 of the Financial Services and Markets Act 2000 to accept deposits or to issue electronic money as the case may be, with certain exceptions. An "EEA credit institution" means an EEA undertaking, other than a UK credit institution, of the kind mentioned in Article 1(1) and (3) of the banking consolidation directive (2000/12/EC), subject to certain exceptions. It is common ground between the parties that Heritable is a UK credit institution and that Landsbanki is an EEA credit institution within the meaning of the Regulations.

It is also common ground, and it is admitted in the Answers to the Note, that the winding up of Landsbanki is "an EEA insolvency measure".

[30] Part 3 of the Regulations deals with various modifications to the law of insolvency. I should note, in particular, Regulation 7, which provides that the general law of insolvency has effect in relation to UK credit institutions which are subject to the provisions of that Part of the Regulations. There follow a number of detailed provisions to which I need not refer, save to note that Regulation 15 deals with the language in which an EEA creditor must submit his claim in insolvency proceedings in the UK.

[31] Part 4 of the Regulations is headed "Reorganisation or Winding up of UK Credit Institutions: Recognition of EEA Rights". I should refer at this point to Regulation 22, which is in the following terms:

"EEA rights: applicable law in the winding up of a UK credit institution
22(1) This regulation is subject to the provisions of regulations 23 to 35.
(2) In a relevant winding up, the matters mentioned in paragraph (3) are to be determined in accordance with the general law of insolvency of the United Kingdom.
(3) Those matters are -

(a) the assets which form part of the estate of the affected credit institution;

(b) the treatment of assets acquired by the affected credit institution after the opening of the relevant winding up;

(c) the respective powers of the affected credit institution and the liquidator or provisional liquidator;

(d) the conditions under which set-off may be invoked;

(e) the effects of the relevant winding up on current contracts to which the affected credit institution is a party;

(f) the effects of the relevant winding up on proceedings brought by creditors;

(g) the claims which are to be lodged against the estate of the affected credit institution;

(h) the treatment of claims against the affected credit institution arising after the opening of the relevant winding up;

(i) the rules governing -

(i) the lodging, verification and admission of claims,

(ii) the distribution of proceeds from the realisation of assets,

(iii) the ranking of claims,

(iv) the rights of creditors who have obtained partial satisfaction after the opening of the relevant winding up by virtue of a right in rem or through set-off;

(j) the conditions for and the effects of the closure of the relevant winding up, in particular by composition;

(k) the rights of creditors after the closure of the relevant winding up;

(1) who is to bear the cost and expenses incurred in the relevant winding up;

(m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors."

It is not necessary at this stage to refer to other parts of the Regulations, save to note that Regulations 23 to 35 deal with a number of miscellaneous matters, as diverse as employment contracts and relationships, contracts in respect of movable property, registerable rights, third parties' rights in rem, reservation of title agreements, creditors' rights to set off, regulated markets, detrimental acts justifiable under the law of an EEA state, protection of third party purchasers, lawsuits pending, the lex rei sitae, netting agreements and repurchase agreements.

The 2001 Directive
[32] The 2004 Regulations were brought into effect in order to implement the 2001 Directive. It is common ground that the Regulations should be interpreted in a manner which, so far as possible, gives effect to the Directive: see e.g. Lister v Forth Dry Docks and Engineering 1989 SC (HL) 96 (also reported at [1990] 1 AC 546).

[33] I should first refer to certain of the recitals to the Directive. Recital (14) provides that, where credit institutions are in difficulty and have to be wound up, provision should be made

"... for mutual recognition of winding up proceedings and of their effects in the Community."

I set out Recitals (16), (17) and (23) in full.

"(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."

(17) The exemption concerning the effects of reorganisation measures and winding up proceedings on certain contracts and rights is limited to those effects and does not cover other questions concerning reorganisation measures and winding up proceedings such as the lodging, verification, and admission and ranking of claims concerning those contracts and rights and the rules governing the distribution of the proceeds of the realisation of the assets, which are governed by the law of the home Member State."

(23) Although it is important to follow the principle that the law of the home Member State determines all the effects of reorganisation measures or winding up proceedings, both procedural and substantive, it is also necessary to bear in mind that these effects may conflict with the rules normally applicable in the context of the economic and financial activity of the credit institution in question and its branches in other Member States. In some cases reference to the law of another Member State represents an unavoidable qualification of the principle that the law of the home Member State is to apply."

I should mention two other Recitals of some relevance. Recital (24) makes it clear that that qualification mentioned in Article (23) is particularly necessary to protect employees having a contract of employment with a credit institution and in other situations. Clearly the effect of this is that it will be necessary, in determining claims against an insolvent credit institution, to have regard to the law governing the contract or other obligation relied upon. Finally, Recital (27) makes it clear that the appointment of a person to administer the winding up proceedings should be universally recognised.

[34] Title II of the Directive deals with "Reorganisation Measures" while Title III deals with "Winding-Up Proceedings". Both Titles are divided into Parts A and B, Part A containing provisions in respect of credit institutions having their head offices within the Community while Part B deals with credit institutions having their head offices outside the Community. Within these Titles, most attention at debate was focused on Articles 9 and 10, which fall within Title III. Article 9 is concerned with the opening of winding up proceedings. It provides as follows:

"Article 9
Opening of winding-up proceedings - Information to be

communicated to other competent authorities

1. The administrative or judicial authorities of the home Member State which are responsible for winding up shall alone be empowered to decide on the opening 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.

2. The administrative or judicial authorities of the home Member State shall without delay inform, by any available means, the competent authorities of the host Member State of their decision to open winding-up proceedings, including the practical effects which such proceedings may have, if possible before they open or otherwise immediately thereafter. Information shall be communicated by the competent authorities of the home Member State."

[35] Article 10 is headed "Law applicable". It deals with matters which are reflected in Regulations 7 and 22 of the 2004 Regulations. It provides as follows:

"Article 10

Law applicable
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:

(a) the goods subject to administration and the treatment of goods acquired by the credit institution after the opening of winding-up proceedings;

(b) the respective powers of the credit institution and the liquidator;

(c) the conditions under which set-offs may be invoked;

(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;

(g) the rules governing the lodging, verification and admission of claims;

(h) the rules governing the distribution of the proceeds of the realisation of assets, the ranking of claims and the rights of creditors who have obtained partial satisfaction after the opening of insolvency proceedings by virtue of a right in re or through a set-off;

(i) the conditions for, and the effects of, the closure of insolvency proceedings, in particular by composition;

(j) creditors' rights after the closure of winding-up proceedings;

(k) who is to bear the costs and expenses incurred in the winding-up proceedings;

(l) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors."

I should note, since the point arose in the course of argument, that the word "goods" in para.2(a) and the word "assets" in para.2(h) are both rendered as "biens" in the French text.

[36] The remaining Articles in Title III are largely administrative or regulatory. In Title IV, which contains provisions common to reorganisation measures and winding up proceedings, there are a number of Articles dealing with particular problems such as the effects of such proceedings on certain contracts and rights, third parties' rights in re, reservation of title, lex rei sitae, letting agreements, repurchase agreements, regulated markets, registration in a public register, detrimental acts protection of third parties, the lawsuits pending, and professional secrecy. These are the counterparts of Regulations 23 to 35 of the 2004 Regulations. I mention only two, concerning set-off and the proof of the liquidators' appointment, contained respectively in Articles 23 and 28 in the following terms:

"Article 23
Set-off
1 The adoption of reorganisation measures or the opening of winding-up proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of the credit institution, where such a set-off is permitted by the law applicable to the credit institution's claim.

2. Paragraph 1 shall not preclude the actions for voidness, voidability or unenforceability laid down in Article 10(2)(l).

Article 28
Proof of liquidators' appointment
1. The administrator or liquidator's appointment shall be evidenced by a certified copy of the original decision appointing him or by any other certificate issued by the administrative or judicial authority of the home Member State.

A translation into the official language or one of the official languages of the Member State within the territory of which the administrator or liquidator wishes to act may be required. No legalisation or other similar formality shall be required.

2. Administrators and liquidators shall be entitled to exercise within the territory of all the Member States all the powers which they are entitled to exercise within the territory of the home Member State. They may also appoint persons to assist or, where appropriate, represent them in the course of the reorganisation measure or winding-up proceedings, in particular in host Member States and, specifically, in order to help overcome any difficulties encountered by creditors in the host Member State.

3. In exercising his powers, an administrator or liquidator shall comply with the law of the Member States within the territory of which he wishes to take action, in particular with regard to procedures for the realisation of assets and the provision of information to employees. Those powers may not include the use of force or the right to rule on legal proceedings or disputes."

Submissions
[37] Both parties lodged detailed Notes of Argument for which I am grateful. In addition, a Supplementary Note of Argument was lodged on behalf of the Administrators of Heritable.

For the Administrators

[38] In his submissions on behalf of the Administrators, Mr Sellar QC advanced a number of propositions relevant to the interpretation of Regulation 5. Many of these are well-known and I do not propose to set them out here. But one of them requires some comment. Mr Sellar submitted that a statutory deeming provision, which treats a thing as if it were something which in reality it is not, must not be applied further than is necessary for the statutory purpose behind the provision. He took this from Bennion on Statutory Interpretation (5^th Ed) at pp.949-950. I do not doubt that this is so. However, he sought to apply it to the terms of Regulation 5, which provides that an EEA insolvency measure has effect in the UK "as if it were" part of the general law of insolvency of the UK. With all due respect to his argument on this point, it seems to me that this is not a deeming provision at all. The relevant words simply provide for the manner in which an EEA insolvency measure is to be given effect in the UK.

[39] Mr Sellar's central argument, reflecting that made in Answer 64.7 of the Answers to the Note, is this. Regulation 5(1) provides for the EEA proceedings (i.e. the winding up proceedings in Iceland in respect of an EEA credit institution, Landsbanki) to have effect in the UK, as if they were insolvency proceedings in the UK, "in relation to ..." the matters set out in sub-paras.(a), (b) and (c) thereunder - including "(c) any debt or liability of [Landsbanki]" - but only for the purposes of those EEA proceedings. In other words, the Winding-Up Board of Landsbanki and/or the Icelandic court had exclusive jurisdiction to determine any debt or liability of Landsbanki for the purpose of the Icelandic winding up, but they could not in so doing make a decision about the merits of the Heritable Claims so as to bind the Administrators or the court in the Heritable Administration in Scotland. This construction did not involve writing words into the regulation; it was derived from the words "in relation to ...(a) any branch ... (b) any property or other assets ... [and] (c) any debt or liability of that credit institution". The purpose of any winding up proceedings was to determine the validity and amount of claims against the company being wound up, for the purpose of assessing and paying a distribution or dividend in those winding up proceedings. That construction made sense, not only of sub-para.(c), but also of sub-paras.(a) and (b) of Regulation 5(1). Under those sub-paragraphs, the decision in the EEA insolvency proceedings concerning any branch of the EEA credit institution in the UK, or about any of its property or assets, would be given effect in the UK and so prevent attachment being affected by an individual creditor in the UK who might not otherwise be bound by the foreign winding up proceedings.

[40] In his Supplementary Note of Argument, Mr Sellar sought to emphasise that the overall scheme of the Regulations, following that of the Directive, was to give effect to the general principles of unity and universality, which envisaged one insolvency process comprising all assets and all creditors wherever situated, and which would take place in the home state and be governed by the law of the home state. Effect is given to those principles in the Regulations by providing for the recognition within the UK of EEA winding up proceedings in respect of an EEA credit institution and, separately, for the general insolvency law of the UK to govern UK winding up proceedings in respect of a UK credit institution. The law and courts of the winding up proceedings in respect of a credit institution, i.e. winding up proceedings in the home state of the credit institution, should alone determine the admissibility of a claim to be a creditor in those proceedings. That determination includes all elements of the claim, including any defence to the claim, such as a defence that the claim is discharged by operation of insolvency set off. Insolvency set off necessarily involves determining the merits and the amount of any cross claim made by the credit institution against the claimant. That is not a purely arithmetic exercise. If the submissions by the Noters were correct, it would mean that the validity of any claim against the foreign credit institution, put forward in UK insolvency proceedings as a defence to a claim in those proceedings by the foreign credit institution, would, if the foreign credit institution was subject to winding up proceedings in its home state, be determined exclusively by the law and courts of its home state.

[41] In light of criticism of the formulation, advanced in his first Note of Argument, that the EEA insolvency measure should be recognised only for the purposes of those EEA proceedings, Mr Sellar sought to clarify the approach of the Administrators. He submitted that the extent of the words used in Regulation 5(1) was limited by their context, namely the remainder of the Regulations and the Directive. Regulation 5(4)(b), read short, provided that an officer of, or appointed by, the EEA insolvency proceedings could not rule on any dispute which was justiciable by a court in the United Kingdom. Those matters included the matters set out in Regulation 22(3). They included (a) the assets forming part of the estate of the affected credit institution, (d) the conditions under which set off might be invoked, (g) the claims which were to be lodged against the estate of the affected credit institution, (h) the treatment of claims arising after the opening of the relevant winding up and (i) the rules relating to the verification and admission of claims. He relied in particular upon (a), (d) and (i). So far as concerned (a), the "assets" forming part of the estate of the affected credit institution, the well-known technical meaning of that term should be applied. "Assets", in a case where there were cross claims, meant the actual balance due to the UK credit institution after setting off the claim and cross claim. This question was to be determined in accordance with the general insolvency law of the UK; and that meant that the merits of Heritable's claims against Landsbanki, as well as Lansbanki's claims against Heritable, should be determined in the Heritable Administration. As regards (d), this showed that it was for the UK insolvency proceedings to determine all questions of set off. As regards (i), "admission" of claims was also a term which had a well-known meaning in insolvency procedure in the UK. Admission of a claim meant acceptance of the claim on its merits. Accordingly, sub-para.(i) showed that the question of the validity of Landsbanki's claim against Heritable, and the defence to it (including the merits of Heritable's cross claim) were all matters to be determined in the Heritable Administration in accordance with the general law of insolvency in the UK. Overall, it cannot have been intended that Regulation 5 should not apply so as to limit the extent of UK proceedings in respect of an insolvent UK credit institution.

For the Noters

[42] For the Noters, Mr Currie QC submitted that Heritable's claims against Landsbanki were plainly a "debt or liability" of Landsbanki falling within Regulation 5(1)(c). That was not disputed. Accordingly, the Icelandic winding up, and the adjudication upon Heritable's claims against Landsbanki in that winding up, had effect in the UK as if part of the general insolvency law of the UK. He argued that there was no justification for the restrictive interpretation put forward by Mr Sellar. There was no such limitation to be found in the wording of Regulation 5(1). The only limitations were that the EEA insolvency measure only had effect as if part of the general law of insolvency of the UK in respect of the matters listed in sub-paras.(a)-(c). Had a draughtsman intended to restrict further the recognition of an EEA insolvency measure, e.g. by reference to the purpose for which was to be recognised, he would no doubt have done so. More fundamentally, he submitted, the interpretation put forward on behalf of the Administrators involved an unworkable distinction based on the "purpose" for which an EEA insolvency measure was to have effect. That interpretation appeared to take as its starting point some assumption, no doubt based upon UK insolvency law and practice, which was presumed to be the model, of what was within (and conversely, outwith) the proper purpose of insolvency proceedings. But to start from the UK position would be contrary to the proper interpretation of a Regulation which, it was common ground, was designed to give effect to an EC Directive.

[43] Even taking the argument for the Administrators of Heritable at face value, it was still difficult to see why the Icelandic proceedings should not be given effect insofar as they determined the existence of Heritable's claims against Landsbanki. The ascertainment of debts and liabilities, and their discharge, is part of the purpose of insolvency proceedings both in Iceland (according to the averments in the Note) and in the UK. There might be distinctive features of Icelandic law, such as the automatic discharge of claims which are not submitted by a prescribed time. In such a case, the discharge would, nonetheless "have effect" under Regulation 5(1). Where claims are submitted in an Icelandic winding up, the claim is adjudicated upon by the Winding-Up Board, and their decision is subject to a right of appeal to the Icelandic courts. If the claim is rejected or admitted in part only, that too should "have effect" under the Regulation. There was no justification for Heritable's argument that the Icelandic determination of the claims should be recognised, or given effect, only for the purpose of considering whether Heritable should be admitted to a dividend in the Icelandic winding up proceedings. The purpose of considering claims in Icelandic winding up proceedings is broader, and (whatever might be the position in the UK), the framers of the Directive and, separately, the draughtsman of the Regulation, must have been aware that there were differences between the various countries whose insolvency procedures were to be recognised throughout the EC and the EEA. If Heritable had not submitted its claims on time in the Icelandic proceedings, their claims would have been extinguished by operation of Icelandic insolvency law. They should be no better off having submitted claims and failed.

[44] Mr Currie submitted that this interpretation of Regulation 5 was supported by the Directive, which dealt with two forms of insolvency measure, namely "reorganisation" (i.e. administration) and "winding up" (i.e. liquidation). The principle of unity and universality required the home state to have sole jurisdiction and the decisions of the judicial authorities of the home state to be recognised and capable of producing, "without any formality", in other member states, the effect intended in the home member state. It was notable that, in contrast to Council Regulation (EC) No.1346/2000 on insolvency proceedings, the Directive made no provision for ancillary or secondary proceedings. This suggested that in insolvency in relation to credit institutions, the measures taken in the insolvency proceedings in the home state were intended to be applied in other states automatically and without the need for such proceedings.

[45] So far as concerned with Heritable's argument based on Regulation 22(3), Mr Currie submitted that the matters listed there were all, or almost all, concerned with technical and procedural aspects of insolvency. That list was derived from Article 10(2) of the Directive. Heritable's argument based upon Regulation 22(3)(d), which was itself based on Article 10(2)(c) of the Directive and provided that UK insolvency law was to determine "the conditions under which set off may be invoked", was misconceived. It was clear that that Regulation, like its counterpart in the Directive, was concerned simply with the technical rules concerning what debts could or could not be set off against other debts - for example, whether post-insolvency debts could be set off against earlier debts, or whether illiquid claims could be relied upon for the purposes of insolvency set off. That was consistent with the technical and procedural nature of the other matters listed in Regulation 22. It was not concerned with the substantive question of whether the claims in question were good on the merits, or what was their correct value. That interpretation was confirmed by Regulation 28, implementing Article 23 of the Directive, which provided that a creditor facing a claim by an affected UK credit institution, i.e. a UK credit institution undergoing reorganisation or winding up in the UK, is entitled to invoke such rights of set off as were available under the law applicable to that claim. This confirmed the procedural rather than substantive nature of the matters set out in Part 4 of the Regulation. So also, the terms of Regulation 23(3)(i)(i) - in terms of which "the rules governing ... [the] admission of claims" were to be determined according to UK law - must be understood to be procedural. It could not be assumed, in an EC wide Directive, that the word "admission" was to be given a meaning familiar to UK insolvency practitioners, albeit not to others. So far as the argument based on Regulation 22(3)(a) was concerned, there was, equally, nothing to suggest that the word "assets" was intended to have any technical meaning. In the English text of Article 10.2(a) of the Directive, the counterpart of Regulation 22(3)(a), the term used was "goods". The French text used the phrase "les biens". The same French words had been translated as "assets" in Article 10.2(h), in a context which did not suggest the technical meaning of "assets" put forward by Mr Sellar. It was clear, therefore, that no technical meaning in English law could have been intended by the use of the word "assets" in Regulation 22(3)(a). The court was required to apply the Marleasing principle of confirming interpretation: Marleasing S.A. v La Commercial Internacionale de Alimentation S.A. [1990] ECR 1-4135.

[46] There was in fact no tension between Regulation 5(1) and Regulation 22. Regulation 22(2) provided that the matters in Regulation 22(3) were to be determined in accordance with the general law of insolvency of the UK. In terms of Regulation 5(1), an EAA insolvency measure had effect in the UK as part of that general law of insolvency of the UK. There was, therefore, no conflict; on the contrary, the foreign insolvency measure was treated as part of UK insolvency law and, so far as was relevant, was to be applied to the matters set out in Regulation 22(3) along with other aspects of the general law of insolvency of the UK.

[47] It was submitted that the interpretation put forward on behalf of the Administrators would lead to a multiplicity of litigation and a risk of inconsistent judgements. Having had their claims rejected in the Icelandic proceedings, Heritable insist on pursuing them (albeit by way of insolvency set off) in the Scottish Administration. That multiplicity of proceedings, leading to possible inconsistency in outcomes, was contrary to the policy objective expressed in Recital (15) of Regulation 44/2001, which reflected wider EU concerns - see also the Jenard Report on the Brussels Convention, OJ 1979 C 59, p.1 at p.41, and The Tatry [1999] QB 515 per the Advocate General at para.28 and the ECJ at paras.52-53. That Regulation did not apply here, but it was indicative of the Community legal framework against which the meaning of the Directive had to be considered.

Discussion
[48] It is clear that the 2004 Regulations were introduced to give effect to the 2001 Directive. That is common ground between the parties. That being so, I accept the submission made by Mr Sellar QC that the Regulations should be construed in a manner which best gives effect to the Directive. Mr Currie QC adopted the same approach.

[49] There is, so far as Counsel were able to discover, no relevant authority in the UK or elsewhere on the meaning of the 2001 Directive. But there is no real uncertainty as to its scope and as to its basic objective.

[50] Its scope is made clear in the title. It is concerned with "the reorganisation and winding up of credit institutions". The meaning of "reorganisation" is taken from the definition, in Article 2, of "reorganisation measures". That means

"... 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".

It was common ground that this was broadly the equivalent of administration within the UK. There is no similar ambiguity with the phrase "winding up", but the meaning of that too is given by reference to the definition of "winding up proceedings", which means

"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".

So the ambit of the Directive is limited to what, in the UK, we would call administration and winding up.

[51] The Recitals to the Directive are instructive of its basic objective. Recital (3) confirms that, while they are in operation, a credit institution and its branches form a single entity, subject to the supervision of the authorities of the state which granted the appropriate authorisation to carry on business. Recital (4) emphasises the desirability of maintaining that unity between the credit institution and its branches where it is necessary to adopt reorganisation measures or commence winding up proceedings. Recital (5) mentions the need for mutual recognition of reorganisation measures and winding up proceedings. It is clear that the intention identified in the Recitals is directed to the means of achieving this. The first step, spelled out in Recital (6), is to insist that the administrative or judicial authorities of the "home" 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."

At the same time, there is a recognition, in that same Recital, that the harmonisation of the laws and practices of member states is a matter of difficulty. In those circumstances, Recital (6) states that

"... 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."

This, therefore, contemplates that the home state has the exclusive jurisdiction to decide upon reorganisation measures, and that whatever measures are taken by the home state will be recognised by all the other Member States. Recital (7) drives this home, with particular emphasis on identifying the reorganisation measures which might be involved, such as the suspension of payment, suspension of enforcement measures, reduction of claims and other measures which could affect third parties' existing rights.

[52] There is a recognition that certain measures need not be covered by the Directive, such as the internal structure of credit institutions, shareholders rights, compliance with conditions of authorisation and so on, all of which are dealt with in one way or another elsewhere: see Recitals (8) and (9). Recitals (10), (11), (12) and (13) are not directly relevant for present purposes. They deal with such assorted questions as whether certain categories of people are to be regarded as third parties, how third parties are to be notified in cases where the credit institution has branches in the other Member States, ensuring that creditors have opportunities to exercise their rights to take action, and the need for some coordination between authorities where the credit institution has its head office outside the Community but branches situated in different Member States. I need not dwell on these matters.

[53] The earlier Recitals to which I have referred dealt with jurisdiction and recognition in the case of reorganisation measures. Recitals (14) onwards deal with jurisdiction and recognition in the case of winding up. Recital (14) states that in cases where the absence of reorganisation measures, or the failure of such measures, means that credit institutions in financial difficulty have to be wound up, there should be mutual recognition of those winding up proceedings and of their effects in the Community. It is, I think, already implicit in Recital (14) and what has gone before, that the home state, being the state having exclusive responsibility for reorganisation measures, should also have exclusive jurisdiction in respect of winding up. Support for this is to be found in Recital (15) which emphasises that the important role played by the competent authorities of the home Member State may continue during the winding up process.

[54] The position is put beyond doubt in Regulations (16) and (17). I have already set out their terms but it is perhaps convenient to do so again here. They provide as follows:

"(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."

(17) The exemption concerning the effects of reorganisation measures and winding up proceedings on certain contracts and rights is limited to those effects and does not cover other questions concerning reorganisation measures and winding up proceedings such as the lodging, verification, and admission and ranking of claims concerning those contracts and rights and the rules governing the distribution of the proceeds of the realisation of the assets, which are governed by the law of the home Member State."

Article (16) encapsulates the principles upon which the Directive is to operate so as to provide a coherent code for jurisdiction and recognition. The principles of "unity and universality" require the home state to have sole jurisdiction, and for the decisions of the home state to be recognised and given effect in all other Member States. There are, of course, to be exceptions to this "home state" approach. They include the effect of the reorganisation or winding up on certain rights - but the exceptions are limited. All other questions, such as the lodging, verification, admission and ranking of claims and the rules governing distribution of the proceeds of the realisation of the assets are all to be dealt with by the home state: see Recital (17).

[55] I need to say nothing about Recitals (18) to (22), which, in relation to winding up proceedings, cover matters similar to those dealt with, in respect of reorganisation measures, in Recitals (10) to (13).

[56] I have already set out the terms of Recital (23). The important point about this Recital for present purposes is that it again emphasises that the law of the home state determines all the effects of reorganisation measures or winding up proceedings, both procedural and substantive. Against this background, it recognises that, under the home state's rules of private international law, certain matters may have to be dealt with by the home state under reference to the law of another state.

[57] The Articles in the Directive reflect the intention behind it as set out in the Recitals. They are set out sequentially, dealing first with reorganisation measures and then winding up, before turning to matters which are common to both. Thus, Title II, which covers Articles 3 to 8, deals with "Reorganisation Measures". Article 3 provides that 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."

Those reorganisation measures are to be applied in accordance with the laws, regulations and procedures of the home Member State, except as otherwise provided in the Directive. Article 3 goes on to provide that those reorganisation measures

"... 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."

This expresses a recognition that the law of different states concerning administration may differ but, nonetheless, the measures taken in the home member state are to be fully effective elsewhere notwithstanding that the laws or rules of other countries do not contain any equivalent provision. Article 3 goes on to provide, in the final paragraph:

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

I need not set out any further material from Title II.

[58] Title III deals with "Winding-Up Proceedings". I have already set out in full the terms of Article 9. In summary, it provides that the administrative or judicial authorities of the home state which are responsible for winding up shall have exclusive jurisdiction to decide upon the opening of winding up proceedings concerning a credit institution, including branches in other states. Again, this clearly gives jurisdiction only to the home state. Article 9.1 goes on, in the second paragraph, to state that the decision to open winding up proceedings taken in the home state shall be recognised "without further formality" within all other member states, and shall be effective there. The language is imperative. The home state is given jurisdiction; and the decisions of the home member state are to be effective throughout the Community.

[59] The provisions of Article 10 have also been set out earlier in this Opinion. It is, perhaps, worth noting that it is concerned with applicable law rather than with jurisdiction. Article 10.1 provides that the credit institution shall be wound up in accordance with the "laws, regulations and procedures" applicable in the home state, save where the Directive provides otherwise. The law of that home state is to determine a number of things, including those matters listed in the lettered sub-paragraphs thereunder. But whatever the law to be applied to any particular aspect of the winding up, the jurisdiction is given to the home state. And the jurisdiction, as one would expect, includes jurisdiction to determine claims lodged against the credit institution in the winding up proceedings.

[60] I should briefly refer to Article 28 which is entitled "Proof of liquidators' appointment". Article 28.1 is concerned with the documentation needed to prove the administrator's or liquidator's appointment. Article 28.2 provides as follows:

"Administrators and liquidators shall be entitled to exercise within the territory of all the Member States all the powers which they are entitled to exercise within the territory of the home Member State."

This is of some importance, because it adds a level of intensity to the provisions for effect to be given to decisions made in administrations or windings up in the home state. In addition, the administrators and liquidators appointed by the home state are given power, in terms of that paragraph, to appoint persons to assist or represent them in the course of administration or winding up proceedings, particularly in host Member States, and specifically to help overcome any difficulties encountered by creditors in the host state. This is clearly dealing with cases where there are branches in other states than the home state; but it clearly gives recognition, if it were needed, to the supremacy of the administrator or liquidator in the home state and, more generally, to the home state proceedings. There is, of course, the necessity of ensuring that an administrator or liquidator appointed by the home state complies with the law of the member states within the territory of which he wishes to take action - such as taking steps to realise assets, or the provision of information to employees.

[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.

[62] Applying that approach to the insolvency of Landsbanki, there is no real difficulty in seeing that, in terms of Articles 9 and 10, winding up proceedings should be under the exclusive jurisdiction of Iceland (the home state) and that any decisions taken in the winding up proceedings should be recognised and given full effect in other states. Icelandic law (as the law of the home state) would determine all of the matters listed in Article 10.2 of the Directive, including those mentioned in sub-para.(f), claims which are to be lodged against the credit institution, and (g), the rules governing the lodging, verification and admission of claims.

[63] Similarly, in terms of the Directive, the administration of Heritable would, in terms of Article 3, be conducted in the UK (in this particular case, Scotland), according to the laws, regulations and procedures applicable in Scotland; and such administration proceedings would be recognised and given full effect in other Member states.

[64] It is not in dispute, as I understand it, that, in the ordinary course of a winding up, claims presented against a company which is in the course of being wound up must be decided on their merits. That is so in the UK, and, so the evidence shows, also in Iceland. It is confirmed as a general matter by Article 10.2 of the Directive, and in particular by sub-paragraphs (f) and (g) to which I have referred. Further, it is, as I have already pointed out, clear that it was appreciated when the Directive was being negotiated that the insolvency laws of states within the Community might differ not only as to procedure but also as to substance and effect: see e.g. Recital (6) and Article 3.2 in the case of reorganisation, and Article 10 itself in the case of winding up proceedings. The terms of the Directive leaves no room for doubt that the decisions of the home state, taken in accordance with its own laws, regulations and procedures, should be recognised and given effect elsewhere, even where they are not such as would or could have been made in another member state. On the face of it, therefore, if, in the winding up of Landsbanki in Iceland according to Icelandic law, decisions are taken or rulings made as to the validity of claims against Landsbanki by persons purporting to be creditors, those decisions and rulings are to be recognised and given effect in other states.

[65] Accordingly, a ruling by the Noters (or the Icelandic court) in the Icelandic winding up proceedings, that the Heritable Claims against Landsbanki are to be valued at nil, should, to the extent that that ruling is final and binding in Iceland, be recognised and given effect in the UK. So also, if under Icelandic law a claim is extinguished if not presented within a particular time, the extinguishment of that claim should have effect in the UK. The same is true, of course, the other way around. Rulings in the Scottish administration about the validity of, or value to be attributed to, Landsbanki's claims against Heritable should have effect in Iceland.

[66] The 2004 Regulations point, as one would expect, to the same conclusion. There is, as I have said, no doubt that the Regulations are designed to implement the 2001 Directive and extend their application to the EAA. This was common ground between counsel at the debate and is made clear also in the Explanatory Note which accompanies the Regulations. The structure of the Regulations differs to some extent from that of the Directive. In particular, whereas in the Directive the operative provisions, reflecting the layout of the Recitals, start with "Reorganisation Measures" (in Title II) through to "Winding Up Proceedings" (in Title III), before moving (in Title IV) to "Provisions Common to Reorganisation Measures and Winding Up Proceedings", the 2004 Regulations deal with reorganisation measures and winding up proceedings together.

[67] Part 2 of the Regulations (Regulations 3-6) is concerned with questions of jurisdiction and recognition in respect of both types of measures or proceedings. Thus, Regulation 3 contains a prohibition on a court in the UK from making a winding up order, appointing a provisional liquidator, or making an administration order in relation to an EEA credit institution or any branch thereof. An EEA credit institution, for the purpose of the Regulations, does not include a UK credit institution. I need not spend time on Regulation 4 deals with schemes of arrangement. Regulation 5, which is the critical one for the purpose of the present argument, provides, as already noted, 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". The expression "EEA insolvency measure" means either a reorganisation measure covered by the Directive or winding up proceedings covered by the Directive, in each case in relation to an EEA credit institution carried out under the law of the relevant EEA state, the "home state", where the credit institution has been authorised in accordance with Article 4 of the Banking Consolidation Directive (sc. the Directive of the European Parliament and the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions (2000/12/EC) as amended). Accordingly, Regulations 3 and 5 between them replicate the scheme for jurisdiction and recognition set out in the Directive in that they (a) prohibit the UK courts from assuming jurisdiction in respect of the administration or winding up of an EEA credit institution, (b) provide that EEA insolvency measures, i.e. reorganisation measures and winding up proceedings, have effect in the UK as if part of the general law of insolvency in the UK and, because of the definition in Regulation 5(6) of "EEA insolvency measure" and "relevant EEA State", (c) give effect in the UK only to EEA insolvency measures of the home state.

[68] Part 3 of the Regulations involves modifications to the general law of insolvency. Regulation 7 makes it clear that the "general law of insolvency" has effect in relation to UK credit institutions, subject to the provisions of that Part of the Regulations. Much of it is procedural and of no relevance for present purposes, but, as I have already noted, Regulation 15 makes some provision relevant to the Directive in that it allows claims by EEA creditors to be submitted in their domestic language subject to certain requirements set out thereunder. But I need not deal in any greater detail with Part 3.

[69] Part 4 of the Regulations has no application to the reorganisation or winding up of EEA credit institutions or, save to the extent brought in by reference in Regulation 5(4)(b), to the effect to be given to EEA insolvency measures. It is concerned with the reorganisation or winding up of UK credit institutions, where the UK is the "home state"; and, as indicated by the heading, the recognition to be afforded within this process of EEA rights. Regulation 22, which I have already quoted in full, is based on Article 10 of the Directive. It is, as paragraph (1) makes clear, subject to Regulations 23-35. Subject to that, however, as is made clear in paragraph (2), in a relevant winding up (which, according to the definition in Regulation 21(1)(b), includes administration) the matters listed in paragraph (3) are to be determined in accordance with the general law of insolvency of the United Kingdom. Since this Part of the Regulations is concerned with reorganisation or winding up of UK credit institutions, this gives effect to the terms of Article 10.1 of the Directive. The matters listed in paragraph (3) are set out in a way which broadly corresponds to Article 10.2 of the Directive, though there has been some breaking down of some of the sub-paragraphs under Article 10.2, so that the lettering of the items does not exactly correspond.

[70] The list of matters to which, in terms of Regulation 22(2) and (3), the general insolvency law of the UK is to apply in the administration or winding up of a UK credit institution in the UK - and we are here concerned with the Heritable Administration in Scotland - includes the following, which are particularly relied on by Mr Sellar:

(a) the assets which form part of the estate of the affected credit institution;

(d) the conditions under which set-off may be invoked;

(g) the claims which are to be lodged against the estate of the affected credit institution; and

(i) the rules governing -

(i) the lodging, verification and admission of claims.

He argued that these pointed to a conclusion that in a UK administration or winding up, the administrators, liquidators or the court, as the case may be, were required to decide on the merits of claims made against the insolvent credit institution in accordance with the insolvency law of the UK; and he argued that as part of this they must be free to decide, as a matter of UK insolvency law, the merits of any cross claim that the insolvent UK credit institution might have against the party making the claim against it, so as to trigger the application of insolvency set off.

[71] As a general proposition, Mr Sellar's argument is unexceptional. There is no real doubt that in a UK winding up the liquidators must be able to make a decision as to the merits and quantum of claims made against the insolvent credit institution. That is their job, to gather in the assets of the company and pay off the creditors (though usually, at least in the case of unsecured creditors, only a dividend on their claims). To do that they have to assess the value of claims presented against the insolvent credit institution and, where there are cross claims, they have to assess also the value of the claims against the creditor. The same is true of administrators. Subject to any right of appeal (of which this Note is an instance), their decisions are final. I do not understand this to be controversial.

[72] But Mr Sellar seeks to take his argument further. He says, as I understand it, that in assessing the merits and the value of claims by creditors and cross claims by the insolvent credit institution, the liquidators (or in this case the administrators) cannot be bound by decisions which have been taken elsewhere, in other insolvency proceedings. Decisions in other (EEA) insolvency proceedings should be recognised as having effect in the UK only for the purpose of those (EEA) proceedings (I use this expression as a shorthand, not to tie him into a formulation with which he was, on reflection, not entirely happy). It is in support of this extended argument that he relies upon these particular sub-paragraphs of Regulation 22(3). He argues that they show that these are matters which are to be determined in the UK administration and cannot be determined elsewhere, at least so as to bind the Administrators.

[73] I shall consider each of these points in turn, but I should make this preliminary comment. Let it be assumed, as Mr Sellar contends, that these sub-paragraphs of Regulation 22 show that the Administrators have to decide these matters, including, for example, the net amount, if any, of Landsbanki's claim against Heritable, taking account of Heritable's cross claims and applying insolvency set off. Why would it follow that the Administrators, in so deciding, are free to ignore decisions of competent courts or other tribunals having jurisdiction over the matters upon which they have come to a decision? I can see no reason why they should be entitled to ignore such decisions? Imagine, for example, that, before Heritable went into administration, it had referred its claims against Landsbanki to arbitration, and that in that arbitration those claims had been rejected on the merits with no right of appeal. Upon Heritable going into administration, Landsbanki presents its claims in the administration. Could the administrators set against the Landsbanki claims which had been rejected by the arbitrators? Clearly not. Those claims by Heritable would have been rejected, and the Administrators would not be entitled to raise the claims afresh so as to rely on insolvency set off - they would be bound by the arbitration award. So also if, instead of the claims being referred to arbitration, they had been decided in court, and there had been judgment for Landsbanki (decree of absolvitor). The Administrators, in considering Landsbanki's claims against Heritable, and considering the application of insolvency set off, would be bound by the arbitration award or judgment. This does not in any way interfere with their exclusive jurisdiction over the conduct of the administration. Rather, the decision of the arbitral tribunal or the court in the prior litigation is a matter by which they are bound when determining the value of claims against Heritable in accordance with UK law.

[74] The position would appear to be no different where the prior award or judgment is a foreign one. Assume that Heritable had sued Landsbanki in Iceland and lost. How could the Administrators of Heritable subsequently revive that claim by way of insolvency set off in answer to a claim presented by Landsbanki in the Heritable Administration? They clearly could not. The prior decision would be binding on them. Why then should that not equally be the case when the decision of the foreign court is a court concerned with the winding up of Landsbanki, assuming, of course, as is the case here, that the foreign court has jurisdiction, indeed exclusive jurisdiction, in respect of the winding up proceedings?

[75] I turn to deal with the sub-paragraphs relied on by Mr Sellar with these considerations in mind. He first relied on sub-para.(a), which provides that the "assets" forming part of the estate of the affected credit institution must be determined by the Administrators according to the general law of insolvency of the UK. He argued that the word "assets" in the Regulations should be given its technical meaning in insolvency law in the UK - in a case where insolvency set off was in question, "assets" referred to the net amounts due to the company in administration or liquidation, taking account of the relevant cross claims. If it was for the Administrators to determine the "assets" of Heritable, it was for them to determine the merits and quantum of Heritable's claim against Landsbanki. I do not consider that any technical meaning of the word was intended. The equivalent paragraph of the Directive, in Article 10.2(a), uses the words "the goods subject to administration" in the English version of the text, which equates to the words "les biens" in the French version. Those same French words in Article 10.2(h) are rendered as "assets" in the English version of that sub-paragraph, in a place where it seems unlikely that any technical meaning was intended. There appears to be no consistent usage. This, to my mind, tells against Mr Sellar's argument on this point. But I am not sure whether this argument in fact matters, since paragraph (3)(a) of Regulation 22, even without any such technical meaning of the word "assets", reflects one of the prime obligations on the administrators which is to gather the assets, and that necessarily involves them considering such claims as Heritable may have against a number of parties, including Landsbanki.

[76] Reliance was placed on sub-para.(d), which referred to "the conditions under which set-off may be invoked". I understood Mr Sellar to argue that this directed the Administrators to determine the validity of claims by Heritable insofar as those claims were relevant to insolvency set off against claims against Heritable by Landsbanki and, possibly, others. I do not accept that. It seems to me that that sub-paragraph is procedural in nature. The scope of insolvency set off, what claims may be set-off, when they had to arise, and other such issues are to be determined by the Administrators under this subheading paragraph in accordance with the general law of insolvency of the UK. But again, I do not think anything turns on this, since it is clear that one of the functions of the Administrators in the Heritable Administration is to consider insolvency set off, and, where it may apply, to assess the validity of Heritable's claims.

[77] Next, Mr Sellar relied on sub-para.(g), which refers to the claims which are to be lodged against the estate of the affected credit institution. This too, to my mind, does not advance his argument. Clearly the Administrators have to consider such claims and, in so doing, will consider insolvency set off and, as a result, will have to determine the merits of Heritable's claims.

[78] Finally, Mr Sellar placed reliance on sub-para.(i), which refers to the rules governing (i) the lodging, verification and admission of claims. The point is the same as before. Whether this is procedural in nature, referring to the "rules" applicable to lodging, verification, etc., or whether it is substantive, does not seem to me to matter. Clearly in considering claims against Heritable the Administrators will have to consider cross claims for the purpose of insolvency set off.

[79] In a related argument, Mr Sellar tied in these sub-paragraphs with the provisions of Regulation 5(2) and (4). The argument is somewhat complex. In terms of Regulation 5(2), a competent officer appointed in the EEA insolvency proceedings, or a qualifying agent appointed by him,

"may exercise in the United Kingdom, in relation to the EEA credit institution which is subject to an EEA insolvency measure, any function which, pursuant to that measure, he is entitled to exercise in relation to that credit institution in the relevant EEA state."

Regulation 5(4) sets out certain restrictions on what he may do or the circumstances in which he may do it. Regulation 5(4)(b) provides that the competent officer or qualifying agent

"may not rule on any dispute arising from a matter falling within Part 4 of these Regulations which is justiciable by a court in the part of the United Kingdom in which he is exercising those functions ..."

Part 4 is the Part of the Act in which Regulation 22 appears. The argument which Mr Sellar sought to develop it was to this effect, that these provisions read together showed that the writ of the foreign insolvency process did not run in matters which were reserved to be dealt with in a UK administration in accordance with the general law of insolvency of the UK.

[80] I am not persuaded that this argument is correct. To my mind the intention behind these provisions is much more limited. What is contemplated is that in a winding up being carried out in the home state of a credit institution, the liquidators (in this case the Winding-Up Board of Landsbanki) may have occasion to seek to gather in assets situated in other countries, including the UK. This is a fairly common situation when a liquidation of a UK company is carried out in the UK and the liquidators seek to gather in assets of the company which may be located in many different jurisdictions. Regulation 5(2) ensures that a competent officer appointed in an appropriate manner in the foreign winding up will be recognised in the UK and will be entitled to exercise in the UK such function as he is entitled to exercise according to the insolvency proceedings of the home state. But that is subject to obvious restrictions such as that spelt out in para.4(b). Clearly he cannot rule on a dispute which is justiciable by a court of law in the UK. He would have to go through the UK courts; and no doubt his right to do so by virtue of his appointment in the winding up proceedings in the home state will be recognised without any difficulty. It does not seem to me that the effect of those provisions goes any further than this, and these provisions certainly do not provide any support to the construction of the Regulations advanced on behalf of the Administrators.

[81] Nothing in these points persuades me that there should be any limit of the type suggested by Mr Sellar upon the recognition to be given to a ruling in the Landsbanki winding up proceedings in Iceland. Indeed, the structure of the Directive and of the Regulations points forcibly to them being given an uncomplicated and robust interpretation. Exclusive jurisdiction over insolvency proceedings in respect of EEA credit institutions, whether administration or winding up, is given to the home state. In this case, that is Iceland. The insolvency proceedings in Iceland will determine the validity of claims against Landsbanki, albeit that in some cases that may involve a consideration of some other law, for example the governing law of the contract under which the claim arises. Once a final decision is made in the Icelandic insolvency proceedings, that will have effect in the UK. In this case, that has not yet happened, since there is an appeal pending in the Icelandic courts. One of the possibilities is that the decision in the Icelandic winding up proceedings will be that Heritable have no valid claim against Landsbanki. It is clearly within the jurisdiction of the court in Iceland to determine that question. If the Icelandic court comes to that decision, its decision will have effect in the UK as if it were part of the general law of insolvency of the UK. It will be a decision which will have to be given effect in the Heritable Administration.

[82] In principle I see no difficulty with that approach. The Directive requires home state insolvency proceedings in respect of credit institutions, and requires that the decisions in those proceedings be recognised and be given effect throughout the Community. The Regulations apply the same scheme throughout the EEA. This effect is given to an EEA insolvency measure, but only for a limited purpose, that would seem to me to undermine the basic philosophy of the Directive. It would result in inconsistent decisions in different countries, with the inevitable difficulty of reconciling those decisions.

[83] But it has to be admitted that there are potentially serious difficulties if the recognition given under the Directive and the Regulations is wider, as I consider it is. It does not appear that the framers of the Directive can have contemplated the possibility of there being two concurrent sets of insolvency proceedings concerning credit institutions, where the respective credit institutions each head claims against the other. The possibility of inconsistent decisions is not merely theoretical. It has occurred in the present case, at least at the first stage of the proceedings in each country. In Iceland, the Winding-Up Board of Landsbanki have rejected all the Heritable Claims (with the exception of the Swap Claim) in their entirety. If that decision is given effect in the Heritable Administration, the result will be that the Landsbanki RCF Claim will be admitted. On the other hand, in Scotland, the Administrators of Heritable have, in rejecting the Landsbanki RCF Claim, effectively decided that the Heritable Claims against Landsbanki are good, at least to the extent of overtopping the Landsbanki RCF Claim. The decisions, which are both under appeal, are clearly inconsistent. In this action I am only concerned with the question of what effect should be given to the decisions in Iceland in the Landsbanki winding up. To that extent, the arguments presented to me deal with only half of the picture. The other half, which may or may not arise in the present case but is at least a real possibility in the future, would require to be considered if the Administrators of Heritable sought to argue that the decision in the Heritable Administration upholding the Heritable Claims against Landsbanki should be given effect in Iceland in the Landsbanki winding up. I do not know whether such an argument has been raised. But it shows the possibility of that, notwithstanding the wider interpretation which I favour, there will still be the risk of inconsistent decisions when there are concurrent insolvency proceedings in respect of different (but maybe connected) credit institutions in different countries. One solution might be to take the decision which was first in time, but the Directive contains no hint that this is the appropriate course. Since the point is not for me for decision, I propose to say no more about it.

[84] For these reasons, I reject the argument for the Administrators of Heritable that the Noters' averments in relation to Regulation 5(1) are irrelevant.

Res Judicata
[85] In paragraph 17.5 of the Note, the Noters make the following averments in relation to their plea of res judicata:

"Accordingly, the submission of claims in the winding up of Landsbanki is equivalent to bringing a legal action against Landsbanki, by reason of article 117 of the AB. Any claim of Heritable which was not submitted in the winding up of Landsbanki has been extinguished by article 118 of the AB. The claims submitted in the winding up have been adjudicated upon pursuant to article 119 of the AB. The matter has been referred to the Icelandic district court pursuant to article 171. The proceedings before the Icelandic court are concerned not merely with Heritable's entitlement to rank as a creditor in the winding up procedure, but with the validity and quantum of the claims. Any determination of the Icelandic court will found a plea of res judicata in this court in relation to the merits of the Heritable claims. Conversely, if Heritable abandons its appeal, then the determination by the Noters will be binding for the same purposes, by reason of articles 117 and 120 of the AB."

The point is repeated in paragraph 64.1 of the Note, where the Noters aver that the determination of the Icelandic courts in relation to the Heritable Claims will be binding in these proceedings not only because of Regulation 5 of the 2004 Regulations, but also because the decree of the Icelandic court will found a plea of res judicata in this court.

[86] Mr Sellar, for the Administrators, accepted that if the Noters' argument on Regulation 5 was relevant, the question of whether their averments on res judicata were relevant ceased to have any practical effect. Accordingly, since I have held that the Noters' averments on Regulation 5 are relevant, and the question of res judicata is in consequence of no practical effect, I shall deal with this issue more briefly than I might otherwise have done. In so doing I intend no disrespect to the careful arguments presented to me on the point.

[87] The starting point for this argument, which I did not understand Mr Sellar to dispute, was that both the Noters and the Administrators were parties to the Icelandic proceedings, in the sense that the Administrators had lodged a claim in the Landsbanki winding up and were now parties to an appeal process. They may have taken part in the process reluctantly, out of concern that a failure to lodge a claim might result in a decision that their claim was extinguished, and that that decision might be recognised and given effect in the UK, but the fact is that they have taken part and they are therefore parties to the Icelandic proceedings. In those circumstances there is a prima facie case that the doctrine of res judicata will apply.

Submissions

[88] In submitting that the averments of res judicata were irrelevant, Mr Sellar advanced a number of propositions. In summary, his arguments were as follows.

[89] His main argument was that, for there to be a defence of res judicata, the judgment relied upon so as to found that plea had to have been pronounced before the beginning of the proceedings in which the plea was taken. His argument proceeded from the fact that there was no case and, indeed, not even any textbook, in which a contrary rule was applied or even discussed. An action in the Court of Session begins on the date of citation of the defender, or, in ordinary language, when the defender is served with the proceedings. The only other realistic candidate, he submitted, would be that the judgment relied upon had to have been pronounced by the time at which the plea of res judicata was considered or, possibly, at the time when the plea was decided upon by the court. This is the date at which a plea of lis alibi pendens is determined (see Flannigan v British Dyewood Co Ltd. 1971 SC 110) but, he submitted, there was no discussion in the cases or the textbooks supporting this approach as relevant to a plea of res judicata. He took some support from Maclaren, Court of Session Practice at p.401, where, in connection with the closely related defence of "competent and entitled", there was a reference to the proceedings in which that plea could be taken as a "subsequent process", suggesting that the proceedings in which the plea was taken had to have been commenced after the resolution of the first proceedings. He submitted that his analysis that res judicata requires the prior judgment to have been pronounced before the later proceedings even begin, was supported also by the existence of a number of other pleas which were available to address the risk of different courts pronouncing different judgments on the same subject matter. These included the plea of lis alibi pendens or lis pendens, which applied when both sets of proceedings were before the Scottish courts (as to which see Levy v Gardiner 1965 SLT (Notes) 86) and forum non conveniens, which applied where one set of proceedings was raised in a foreign court. In the context of a Scottish sequestration, an example of the application of the principles of forum non conveniens was Phosphate Sewage Co v Molleson (1874) 1 R 840. Although that plea was not expressly in issue there, that case could nonetheless be seen as addressing the same issues: see Smart, Cross-Border Insolvency (2^nd Ed) at p.77. The clear rule was that it is for the Scottish insolvency process (including the Scottish court on an appeal) to determine the validity of a claim in the sequestration and the elements of that claim. That process was not to be sisted to enable a foreign court (in that case, an English court) to determine the claim: see Phosphate Sewage Co (supra) at pp.844 and 846. That approach was not doubted in the first (unsuccessful) appeal to the House of Lords: see (1876) 3 R (HL) 77/93, 96 and 97, and see also at a later stage of the litigation per Lord Shand at (1878) 5 R 1125 at 1146. It would be inconsistent with that clear approach in an insolvency process to uphold a plea of res judicata based upon a decision pronounced in another court after the beginning of the proceedings in which the plea was taken. The Scottish process would not be sisted to enable a foreign court to determine the claim, yet, if the Noters were correct in their argument, the Scottish process would, nonetheless, required to recognise the judgment of the foreign court if that judgment were obtained before the Scottish court reached its final decision. Mr Sellar emphasised the exclusive statutory jurisdiction of the insolvency process in Scotland, including that of the Scottish courts on appeal, to determine all matters arising in that process. The jurisdiction extended to all matters which it was necessary to decide in order to determine the validity of a claim to a dividend, or distribution, in that process. The nature of that exclusive jurisdiction was expressed in the clearest terms by the Court of Session at both stages of Phosphate Sewage Co.: see (1874) 1 R 841 at 844, 845-6 and 847 and (1878) 5 R 1125 at 1138-9, 1143, 1146 and 1147. Nothing said in the House of Lords in the second (also unsuccessful) appeal cast doubt upon that exclusive jurisdiction: see (1879) 6 R (HL) 113 at 114 and 122. That exclusive jurisdiction to determine claims to participate in a distribution was also stated clearly in Goudy on the Law of Bankruptcy (4^th Ed) at p.607. The notion that res judicata could be based upon a judgment pronounced after the insolvency process had begun would be inconsistent with the exclusive jurisdiction of the court in Scotland.

[90] The policy basis for res judicata was that a party should not be subject to (or "vexed by") a second action on the same grounds: Lockyer v Freeman (1877) 4 R (HL) 32 at 42. This was linked to the public interest in the finality of litigation. If two sets of proceedings were allowed to continue in parallel, that would be inconsistent with the public policy considerations referred to; and the position was a fortiori in a case where, because of the possibility of relying upon the judgment in one set of proceedings to found a plea of res judicata in another, there was a race to judgement.

[91] Mr Sellar accepted that the proposition which he advanced was in contrast with modern English law, which accepted that the defence of res judicata in one set of proceedings could be based on a judgment given (in other proceedings) after the writ was issued in the proceedings in which the defence was pleaded. He referred to Morrison Rose and Partners v. Hillman (1961) 2 QB 266 and Spencer Bower and Handley, Res Judicata (4^th Ed) at para.3.01. However, he submitted that the English decision depended to a material extent on the theory that the earlier judgment operated as conclusive evidence of the matter: see Morrison Rose at p.277. That was not the position in Scotland: see Walker and Walker, The Law of Evidence in Scotland (1^st Ed.) at para.50

[92] Mr Sellar's second, third and fourth propositions were supplementary or alternative to his first. The second was that, in the case of an insolvency process, the making of a claim in that process was to be treated as the beginning of an action. For this proposition he cited the final stage in Phosphate Sewage Company (1878) 5 R 1125 at 1140 and 1147. He submitted that the same rules should apply to administration. I do not think that this proposition was controversial, and, in any event, I accept it. His third proposition was that even if, in ordinary litigation, his first proposition did not hold good, nonetheless it should hold good in an insolvency process. His fourth proposition was yet another variant, and that was that at the very least the proceedings in which the prior judgement was pronounced, had to have been commenced before those in which the plea of res judicata was taken. In support of this, he cited no fewer than 22 passages from decided cases and textbooks, not as direct support for this proposition but as inferential support, the inference deriving simply from the fact that they stated the law of res judicata in a way which would, he submitted, be materially misleading, if this submission were not correct. Again, he relied upon the absence of any case or textbook commentary in which it was even suggested that a plea of res judicata could be founded upon a decision in other proceedings which were begun later. He submitted that the decision in Levy v Gardiner on lis alibi pendens was an authority which was inconsistent with a judgement in later proceedings being res judicata in proceedings commenced earlier.

[93] Mr Sellar's fifth and sixth propositions were unrelated to the question of timing. The fifth was that res judicata was available only where both the subject matter and the legal grounds of each action were the same. He referred to Hynds v Hynds 1966 SC 201. His sixth proposition was that Scots law did not recognise any doctrine of "issue estoppel". For this he relied upon Anderson v Wilson 1972 SC 147 Clink v Speyside Distillery Co Ltd 1995 SLT 1344 and Anton, Private International Law (2nd Ed) at 236-237.

[94] Applying those propositions to the case before the court, Mr Sellar submitted that the Noters' averments in support of their plea of res judicata were irrelevant. Landsbanki's claim in the Heritable Administration in Scotland was lodged on 8 December 2008. No judgment of the Icelandic court had been pronounced by that date. Even if the decision of the Winding-Up Board of Landsbanki could be relied upon as forming the basis of a plea of res judicata, that decision was also made after the lodging of Landsbanki's claim in the Heritable Administration; and, indeed, was not made until after the rejection of Landsbanki's claim by the Administrators, and after the Noters had presented their Note seeking to appeal that rejection on 20 November 2009. Further, the subject matter of the proceedings in the Winding up of Landsbanki was different from that raised in the Heritable Administration and, on appeal, in the Note. The subject matter of the Landsbanki winding up was the sum, if any, in respect of which Heritable is a creditor of Landsbanki so as to entitle them to a share in any dividend paid in the Icelandic winding up process. The subject matter of the decision in the Heritable Administration and in this appeal is different: it is the sum, if any, in respect of which Landsbanki is a creditor of Heritable and in respect of which Landsbanki has the right to share in further dividends paid in the administration.

[95] In his written Note of Argument, Mr Sellar dealt with other common law issues relating to the recognition by a Scottish court of a discharge of liability by a decision in a foreign insolvency process. I need not take time over this, since Mr Currie, for the Noters, disclaimed any reliance upon any points other than those noted above.

Discussion
[96] I am satisfied that, so far as is material to the plea of res judicata, the subject matter of the proceedings in Iceland and in Scotland is the same. In the Landsbanki winding up proceedings, the question is: does Heritable have good claims against Landsbanki and, if so, in what amounts? The answer given so far is: No. In the Heritable Administration, the principal question is: does Landsbanki have a good claim against Heritable? But that breaks down into two separate questions. The first is whether Landsbanki has a good claim on the merits. The answer to that is: Yes. But that answer gives rise to the second question: does Heritable have good claims against Landsbanki, and if so, in what amounts? That is precisely the same question as is asked in the Icelandic proceedings. Of course, it arises in the context of a defence by Heritable applying insolvency set off; but it is nonetheless a distinct question which involves addressing the merits of Heritable's claims. There is a further distinction, in that all that the Administrators are interested in, for that purpose, is to assess whether the Heritable Claims equal or exceed in amount the Landsbanki claim. But that is a distinction without a difference. They're still requires to be an assessment of the merits of the Heritable Claims, and that assessment raises precisely the same questions as are raised in the Landsbanki winding up.

[97] I turn, therefore, to the question of timing, upon which Mr Sellar placed on so much weight. I am quite unable to accept his submissions on this point, whether in their primary form or in the alternatives set out in his third and fourth proposition. Subject to one case, which I must obviously consider, there is, as Mr Sellar accepts, no authority on the point. The case of Phosphate Sewage Company does not point either way; it was not concerned with the plea of res judicata, though it has only other things to say about the interrelationship of insolvency proceedings in different jurisdictions. The reason for this lack of authority is probably to be found in the existence of the various other pleas to which he refers in his argument, viz. the pleas of lis alibi pendens or lis pendens and forum non conveniens. Because of the effectiveness of these pleas, the problem with which the court has faced in this case does not appear to have arisen. In those circumstances, it is not in the least surprising that all summaries of the principle of res judicata talk in terms of the "prior" decision founding the plea in "subsequent proceedings". But however many times that is said, in however many references, that is not authority for a proposition that res judicata cannot be relied upon other than in those circumstances.

[98] Reliance was placed on Levy v Gardiner. The case was concerned with the plea of lis alibi pendens. The Lord Ordinary (Lord Fraser) held that a third action, raising the same matters which were already pending in two other actions before the same court, was incompetent. In the course of his Opinion, he rejected an argument by counsel for the pursuer that the prior actions could be assisted while the third action was allowed to continue. That, he considered, was entirely contrary to the principle. In developing his reasoning, he said this:

"If it were followed, the result would be that the pursuer might carry on with this action and fail, and he would then be free to raise the same question over again in [the other actions]. Such duplication of actions is in my opinion obviously not permissible."

It does not appear from the brief Note of his Opinion that he was addressed on the question of res judicata, and I would regard it as unsafe to treat that as an authority for the proposition that a plea of res judicata could not succeed where the judgment relied upon was a judgment in a case which had been commenced after the action in which the plea was taken.

[99] There is no obvious reason why the rule should be as Mr Sellar asserts it to be.

It appears to introduce a wholly arbitrary cut-off. The principle underlying the plea of res judicata is the undesirability of inconsistent decisions on the same matter and the need for there to be an end to litigation. A rule such as that which he advances in his submissions would, so it seems to me, give rise to a real risk of inconsistent decisions in cases where, for one reason or another, it was impossible to prevent concurrent proceedings (possibly in different jurisdictions) concerning the same subject matter. Further, as Mr Currie pointed out, if Heritable's position was correct, it would be possible to frustrate the effects of an anticipated adverse judgement and by commencing proceedings in Scotland shortly before judgement was pronounced. On the analysis put forward by, the adverse judgement would be irrelevant in the Scottish proceedings. Such an outcome would be contrary to the policy considerations behind the plea of res judicata.

[100] Mr Sellar accepted that the rule for which he contended was contrary to the position in English law. That would not matter if the rule were well established in Scots law. But the rule is not well established in Scots law, and no compelling reasons have been advanced for adopting it in this case. I therefore reject his submissions on this point.

Disposal
[101] For the reasons I have given, I reject the arguments advanced on behalf of the Administrators as to the relevancy of the averments in the Note regarding Regulation 5(1) and res judicata. I shall put the case out By Order for discussion as to the appropriate interlocutor to give effect to this decision.