Kaupthing Bank HF, R (on the application of) v HM Treasury

For a statutory power conditioned on purpose, the specified purpose must be the decision-maker’s main or dominant purpose. Under the Banking (Special Provisions) Act 2008, maintaining UK financial stability could properly include protecting depositors where that protection was part of a wider assessment of contagion and loss of confidence. The Treasury had to consider the specific consequences of the order not being made, rather than treating the bank’s difficulties as merely part of a general financial crisis. It was entitled to rely on detailed advice from the Financial Services Authority and the Bank of England and was not required to make further inquiries into speculative liquidity proposals where the available evidence showed no realistic prospect of timely improvement.

Kaupthing, the parent company of Kaupthing Singer & Friedlander Ltd, sought judicial review of the Transfer of Certain Rights and Liabilities Order made by HM Treasury under section 6 of the Banking (Special Provisions) Act 2008. The order transferred liabilities relating to KSF’s Edge accounts to a Bank of England-owned company and then to ING Direct N.V.

The claim challenged whether the statutory purpose and conditions in section 2 had been satisfied. Kaupthing argued that the real purpose was to protect KSF depositors, and that the Treasury had failed to identify and investigate a specific threat to UK financial stability arising from KSF’s liquidity difficulties.

1. Purpose. The application was dismissed. Where legislation makes the exercise of a power depend on purpose, the specified purpose must be the main or dominant purpose. The court held that maintaining the stability of the UK financial system was the primary purpose of the Transfer Order. Protection and continuity for KSF depositors formed part of the reasoning supporting that purpose, rather than constituting a different primary purpose.
2. Specific threat. Section 2(2)(a) required the Treasury to consider whether there would be a serious threat to the stability of the UK financial system if the order were not made. The Treasury had considered the specific threat posed by a disorderly failure of KSF and its consequences, including wider loss of confidence, withdrawals from other deposit-takers and pressure on the financial system. It had not treated KSF’s position merely as an undifferentiated part of the global or Icelandic crisis.
3. Information and inquiry. The Treasury had ample material from the Financial Services Authority and the Bank of England. It knew that KSF was in breach of the threshold condition concerning adequacy of resources, that the FSA had prohibited new deposits, and that the FSA considered there was no realistic prospect of sufficient improvement within a reasonable period. The Treasury was entitled to act on that information and was not required to make further inquiries of Kaupthing or KSF about proposed liquidity increases.
4. The court proceeded on the basis that the FSA’s relevant decisions and supervisory notices stood unchallenged. The evidence did not establish an agreed liquidity plan which remained available to KSF, and the promised transfers had not been made by the relevant deadline. Any challenge based on the unreasonableness of the decision would have failed. The application for judicial review was dismissed.

First-instance judicial review proceedings. No prior appellate decision is stated in the judgment.