Lornamead Acquisitions Ltd v Kaupthing Bank HF

For an EEA credit institution, an insolvency measure recognised under the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 must receive effective and uniform application in the United Kingdom. The court should not determine the underlying merits merely to decide whether the institution still has relevant property or assets. In a complex transaction, competing jurisdiction clauses are construed against the documentation as a whole. The clause in the agreements at the commercial centre of the transaction governs the dispute. A clause benefiting one party permits proceedings elsewhere where the Convention allows, but does not permit unilateral renunciation after proceedings have begun. A stay for forum non conveniens is inappropriate where the parties selected England exclusively and no exceptional circumstances exist.

Lornamead sought declarations that contractual transfers and novations had released or cancelled its liabilities under interest-rate hedging confirmations entered into with Kaupthing. Kaupthing applied to strike out or stay the English proceedings, relying on Icelandic insolvency measures, Regulation 5 of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, the Icelandic jurisdiction clauses in the hedging confirmations, and forum non conveniens.

The court considered the related decision in Rawlinson and Hunter Trustees SA v Kaupthing Bank HF [2011] EWHC 566 (Comm), the operation of the EEA insolvency regime, the Lugano Convention, and the competing jurisdiction clauses. The central questions were whether the English claim had to be stayed and which contractual jurisdiction clause governed it.

Kaupthing’s application to strike out or stay the English proceedings was dismissed.

1. On Issue 1, the court applied judicial comity and followed Burton J’s decision in Rawlinson and Hunter Trustees SA v Kaupthing Bank HF [2011] EWHC 566 (Comm). Although the judge had doubts about that decision, she was not convinced that it was wrong. Kaupthing was therefore treated as not being subject to an EEA insolvency measure when the proceedings were issued.
2. On the alternative Issue 2, if an EEA insolvency measure had existed, Regulation 5(1) of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 would have required the English proceedings to be stayed. The Directive required a unified and universal insolvency regime. The court could not conduct a merits inquiry into whether Kaupthing still possessed relevant rights before giving effect to the Icelandic moratorium and its claims procedure.
3. On Issue 3, the court applied the construction principles in UBS AG v HSH Nordbank AG [2009] EWCA Civ 585. The dispute concerned the construction and effect of the central facility, security, transfer and intercreditor documents, rather than merely the amount due under individual hedging confirmations. Those central documents contained English jurisdiction clauses. The Icelandic clauses in the confirmations did not govern this dispute. The English court therefore had exclusive jurisdiction under Articles 17 and 21 of the Lugano Convention. Kaupthing could not renounce the English clauses after proceedings had been issued.
4. On Issue 4, a stay for forum non conveniens or case-management reasons was refused. The English jurisdiction agreement, the absence of exceptional circumstances, and the English-law character of the central contracts all favoured England. Leave to appeal was granted on Issue 1. Directions concerning Lornamead’s Part 24 application were reserved.