Lornamead Acquisitions v Kaupthing

The Commercial Court resolved a jurisdictional challenge by the defendant Kaupthing to declaratory proceedings brought by Lornamead concerning the effect of a transfer/novation and related security arrangements on a series of hedging agreements.

The court applied principles arising under the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 (Regulation 5(1)) as implementing Directive 2001/24/EC, and considered whether an Icelandic moratorium and winding-up process prevented continuation of the English proceedings. The judge followed the earlier decision in Rawlinson & Hunter (Burton J) and held that Kaupthing was not, on 13 May 2010, subject to an EEA insolvency measure for the purposes of the 2004 Regulations, so Kaupthing’s primary stay/strike-out argument under Regulation 5(1) failed.

As a hypothetical alternative the court held that, if Kaupthing had been subject to an EEA insolvency measure at the relevant time, Regulation 5(1) would have required a stay so that claims should be dealt with under the Icelandic insolvency procedure.

On competing jurisdiction clauses, the judge held that the dispute about whether rights and obligations under the relevant "Finance Documents" (including the facility agreements, intercreditor agreement, security trust deed and the deed of resignation and transfer of security) had been released or cancelled was at the commercial centre of the transaction and therefore fell within the English jurisdiction clauses. Accordingly Article 17 (Lugano Convention) did not deprive the English court of jurisdiction and Kaupthing’s Article 17 challenge failed. The court also rejected Kaupthing’s forum non conveniens / case management argument.

Background and parties

The claimant Lornamead (an English company) sought declarations about the effect of a Deed of Resignation and Appointment and Transfer of Security, facility agreements (senior and mezzanine), an intercreditor agreement and hedging documentation on its obligations under a series of hedging confirmations originally with Kaupthing (an Icelandic bank). Kaupthing was subject to Icelandic moratorium and later winding-up measures following the 2008 financial crisis.

Nature of the application

• Defendant Kaupthing applied (30 September 2010) for the English proceedings to be struck out or stayed on the basis that (i) the Icelandic insolvency measures had effect in the United Kingdom under Regulation 5(1) of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, (ii) the Icelandic courts had exclusive jurisdiction under Article 17 of the Lugano Convention because the disputes concerned the hedging confirmations, and/or (iii) the English court should decline to exercise jurisdiction on forum non conveniens or case management grounds.

Issues framed by the court

• Issue 1: Whether Burton J’s decision in Rawlinson that Kaupthing was not subject to an EEA insolvency measure between April 2009 and November 2010 should be followed.
• Issue 2: If Rawlinson is wrong, whether Regulation 5(1) would require a stay/strike-out.
• Issue 3: Whether the Icelandic courts had exclusive jurisdiction under Article 17 (Lugano) because the disputes concerned the hedging confirmations governed by Icelandic law.
• Issue 4: If English jurisdiction applied, whether the proceedings should nevertheless be stayed on forum non conveniens / case management grounds.

Court’s reasoning and conclusions

• Issue 1: Applying the principle of judicial comity between co-ordinate first-instance judges the court declined to disagree with Burton J in Rawlinson, despite having doubts. The court therefore held that Kaupthing was not subject to an EEA insolvency measure on 13 May 2010, so Kaupthing’s Regulation 5(1) challenge failed at that factual point.
• Issue 2 (hypothetical): The court nevertheless addressed the point on the basis that the Court of Appeal might allow an appeal in Rawlinson. It concluded that, had Kaupthing been subject to an EEA insolvency measure at the relevant date, Regulation 5(1) should be construed purposively to give effect in the United Kingdom to the home State insolvency regime. In that event the English court should stay the proceedings so that the dispute could be resolved in Iceland under the Icelandic insolvency procedure.
• Issue 3: On construction of the documentation as a whole the dispute in the English proceedings was principally about the effect of the transfers, novation and security documentation (all governed by English law and containing English jurisdiction clauses). The court concluded the English agreements were at the commercial centre of the transaction and therefore the English courts had exclusive jurisdiction under Article 17 and Article 21 (first-seised) of the Lugano Convention. Kaupthing’s contention that the Hedging Confirmations (with Icelandic jurisdiction clauses) were the centre of gravity failed.
• Issue 4: The court rejected Kaupthing’s forum non conveniens / case management argument, noting the force of the parties’ contractual choice of English courts and that there were no exceptional circumstances to override it; the court observed it was doubtful whether a forum non conveniens discretion survives fully in the Brussels/Lugano regime.

Disposition

• Kaupthing’s application to strike out or stay the English proceedings was dismissed.
• Leave to appeal was granted in respect of the Rawlinson/Issue 1 point. The court indicated further directions regarding Lornamead’s Part 24 summary judgment application.

The defendant’s application to strike out or stay the English proceedings is dismissed. The court followed Burton J in Rawlinson and held that Kaupthing was not subject to an EEA insolvency measure on 13 May 2010 so Regulation 5(1) did not require a stay; however, the court held hypothetically that if Kaupthing had been subject to such a measure Regulation 5(1) would require a stay. On construction of the documentation the English courts have exclusive jurisdiction under Article 17 (Lugano) because the dispute centres on the English-law finance and security documentation. No forum non conveniens or case-management stay was appropriate. Leave to appeal was granted on the Issue 1 point.