Isis Investments Ltd v Oscatello Investments Ltd & Ors

The court considered a case management application in relation to competing English and Isle of Man proceedings about entitlement to a fund of over £130m arising from the sale of Somerfield shares and repayment of an associated loan. The central legal issues were (i) whether a case management stay of the English proceedings should be granted to allow Manx (Isle of Man) proceedings and insolvency appeals to proceed first, taking account of the Credit Institutions (Reorganisation and Winding up) Regulations 2004 and Article 32 of Directive 2001/24/EC; (ii) whether certain claims and amendments could properly be pursued in the English action given the insolvency and cross-border rules; and (iii) whether a representative defendant (Mr Adalsteinsson) should be permitted to bring Part 20 counterclaims including claims under sections 423–425 Insolvency Act 1986. The judge applied established forum and stay principles (including The Abidin Daver, Reichhold and related authorities) and concluded that the circumstances were not "rare and compelling" so as to justify a stay. The judge held that the English proceedings were the appropriate forum to decide the validity and construction of clause 6 of the Framework Agreement (an exclusive jurisdiction clause in favour of the English courts being a significant factor), that Article 99(2)(h) of the Icelandic Financial Undertakings Act / Article 32 of Directive 2001/24/EC did not bar the proposed amendments if English procedure treated them as part of the existing action, and that permission should be given to Mr Adalsteinsson to bring the Part 20 counterclaims.

This judgment arises out of a multi-party dispute about entitlement to a fund (£130m+) which was paid into court by Isis Investments Limited. Isis, now represented by its liquidator, challenged the enforceability of clause 6 of a Framework Agreement (which contained an English exclusive jurisdiction clause and a payment waterfall including an express trust in favour of Oscatello). Oscatello succeeded on a pure construction point at first instance, but the liquidator later sought permission to amend pleadings to challenge the validity of the Framework Agreement on multiple grounds including lack of consideration, breach of fiduciary duty, unlawful return of capital, conspiracy/illegality, and an unregistered equitable charge. Parallel Isle of Man proceedings had been issued by Isis against its de jure directors and Kaupthing (a credit institution), and proofs of debt in Isis' Manx liquidation had been lodged and rejected, giving rise to appeals.

The relief sought: Isis sought a stay of the English proceedings to allow the Isle of Man proceedings and the insolvency appeals to proceed first. Mr Adalsteinsson applied for permission to bring Part 20 counterclaims (including claims under sections 423–425 Insolvency Act 1986) and to add Kaupthing and Oscatello as parties to that counterclaim.

Issues framed:

• Whether a case-management stay of Action 599 should be granted in favour of the Isle of Man proceedings, in light of the Credit Regulations, Article 32 of Directive 2001/24/EC and the general principles governing stays (Reichhold, The Abidin Daver et al.).
• Whether the proposed amendments to the English proceedings would be regarded as "new" claims barred by Article 116 of the Icelandic Bankruptcy Act or saved by Article 99(2)(h) of the Icelandic Financial Undertakings Act (implementing Article 32 of the Directive), and whether English procedural law permits the amendments.
• Whether permission should be granted to Mr Adalsteinsson to bring his Part 20 counterclaims against Kaupthing in the existing English action.

Reasoning and conclusions: The judge reiterated that a case-management stay is discretionary and that the burden on an applicant is high: such stays are appropriate only in rare and compelling circumstances. The court analysed a number of factors (convenience, risk of inconsistent findings, the parties before each forum, the exclusive jurisdiction clause, the stage and expense of the English proceedings, and the nature of the allegations). The judge concluded that:

• The validity and construction of clause 6 of the Framework Agreement is logically prior to and central to the Manx claims and appeals; the English action was long-running and more advanced; the exclusive jurisdiction clause and the fact that some parties to the English action were not parties to the Manx proceedings weighed strongly against a stay.
• The Credit Regulations and the relevant Icelandic provisions (Article 116 of the Icelandic Bankruptcy Act and Article 99(2)(h) of the Financial Undertakings Act) do not prevent the proposed amendments if, as a matter of English procedure, the additional claims can be introduced as part of the existing proceedings. The court preferred expert evidence that Article 116 only bars claims that cannot be brought as part of existing proceedings and that whether claims can be amended into the English proceedings is a question of English procedural law.
• Limitation concerns and the difficulty of service out of the jurisdiction were not sufficient to justify a stay: any limitation prejudice largely resulted from Isis' own procedural choices and the sums potentially affected were relatively small.
• On the issue of Mr Adalsteinsson's Part 20 counterclaims, the court accepted expert evidence that Action 599 qualified as a "pending" lawsuit for the purposes of Article 99(2)(h) and that English procedure allowed the counterclaims to be introduced into the existing proceedings. The court accordingly granted permission for his counterclaims to proceed in Action 599.

The court therefore refused to grant the stay and granted the application by Mr Adalsteinsson for permission to bring the counterclaims; further directions were anticipated.

First instance: The court refused to grant a case-management stay of the English proceedings to allow the Isle of Man proceedings and related insolvency appeals to proceed first, holding that the circumstances were not "rare and compelling" and that the English action was the appropriate forum to determine the principal dispute (notably the validity and construction of clause 6 of the Framework Agreement). The court also granted Mr Adalsteinsson permission to bring his Part 20 counterclaims (including claims under sections 423–425 of the Insolvency Act 1986) within Action 599, on the basis that Article 99(2)(h) of the Icelandic Financial Undertakings Act/Article 32 of Directive 2001/24/EC did not bar such claims where English procedure treats them as part of the existing proceedings.