LBI HF (in winding up proceedings) v Stanford

Under Luxembourg law, a binding contract requires agreement on its main obligations, identified parties and an intention to be legally bound. Later written agreements may supersede inconsistent oral arrangements. In insolvency proceedings, a creditor’s claim or counterclaim must be lodged by proof of debt before the applicable bar date if it is to be pursued against the insolvent institution. The effect of the European insolvency regime is determined by the home Member State’s law where that law governs the relevant contract and set-off. An assignee takes the assigned claim with its existing features and limitations. Accordingly, a debtor cannot revive a right of set-off against an assignee where the claim was not susceptible to set-off against the assignor.

LBI sought possession of 39 Ennismore Gardens and payment of more than £21 million under loans originally made by Landsbanki Luxembourg SA. The loans and mortgage were assigned to LBI during Landsbanki Luxembourg’s liquidation. Mr Stanford alleged oral repayment terms linked to profits from an Indian joint venture. He also advanced counterclaims concerning alleged funding obligations, a bond issued by LBI, misrepresentation and related matters, seeking to rely on them by way of set-off.

The court determined whether the alleged oral agreements and funding agreement existed, whether the counterclaims were legally available, and whether they could be asserted against LBI after the assignment.

1. The claim succeeded. LBI was entitled to enforce the mortgage and recover the sums due, subject to a minor correction concerning the treatment of interest as capital. The assignment was valid under Luxembourg law and included the mortgage and associated security.
2. Any alleged oral agreement that capital or interest under the Courchevel and Ennismore loans was repayable only from joint-venture profits was not proved. The evidence was uncertain, the alleged terms were absent from the written documentation, and the later loan agreements were inconsistent with them. In any event, under Luxembourg law, the later written agreements would have superseded inconsistent oral terms.
3. No binding TFI Agreement was established in respect of the alleged obligation to fund all three phases of the Indian joint venture. The parties were not sufficiently identified, the central terms were not agreed, and the documents showed continuing negotiations and a requirement for credit approval. Funding of Phase 1 was provided under the written First TFI Loan Agreement, but no binding obligation to fund Phases 2 and 3 was proved.
4. The claims based on the alleged bond representation, warranty and negligent misstatement could not succeed. Section 6 of the Statute of Frauds Amendment Act 1828 applied to the representation concerning LBI’s creditworthiness, and the representation was not written. Mr Stanford was not the contracting party or purchaser of the bond, and the alleged loss was reflective of TFI’s loss.
5. Under Article 10 of the Directive and the Regulations, Luxembourg law governed the admissibility of the counterclaims and the availability of set-off. The counterclaims were not proved by the applicable cut-off date. They therefore could not be pursued against LLux. The effect of the insolvency restrictions was an accessory or feature of the assigned claims and passed to LBI under Article 1692 of the Luxembourg Civil Code. The counterclaims could not therefore be raised against LBI.

The judgment records that the proceedings began in the West London County Court, were transferred to the Central London County Court, and were then transferred to the High Court, Chancery Division. LBI was substituted for LLux as claimant after the assignment.