Tchenguiz & Ors v Grant Thornton UK LLP & Ors

Insolvency choice-of-law rules for credit institutions are distinct from jurisdictional rules under the Lugano Convention. Where an EEA credit institution is subject to home-State winding-up proceedings, the home-State insolvency law governs the effects of proceedings brought by individual creditors, other than lawsuits pending. The prohibition on proceedings under that law may therefore operate in England through the Credit Institutions (Reorganisation and Winding-up) Regulations 2004, even if the domestic prohibition is not itself territorially applicable.

The Lugano Convention insolvency exception is narrow. Claims fall within it only where they derive directly from winding-up proceedings and are closely connected with them. Tortious conspiracy claims concerning alleged misconduct in an investigation were connected with, but did not derive directly from, the bank’s winding-up.

The claimants brought tort claims against Grant Thornton, its partners, Kaupthing Bank hf and Jóhannes Rúnar Jóhannsson. They alleged malicious prosecution, conspiracy by unlawful means, and malicious procurement of arrest and search warrants arising from a Serious Fraud Office investigation.

Kaupthing sought dismissal or a stay under the Icelandic insolvency regime as applied in England by the Credit Institutions (Reorganisation and Winding-up) Regulations 2004. Kaupthing and Mr Jóhannsson also argued that the claims were excluded from the Lugano Convention by Article 1(2)(b). The central issues were whether Icelandic insolvency law prevented proceedings in England and whether the claims were proceedings relating to Kaupthing’s winding-up.

1. Insolvency ground allowed. The court held that Iceland and the United Kingdom participated in a pan-European regime requiring credit-institution insolvencies to be conducted under the law of the home State, subject to the Directive’s exceptions. Articles 9 and 10 of the Directive 2001/24/EC made Iceland the relevant home State and Icelandic law the applicable law governing the effects of winding-up proceedings on proceedings brought by individual creditors. The present proceedings were not lawsuits pending.
2. Article 116 of the Icelandic Bankruptcy Act prohibited proceedings against a bankruptcy estate outside the insolvency process. Regulation 5 of the Credit Institutions (Reorganisation and Winding-up) Regulations 2004 had to be construed purposively, with the Directive as the dominant text. It therefore imported the Article 116 prohibition into English law, irrespective of whether Article 116 had extra-territorial effect under Icelandic domestic law. The prohibition required claims to be submitted through the winding-up process.
3. Jurisdictional ground rejected. The Article 1(2)(b) exception in the Lugano Convention was to be construed narrowly. The relevant test was whether the claims derived directly from bankruptcy or winding-up proceedings and were closely connected with them. Neither the context of insolvency, the defendant’s office-holder status, nor vicarious liability was conclusive.
4. The claims concerned an alleged tortious conspiracy and deliberate wrongdoing connected with the SFO investigation. They did not rely on insolvency powers, duties or statutory liability, and their principal subject matter was not Kaupthing’s winding-up. They were therefore within the Lugano Convention and not excluded by Article 1(2)(b).
5. The application succeeded for Kaupthing on the insolvency ground. The jurisdiction challenge by Kaupthing and Mr Jóhannsson failed. The parties were directed to draw up an order and agree consequential matters, including costs where possible.