Tchenguiz & Ors v Kaupthing Bank HF & Anor

The law of the home Member State governing the winding-up of a credit institution applies to the effects of that winding-up on proceedings brought by individual creditors. Under the Winding-up Directive, that rule includes proceedings on the merits as well as enforcement proceedings.

There is no implied exception preserving proceedings otherwise within the Lugano Convention where the home-state insolvency law has the practical effect of requiring claims to be pursued through its liquidation process. The Directive internationalises the home-state insolvency law throughout the EEA, even if that law would otherwise operate only domestically. Express exceptions to the lex concursus are to be construed strictly.

The appellants brought an English claim in unlawful means conspiracy against several defendants, including Kaupthing Bank HF, an Icelandic credit institution in winding-up proceedings in Iceland. It was common ground that the English court had jurisdiction under the Lugano Convention and that the claim was a proceeding by an individual creditor for the purposes of Article 10 of the Winding-up Directive.

Carr J held that Icelandic insolvency law required claims against Kaupthing to be submitted to its Winding-up Committee and determined, if disputed, by the Reykjavik District Court. She dismissed the claim against Kaupthing, while it continued against the other defendants. The appellants challenged the construction and territorial effect of the Directive and Icelandic law. They also appealed a costs order concerning the unsuccessful application made by the fifth defendant.

1. Appeal dismissed. Briggs LJ, with whom Sales and Henderson LJJ agreed, held that Article 10 of the Winding-up Directive applied the Icelandic lex concursus to the appellants’ claim against Kaupthing. The claim could not continue in England against the bank after the commencement of its winding-up.

2. The Lugano Convention and the insolvency instruments generally dovetail in allocating jurisdiction. That principle did not create an implied limitation on Article 10 where the home-state insolvency law affected the forum in which a creditor’s claim could be pursued. Article 10.2(e), read in the light of the Directive’s recitals, was intended to preserve unity, universality, equal treatment and orderly administration in the winding-up of credit institutions. An implied exception for proceedings within the Lugano Convention would be large, uncertain and destructive of those aims.

3. “Proceedings brought by individual creditors” in Article 10.2(e) included proceedings on the merits and was not confined to enforcement. The exception for a lawsuit already pending in Article 32 was a limited exception. It confirmed that proceedings on the merits ordinarily fell within Article 10.2(e), while pending enforcement remained governed by the home-state insolvency law.

4. The Directive internationalised the insolvency law of the home Member State. Its application throughout the EEA did not depend on that law having extra-territorial effect when viewed independently. Any necessary transposition of Icelandic statutory language meant that the prohibition in Article 116 operated against proceedings in courts inside or outside Iceland.

5. The judge’s careful findings on conflicting expert evidence as to Icelandic law had not been properly challenged. They would not be reopened on appeal. The separate costs appeal also failed: it was within the judge’s broad discretion to reflect the mixed success of two defendants represented by the same legal team by reducing Kaupthing’s recoverable costs, without making a separate costs order against Mr Johannsson.

• Court of Appeal (Civil Division): dismissed the appeal in its entirety: [2017] EWCA Civ 83 .
• High Court, Commercial Court: Carr J held that the English court had Lugano Convention jurisdiction but dismissed the claim against Kaupthing because Icelandic insolvency law applied under the Winding-up Directive. She made a proportionate costs order reflecting partial success on a jurisdiction issue.