Appeal. Financial undertakings. Winding-up proceedings. EFTA Court. Advisory opinion. European Economic Area

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1 Friday, 16 December 2011 No. 637/2011 Kaupthing Bank hf. (Þröstur Ríkharðsson, District Court Attorney) v Irish Bank Resolution Corporation Ltd. (Skúli Th. Fjeldsted, Supreme Court Attorney) Appeal. Financial undertakings. Winding-up proceedings. EFTA Court. Advisory opinion. European Economic Area K hf. appealed a Ruling of the Reykjavik District Court, in which the District Court Judge accepted a request of the Irish bank to seek an advisory opinion from the EFTA Court in connection with IBRC's suit against K hf. The Supreme Court's Judgment states that, having reference to subparagraph a of Article 2 and to Articles 119 and 129 of the European Economic Area Agreement, and considering that there appears to be a discrepancy between the Icelandic text of the first paragraph of Article 14 of Directive 2001/24/EC, on the reorganisation and winding-up of credit institutions, on the one hand, and the text of the Directive in some of the languages referred to in Article 129 of the EEA Agreement, on the other hand, the decision of the District Court was accepted that there was legitimate doubt as to the substance of the above-mentioned Directive provision. As a result, IBRC's request, that an advisory opinion be sought from the EFTA Court, was accepted. Two specific questions were therefore submitted to the Court. Supreme Court Judgment This case is judged by Supreme Court Justice Eiríkur Tómasson and acting Supreme Court Justices Benedikt Bogason and Helgi I. Jónsson. The plaintiff referred the case to the Supreme Court by way of an appeal of 21 November 2011, received by the Court together with the pleadings on the 30th of that same month. Appealed is a Ruling of the Reykjavík District Court of 8 November 2011, accepting the defendant's request to seek an advisory opinion from the EFTA Court on specifically stated aspects in connection with the defendant's case against the plaintiff. Grounds for appeal are found in the third paragraph of Article 1 of Act No. 21/1994, regarding requests to the EFTA Court for an advisory opinion on the interpretation of the EEA Agreement. The plaintiff demands that the appealed Ruling be invalidated. It also demands the costs of appeal. The Defendant demands that the appealed Ruling be upheld and payment of appeal costs. I. The name of the defendant was previously the Anglo Irish Bank Corporation Ltd., but has been changed to the Irish Bank Resolution Corporation Ltd.

2 As explained in the appealed Ruling, the plaintiff's Winding-up Board issued an invitation to its creditors to lodge claims which was first published in the Legal Gazette (Icel. Lögbirtingablað) on 30 June This urged all those claiming debts of any sort or other rights against the plaintiff, or assets controlled by it, to submit their claims in writing to the Winding-up Board within six months of the publication of the notice or at the latest by 30 December It was also stated that if a claim were not submitted within the aforementioned time limit it would have the same legal effect as if it were not properly submitted, as provided for by Article 118 of Act No. 21/1991, on Bankruptcy etc. The claim would therefore be deemed to be null and void against the plaintiff unless the exceptions in Points 1-6 of the Article applied. The Winding-up Board did not notify each and every known creditor, including the defendant, of the plaintiff's winding-up, when the time limit for lodging claims expired or what the consequences could be were a claim not lodged within the time limit, but published advertisements to this effect abroad, for instance, in a daily newspaper in wide circulation in Ireland. On 14 April 2010, or three and a half months after the expiration of the time limit for lodging claims, the plaintiff's Winding-up Board received a claim from the defendant concerning two bonds, in a total amount of EUR 15,558,733. The Winding-up Board rejected the claims, in part on the grounds that they had been lodged after the expiration of the time limit for lodging claims and the exemption provisions of Point 2 of Article 118 of Act No. 21/1991 were not considered to apply. The defendant objected to this decision by the Winding-up Board and this dispute has been referred to the District Court on the basis of the first paragraph of Article 171 of the Act. When the case was heard by the District Court, the defendant maintained that its claim should be considered valid in the plaintiff's winding-up proceedings, as it was obligatory, according to rules derived from the EEA Agreement, to send it, as a known creditor, specific notification containing the information mentioned above. Accordingly, the defendant requested during the court hearing on 7 September 2011 that the District Court seek an opinion from the EFTA Court as to whether the provisions of the first paragraph of Article 86 of Act No. 21/1991 complied with the substance of Directive 2001/24/EC. With reference to the first paragraph of Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice and the first paragraph of Article 1 of Act No. 21/1994, the District Court agreed to seek the advisory opinion of the Court on the matter in dispute, but worded its questions to the Court in a manner which differed from that proposed by the defendant, as is indicated in the conclusion of the appealed Ruling. 2

3 II. The second paragraph of Article 102 of Act No. 161/2002, on Financial Undertakings, cf. Article 6 of Act No. 44/2009, states: Once a Winding-up Board has been appointed for a financial undertaking, the Board must without delay issue and have published in the Legal Gazette (Icel. Lögbirtingablað) an invitation to lodge claims in the winding-up. The same rules shall apply concerning the substance of the invitation to lodge claims, the time limit for lodging claims and notifications or advertisements for foreign creditors as apply in insolvency proceedings. Those rules referred to are found, for instance, in the first paragraph of Article 86 of Act No. 21/1991, which reads as follows: In addition to issuing an invitation to lodge claims, as provided for in Article 85, a liquidator ought to seek knowledge especially as to whether any party who may have a claim against the estate is domiciled abroad. If evidence appears of such, the liquidator ought to inform the party concerned as soon as possible of the insolvency proceedings, when the time limit for lodging claims expires and what consequences it can have if a claim is not lodged within the time limit. According to the second paragraph of the same Article, the liquidator ought to have an advertisement published abroad with the same contents as the notification referred to in the first paragraph if he sees reason to expect that creditors may be domiciled abroad but who they are or how they can be reached is not known. According to the first paragraph of Article 102 of Act No. 161/2002, which provides for the same rules to apply in the winding-up of a financial undertaking concerning claims against the undertaking as apply to insolvency proceedings, Article 118 of Act No. 21/1991 applies to such claims, including Point 2 of that Article. This provides for an exception to the cancellation of a claim against an insolvent estate which has been lodged after the expiration of the time limit for lodging claims if the creditor resides abroad and neither knew or should have known of the insolvency winding-up, provided its claim is lodged without undue delay and before a meeting of creditors is convened to consider a proposal for distributions from the estate. According to Article 3 of Act No. 2/1993, on the European Economic Area, Acts and rules shall be interpreted, to the extent appropriate, in accordance with the EEA Agreement and the rules which are derived from it. In Article 31 of the Agreement, which provides for unrestricted right of establishment within the EEA, reference is made in the third paragraph to Annexes VIII to XI of the Agreement which contain specific provisions on this right. Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001, on the reorganisation and winding-up of credit institutions, which was based on Article 98 of the EEA Agreement included in the Agreement by EEA Joint Committee Decision No. 167/2002 of 6 December 2002, 3

4 amending Annex IX of the Agreement, lays down, in Article 14, arrangements for communicating information to known creditors in the winding-up proceedings of a credit institution. It states, in the first paragraph of the Icelandic text of the Directive, which was published in the Official Journal of the European Union on 5 May 2001: When winding-up proceedings are opened, the administrative or judicial authorities of the home Member State or the liquidator shall without delay inform all creditors, which have their domicile, permanent residence or head offices in other Member States, thereof except in cases where the legislation of the home Member State does not require lodgement of the claim with a view to its recognition. When the Icelandic translation is compared to the text of the Directive in other languages, there would appear to be a discrepancy between them, with the meaning of this provision differing from one text to the next. In this case a translation by a certified translator has been provided of the provision in the English text of the Directive, where the provision is said to read as follows in the Icelandic translation: When winding-up proceedings are opened, the administrative or judicial authority of the home Member State or the liquidator shall without delay individually inform known creditors who have their domiciles, normal places of residence or head offices in other Member States, except in cases where the legislation of the home State does not require lodgement of the claim with a view to its recognition. III. The parties' dispute concerns whether the plaintiff's Winding-up Board was obliged according to Icelandic legislation, including rules which are derived from the European Economic Area Agreement, to inform the defendant, as a known creditor residing in a Member State of the EEA, of the plaintiff's winding-up, when the time limit for lodging claims would expire and what consequences there may be were a claim not lodged against the plaintiff within the time limit. Furthermore, whether the Winding-up Board was obliged, since the defendant was not specifically notified of the winding-up, to accept its claim as valid in the plaintiff's winding-up proceedings even though it was received after the expiration of the above-mentioned time limit. As explained above, according to Article 3 of Act No. 2/1993, Icelandic Acts and rules shall be interpreted in accordance with the EEA Agreement and the rules which are based upon it. Having regard thereto, it is of significance in resolving the above-mentioned dispute between the parties to determine the substance of the first paragraph of Article 14 of Directive 2001/24/EC, which lays down the arrangements for communicating information to known creditors in the winding-up proceedings of a credit institution in Iceland. 4

5 According to subparagraph a of Article 2 of the EEA Agreement, the term "Agreement" means the main Agreement, its Protocols and Annexes as well as the Acts referred to therein. Further, Article 119 of the Agreement states that the Annexes and the Acts referred to therein as adapted for the purposes of this Agreement as well as the Protocols shall form an integral part of the Agreement. Article 129 of the Agreement states that it is drawn up in a single original in the specifically listed languages, including Icelandic, each of these texts being equally authentic. It furthermore states that texts of the Acts referred to in the Annexes are equally authentic in the specifically listed languages, Icelandic not being listed among them. However, it then states that texts in the languages of the Member States of the European Union shall, for the authentication thereof be drawn up in the Icelandic and Norwegian languages and published in the EEA Supplement to the Official Journal of the European Union. With reference to the above-mentioned Articles of the European Economic Area Agreement and considering that there appears to be a discrepancy between the Icelandic text of the first paragraph of Article 14 of Directive 2001/24/EC, on the one hand, and its text in some of the languages referred to in Article 129 of the Agreement, on the other hand, the conclusion of the District Court, that there is legitimate doubt as to the substance of the above provision, is concurred with. As a result, the defendant's request is accepted, that an advisory opinion be sought from the EFTA Court on the basis of Article 1 of Act No. 21/1994, but the wording of the questions will be as given in the Judgment. It is deemed appropriate to waive the costs of appeal. Judgment: An advisory opinion shall be sought from the EFTA Court on the following matters: 1. In the case of a discrepancy between the text of the EEA Agreement or rules based upon it, in different languages, so that the substance of individual provisions or rules is unclear, how should their substance be construed in order to apply them in resolving disputes? 2. Having regard to the answer to question 1, does it comply with paragraph 1 of Article 14 of Directive 2001/24/EC on the reorganisation and winding-up of credit institutions that the national legislation of a state, which is a member of the European Economic Area, vests the Winding-up Board or other competent authority or agency with competence to decide whether information should be disclosed on the aspects described in the provision, with an advertisement published abroad instead of individually notifying all known creditors? Appeal costs are waived. 5