Kaupthing Singer and Friedlander Ltd, Re

Summary

Michaelmas Term
[2011] UKSC 48
On appeal from: [2009] EWHC 3377 (Ch)

JUDGMENT

In the matter of Kaupthing Singer and Friedlander Limited (in administration) and In the matter of the Insolvency Act 1986

before

Lord Hope, Deputy President
Lord Walker
Lady Hale
Lord Clarke
Lord Collins

JUDGMENT GIVEN ON

19 October 2011

Heard on 13 and 14 July 2011

Appellant
Gabriel Moss QC
Richard Fisher
(Instructed by Allen & Overy LLP)

Respondent
Robin Dicker QC
Tom Smith
(Instructed by Freshfields Bruckhaus Deringer LLP)

LORD WALKER (with whom Lady Hale, Lord Clarke and Lord Collins agree)

This appeal is concerned with the long-standing principle of insolvency law known as the rule against double proof. It originated in the law of individual bankruptcy but has since the Companies Act 1862 applied to the winding up of companies. It now extends to distributions made by administrators under para 65 of Schedule B1 to the Insolvency Act 1986 as substituted by the Enterprise Act 2002. Like the anti-deprivation rule recently considered by the Supreme Court in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2011] 3 WLR 521, the rule against double proof is implicit in the Insolvency Act 1986. In the words of Neuberger J in In re Glen Express Ltd [2000] BPIR 456, 461, it "remains good law. It is an overarching principle which still applies to insolvency, and nothing in Stein v Blake [1996] AC 243 calls it into question."

The facts

The appeal is concerned with distributions made and to be made by the administrators of Kaupthing Singer & Friedlander Ltd ("KSF"), a bank which went into administration during the financial crisis in October 2008. The disputed issues as to the rule against double proof arise, as is generally the case, in the context of suretyship. KSF has a wholly-owned subsidiary named Singer & Friedlander Funding plc ("Funding"), which is also in administration. Funding's sole function was to raise funds for use by KSF and other group companies. In 2005 Funding issued £250m floating rate notes repayable in 2010. They were constituted under a trust deed dated 9 February 2005 made between Funding, KSF (then named Singer & Friedlander Ltd) and HSBC Trustee (CI) Ltd ("the Trustee"). By clause 7 of the trust deed KSF guaranteed payment of principal and interest on the notes and performance of Funding's other obligations under the trust deed. The correct construction of clause 7 (and in particular the non-competition provisions in clause 7.7) is one of the issues in the appeal.

The net proceeds of the notes (approximately £249.5m) were advanced by Funding to KSF by way of unsecured loan. When KSF went into administration on 8 October 2008 it owed Funding approximately £242.6m. When Funding went into administration on 15 October 2008 the amount of principal prospectively due on the notes was (following the buyback and cancellation of some of the notes during 2008) approximately £240.3m. On 23 March 2009 the Trustee gave notice that…

JUDGMENT