Iceland crisis: what Ashurst and Mishcon advised

Ashurst finance head Nigel Ward and Mishcon de Reya insolvency partner Mike Stubbs, who sought opinion from Maitland Chambers silk Matthew Collings QC, were separately asked to answer four questions relating to the Icesave bill, which was passed in Iceland last October.

The Icelandic government originally signed papers in June last year agreeing to reimburse the British and Dutch governments for money they paid to savers in Icesave, part of Landsbanki, when it collapsed in 2008.

At that stage the Icelandic government sought local legal advice while the UK Treasury turned to Slaughter and May partner Andrew McLean and the Netherlands government turned to De Brauw Blackstone Westbroek partner Jan Marten van Dijk.

Ward at Ashurst was asked to report on some aspects of the June loan agreements before they were passed by Iceland’s parliament, Althingi, in August. This effectively authorised Iceland’s guarantee of the UK and Dutch loans, but with five pages of conditions.

In October 2009 an amended agreement was signed by Althingi, but in December Althingi’s budget committee asked Ashurst and Mishcon to clarify four points relating to the wording of the agreements, the impact of any potential UK litigation, the ramifications of further amendments and the legal consequences of rejecting or delaying the bill.

Yesterday Iceland’s president Ólafur Ragnar Grímsson (pictured) announced that he would not go ahead with the October agreement, but would instead put the bill out to a public referendum.

This is despite both Ashurst and Mishcon warning that Iceland is legally obligated to reimburse the UK and Netherlands.

In a letter to Althingi’s budget committee dated 16 December 2009, Ward said: “It’s difficult to predict what would follow an Althingi rejection of the bill…. It may be that the UK and Netherlands would seek a court ruling confirming TIF’s [the Depositors’ and Investors’ Guarantee Fund of Iceland] and Iceland’s obligations to repay the monies paid to the Amsterdam and London depositors on their behalf.

“The terms of any such judgment could conceivably require repayment on terms which are more onerous to Iceland than those enshrined in the Icesave Loan Agreements.”

Stubbs at Mishcon agreed in a letter of 19 December 2009, adding that failure to honour the Icesave law could hamper Iceland’s ability to secure IMF funding or other international loans.

As it stands at the moment the situation is seen as a political one, with no party seeking further legal advice at this stage.