Ok looks like I have found the underlying cause, a bad port of an
upstream stable patch to our Ubuntu code base.  I will send out the fix
shortly.

** Changed in: linux (Ubuntu Xenial)
       Status: New => In Progress

** Changed in: linux (Ubuntu Xenial)
   Importance: Undecided => High

** Changed in: linux (Ubuntu Xenial)
     Assignee: (unassigned) => Andy Whitcroft (apw)

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https://bugs.launchpad.net/bugs/1618572

Title:
  apt-key add fails in overlayfs

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