AWB Geneva SA and Another v North America Steamships Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE FIELD |
| Judgment Date | 17 May 2007 |
| Neutral Citation | [2007] EWHC 1167 (Comm) |
| Docket Number | 2007 Folio No 326 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 May 2007 |
[2007] EWHC 1167 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Field
2007 Folio No 326
Ali Malek QC and David Quest (instructed by Reed Smith Richards Butler LLP) for the Claimants
Robin Dicker QC and Stephen Robins (instructed by Holman Fenwick & Willan) for the Defendant
Hearing date: 11 May 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Field:
Introduction
The principal issue raised in these applications is whether a party to a contract governed by English law and subject to the exclusive jurisdiction of the English High Court can found on these provisions to restrain the counterparty's foreign trustee in bankruptcy from seeking an order in foreign insolvency proceedings that certain conditions precedent to liability under the contract should cease to apply.
The first claimant (“AWB”) and the second claimant (“Pioneer”) are incorporated in Switzerland and the British Virgin Islands respectively. The defendant (“NASL”) was incorporated under the British Columbia Company Act in 1992 and had its head office and principal place of business in Vancouver, British Columbia, Canada. NASL is party to a number of Freight Forward Swap Agreements (“FFAs”) which cover the period 1 January 2007 to 31 December 2007 with monthly settlement dates. Two of these agreements are with AWB; another is with Pioneer. These three agreements are collectively referred to hereafter as “the 2007 FFAs”.
The parties to an FFA are known as “Buyer” and “Seller”. The Seller agrees to pay a “Settlement Sum” to the Buyer if the actual freight rate according to specified market indices (“the Settlement Rate”) is higher than the agreed “Contract Rate” on a specified future date (“the Settlement Date”). The Buyer on the other hand agrees to pay the Seller a Settlement Sum if the Settlement Rate is lower than the Contract Rate on the Settlement Date.
Each of the 2007 FFAs is contained in a standard form written confirmation which incorporates the 1992 ISDA Master Agreement (Multicurrency – Cross Border (without Schedule) (“the Master Agreement”). Clause 16 of the confirmation provides:
Pursuant to Section 13 (b) of the Standard Agreement, this Agreement shall be governed by and construed in accordance with English law and shall be subject to the exclusive jurisdiction of the High Court of Justice in London, England.
Under Section 2 (a) (iii) of the Master Agreement the obligation on each party to pay sums owing on the Settlement Date is subject to the condition precedent that no Event of Default has occurred and is continuing with respect to the other party. Amongst the defined Events of Default is Bankruptcy, which under Section 5 (vii) occurs, inter alia, where a party: (1) is dissolved; (2) becomes insolvent or is unable to pay its debts; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or any other relief under any bankruptcy or insolvency law which results in a judgment or order or the entry of an order for relief; (5) has a resolution passed for its winding-up, official management or liquidation; and (6) seeks or becomes subject to the appointment of an administrator of other similar official for all or substantially all of its assets.
NASL began entering into FFAs on its own account in 2005. In 2006 it executed numerous FFAs as Seller with various counterparties (“the 2006 FFAs”). Four of these contracts were with AWB. Unfortunately for NASL, throughout 2006 the Settlement Rate rose rather than fell and by the end of the year the 2006 FFAs were significantly out of the money. The result was that by late November 2006 NASL was insolvent. On 29 November 2006 it filed an assignment in bankruptcy pursuant to the Bankruptcy and Insolvency Act of Canada under which all of its property vested in Wolrige Mahon Limited (“the Trustee”), as trustee.
By 31 December 2006 NASL owed approximately US$ 47.34 million under the 2006 FFAs and had accounts receivable of approximately US$ 6.2 million.
At the first meeting of creditors held on 5 January 2007 the Trustee's appointment was approved and four Inspectors were appointed to assist in the administration of the Estate. On 8 January 2007 the Inspectors authorised the Trustee to affirm the 2007 FFAs but the Trustee declined to take this step unless it was clear that it would not incur any personal liability by doing so. Accordingly, the Trustee applied to the Supreme Court of British Columbia (“the Canadian Court”) seeking declarations that it was not obliged to affirm the FFAs in order to take the benefit of them and, if it did affirm them, its liability would be limited to the realisable value of the Bankrupt's property, less the Trustee's proper fees and disbursements. In a reserved judgment handed down on 28 February 2007, Tysoe J held that: (i) the Trustee was required to affirm the 2007 FFAs in order to take the benefit of them and thereby assure the other party that it will not be treated as an unsecured creditor in respect of the obligations it performs after the date of the bankruptcy; and (ii) affirmation of the 2007 FFAs by the Trustee would not itself make the Trustee personally liable in respect of NASL's obligations thereunder so long as the Trustee affirmed on behalf of the bankrupt estate and not in its personal capacity. This judgement is the subject of an appeal by AWB and Pioneer who opposed the Trustee's application. So far no date has been set for the hearing of this appeal
On 5 March 2007 the Trustee affirmed the 2007 FFAs on behalf of the bankruptcy estate. In the meantime, on 20 February 2007, the Trustee had filed a petition under the Companies' Creditors Arrangement Act of Canada (“the CCAA”). The purpose of this Act is to facilitate the making of a compromise or arrangement between an insolvent debtor company and its creditors to the end that the company is able to continue in business, see Hongkong Bank v Chef Ready Foods Ltd (1990) 4 CBR (3) 311, at para 10.
Under the CCAA, a plan of reconstruction is binding on all creditors if the plan is approved by a majority of creditors representing two thirds in value of the claims of each class of creditors and is sanctioned by the Court. The Court will grant its sanction if: (i) there has been strict compliance with all statutory requirements and adherence to all previous orders of the court; (ii) nothing has been done or purported to be done that is not authorised by the CCAA; and (iii) the plan is fair and reasonable, see Re Algoma Steel Inc. (2001) 30 CBR (4) 1. Further, the exercise of the court's discretion must be guided by the scheme and object of the CCAA and by the legal principles that govern corporate law issues, see Stelco Inc. (Re) 15 CBR (5) 288, at para 26.
Accordingly, in broad terms, the CCAA provides a regime that corresponds to the combined effect of the provisions of UK insolvency law relating to administrations (Schedule B1 of the Insolvency Act 1986 [“the 1986 Act”]) and compromises or schemes of arrangement (Part 1 of the 1986 Act providing for company voluntary arrangements, and section 425 of the Companies Act 1985 [“the 1985 Act”]).
Section 11(4) of the CCAA empowers the Court to make an order staying “proceedings” taken or that might be taken in respect of the company. “Proceedings” has been construed to include extra-judicial conduct that could impair the ability of the debtor company to continue in business. In Norcen Energy Resources Ltd v Oakwood Petroleums Ltd (1988) 72 CBR (NS) 1, the Court restrained a joint venture party of a debtor company from relying on the insolvency of the debtor company to replace it as the operator under a petroleum operating agreement. In Re T Eaton Co (1997) 46 CBR (3d) 293, the Court restrained tenants in shopping centres from terminating leases on the basis of co-tenancy clauses requiring the debtor company's store to stay open. And in Re Playdium Enterprises Corp (2001) 31 CBR (4) 302, the Court restrained a party from relying on its contractual right to object to an assignment.
In Re Doman Industries (2003) 41 CBR (4) 29 Tysoe J explained the purpose of such stays in these terms:
In my view, there are numerous purposes of stays under s.11 of the CCAA. One of the purposes is to maintain the status quo among creditors while a debtor company endeavours to reorganise or restructure its financial affairs. Another purpose is to prevent creditors and other parties from acting on the insolvency of the debtor company or other contractual breaches caused by the insolvency to terminate contracts or accelerate the repayment of the indebtedness owing by the debtor company when it would interfere with the ability of the debtor company to reorganise or restructure its financial affairs. … [A] further purpose is to prevent the frustration of the reorganisation or restructuring plan after its implementation on the basis of events of default or breaches which existed prior to or during the restructuring period.
It is clear from the evidence of the Trustee's expert on Canadian insolvency law, the Hon James M Farley QC, a former Justice of the Superior Court of Ontario, that stays are commonly granted under section 11 (4) of the CCAA to restrain counterparties to contracts with the debtor company from relying on any...
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