Global Distressed Alpha Fund 1 Ltd Partnership v PT Bakrie Investindo
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE TEARE,Mr. Justice Teare |
| Judgment Date | 17 February 2011 |
| Neutral Citation | [2011] EWHC 256 (Comm) |
| Docket Number | Case No: 2009 FOLIO 1623 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 February 2011 |
[2011] EWHC 256 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr. Justice Teare
Case No: 2009 FOLIO 1623
Marcus Staff (instructed by Gide Loyrette Nouel LLP) for the Claimant
Felicity Toube (instructed by Baker Botts) for the Defendant
Hearing dates: 7 & 8 February 2011
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 Teare:
This is the judgment of the Court on the trial of what counsel for the Claimant described as "a straightforward action on an instrument of guarantee".
The nature of the claim and the defence
The Defendant is a company incorporated in the Republic of Indonesia. It was established in July 1991 to act as investment holding company for investments made by the Bakrie family, a prominent merchant family in Indonesia. In 1996 the Defendant wished to raise finance through debt by the issue of US$ 50m. 9.625% Guaranteed Notes. This was successful. The finance was raised on 17 December 1996. The Notes were issued by Bakrie Indonesia BV, a Dutch company owned by the Defendant and were governed by English law. The maturity date of the Notes was 17 December 1999. The Defendant was the guarantor of the Notes.
The sums due under the Notes were not paid on their maturity date. A legal advisor to the Defendant has said that this was because of the 1998 Asian economic crisis.
On 23 May 2001 the Defendant filed an application with the Commercial Court of the Central Jakarta District Court for a provisional moratorium of payments. That was granted on 31 May 2001 and an Administrator and Supervisory Judge were appointed. The purpose of the moratorium was to enable the Defendant to seek an agreement with its creditors. That was achieved on 20 February 2002 when a Debt Reorganisation Composition Plan was accepted by a majority of the creditors. On 6 March 2002 the Indonesian Court ratified the plan.
On 16 November 2009 the Claimant, part of a group which invests in different types of private distressed commercial and sovereign debt claims around the world, purchased certain of the Notes with denominations amounting to US$2m. from a prior holder. They were purchased because they had been guaranteed by the Defendant. On 14 December 2009 these proceedings were commenced in which the Claimant sues the Defendant upon its guarantee, notwithstanding that the Claimant accepts that as a matter of Indonesian law its claim against the Defendant has been discharged by the Composition Plan.
Mr. Staff, counsel for the Claimant, relying upon long established authority, submitted that the guarantee, being governed by English law, has not been discharged by the Indonesian Composition Plan as a matter of English law. Ms. Toube, counsel for the Defendant, submitted that that argument was based upon an "isolationist" approach to foreign insolvency proceedings which, in the light of a recent decision of the Privy Council and subsequent decisions of the House of Lords and the Court of Appeal, "no longer holds good". She invited the court not to follow the long established authority upon which Mr. Staff relies and instead to give effect to a general principle of "modified universalism" whereby this court should recognise the Composition Plan and, in particular, its discharge of the liability of the Defendant as guarantor. In addition to this main defence ("the English effects argument") there is a further defence to the whole claim ("the prior party argument") and a limitation defence to the interest claim ("the interest argument").
The Notes and the guarantee
The guarantee is contained in a deed of guarantee dated 9 December 1996. It was expressed to be between the Defendant as guarantor and "the noteholders and couponholders from time to time" ("the Holders") and, by clause 10, was to take effect as "a deed poll for the benefit of the Holders from time to time and for the time being." There is no dispute that this was effective to enable holders from time to time to take the benefit of the Guarantee; see Moody v Condor Insurance Limited [2006] 1 WLR 1847, [2006] EWHC 100 (Ch) at paras.16 and 1The recitals envisaged that a Fiscal Agency Agreement would be made on 17 December between Bakrie Indonesia BV ("the Issuer"), the Defendant as guarantor, HSBC as the fiscal agent and certain paying agents which would provide for the issue of the Guaranteed Notes. The recitals also envisaged that the Notes would, save in certain circumstances, be represented at all times by a global note. Clause 1 of the Guarantee provided that:
"the Guarantor unconditionally and irrevocably guarantees that, if for any reason the Issuer does not pay any sum payable by it under the Notes………….the Guarantor will pay that sum to the Holders in US dollars….."
Clause 15 provided that the Guarantee shall be governed by English law.
The Fiscal Agency Agreement was entered into on 17 December 1996. Clause 4 obliged the Issuer to pay the principal and interest due under the Notes. Clause 16 provided for the agreement to be governed by and construed in accordance with English law. The Global Note was issued by the Issuer as a deed on 17 December 1996. It stated that "the Notes are issued with the benefit of a guarantee" given by the Defendant.
The terms and conditions of the Notes provided that title to them passed by delivery. They are traded electronically on Euroclear or Clearstream as interests in the Global Note. Notwithstanding the Composition Plan in Indonesia, the Global Note remained registered on Euroclear and Clearstream and so it was that the Claimant was able to purchase Notes with a nominal value of US$2m. in 2009. According to the broker responsible for arranging the purchase the Notes have been traded from the default in 1999 but are "pretty illiquid" and "have not been traded frequently, especially since the restructuring in 2001".
The English effects argument
This argument concerns the effect in England of the Composition Plan with the regard to the discharge of liability under the Guarantee. Mr. Staff relies upon Rule 200 in Dicey 14 th ed. which states:
"Subject to the effect of the Insolvency Regulation 1, a discharge from any debt or liability under the bankruptcy law of a foreign country outside the United Kingdom is a discharge therefrom in England if, and only if, it is a discharge under the law applicable to the contract."
The comment in Dicey at para.31–093 states that there is no doubt that discharge under a foreign bankruptcy law, like the discharge of contracts generally, is governed by the law applicable to the contract. There is indeed no doubt that the authorities state this. One such is Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399. In that case the defendant agreed to buy copper to be delivered in England by the plaintiff. The defendant refused to accept the copper and so was liable in damages to the plaintiff. The defendant, a French company, was placed in judicial liquidation in France and it was assumed that as a matter of French law, the defendant was discharged from its liability in damages. Lord Esher MR held (at p.406) that French law was irrelevant because it was "not a law of the country to which the contract belongs, or one by which the contracting parties can be taken to have agreed to be bound; it is the law of another country by which they have not agreed to be bound." Lindley and Lopes LJJ gave judgments to the same effect.
This principle has been acknowledged by courts of the highest authority. Thus in New Zealand Loan and Mercantile Agency Company v Morrison [1898] AC 349 the Privy Council followed Gibbs; per Lord Davey at p.359. In National Bank of Greece and Athens v Metliss [1958] AC 509 the House of Lords also did so; per Viscount Simonds at p.523, where he referred to Gibbs and said that the rule in Dicey "can be accepted by this House". The other members of the Appellate Committee made similar remarks; see Lord Morton at p.528, Lord Tucker at p.529 and Lord Keith at p.531. In United Railways of the Havana and Regla Warehouses Ltd. [1960] 1 Ch. 52 Jenkins LJ noted that Gibbs had been approved both in New Zealand Loan and Mercantile Agency Company v Morrison and in National Bank of Greece and Athens v Metliss. ( United Railways went on appeal to the House of Lords [1961] AC 1007 but this principle does not appear to have been mentioned in the judgments on appeal.) In Adams v National Bank of Greece [1961] AC 255 Lord Denning referred (at p.287) to Gibbs with implicit approval. In Wight v Eckhardt Marine GmbH [2004] 1 AC 147 Lord Hoffmann, sitting in the Privy Council, applied the principle that the discharge of a contract is governed by its proper law.
Notwithstanding this judicial support for the principle relied upon by Mr. Staff there has been criticism of the principle. There is criticism in Dicey itself at para.31–097 where it is observed that it was curious that whilst a discharge of an English law obligation under a foreign bankruptcy law is strictly territorial the movables of the bankrupt situated in England will be regarded as having vested in the foreign trustee in bankruptcy. Thus the bankrupt remains liable but has been deprived of his assets. Professor Fletcher in Insolvency in Private International Law 2 nd ed. advances the same criticism (at para.2.127) and suggests (at para.2.128) that a modern reformulation of the relevant rules is required and that "the Gibbs doctrine belongs to an age of Anglocentric reasoning which...
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