Syska (Administrator of Elektrim SA (in bankruptcy)) v Vivendi Universal SA [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 02 October 2008 |
| Neutral Citation | [2008] EWHC 2155 (Comm) |
| Docket Number | Case No: 2008 FOLIO NO 367 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 02 October 2008 |
[2008] EWHC 2155 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Christopher Clarke
Case No: 2008 FOLIO NO 367
Gabriel Moss QC, Richard Millett QC & Julian Kenny (instructed by Barlow Lyde & Gilbert) for the Claimants
Toby Landau QC, Antony Zacharoli QC & Ricky Diwan
(instructed by O'Melveny & Myers) for the Defendants
Hearing date: 2 nd July 2008
If this Approved Judgment
Elektrim S.A., the second claimant, (“Elektrim”) is a Polish company. It at one time owned a substantial shareholding in PTC, a Polish mobile telephone company. On 3rd September 2001 Elektrim entered into an agreement known as the Third Investment Agreement (“TIA”) with Vivendi Universal S.A. and Vivendi Telecom International S.A., the first and second defendants, (together “Vivendi”). This was one of a series of agreements by which Vivendi was intended to acquire an interest in PTC.
Article 5.11(c) of the TIA contains an agreement to arbitrate (“the arbitration agreement”), which provides for arbitration in London under LCIA rules. It is common ground that the arbitration agreement is governed by English law (although the rest of the TIA is governed by Polish law).
On 22nd August 2003 Vivendi commenced an arbitration pursuant to the arbitration agreement. In the arbitration Vivendi advanced claims that Elektrim had breached its obligations under the TIA by interfering with, or failing to secure, the interest that Vivendi was supposed to obtain in PTC. In early 2007, the LCIA arbitral tribunal (Dr Wolfgang Peter, Professor Jerzy Rajski and Mr Alan Redfern, hereafter “the Tribunal”) fixed a hearing on liability issues for 15–19 October 2007. The claims made are of the order of € 1.9 billion.
On 21 August 2007, Elektrim was declared bankrupt by an order of the Warsaw District Court pursuant to its own petition of 9th August 2007. As a result of that order, Elektrim became a 'bankrupt' for the purposes of the Polish Bankruptcy and Reorganisation Law (“the Law”).
The order of 21 August 2007 of the Warsaw District Court (a) declared Elektrim bankrupt; (b) appointed Jósef Syska, the first claimant, as Court Supervisor; and (c) provided for Elektrim's own management to retain control over all of Elektrim's assets, and to take any actions within the ordinary scope of its business. On 5 February 2008, about 4 months after the proceedings before the Tribunal were closed; the Warsaw Court revoked Elektrim's self-administration, and appointed Mr Syska as the administrator over Elektrim's assets.
Article 142 of the Law provides:
“Art 142 [Arbitration clause]. Any arbitration clause concluded by the bankrupt shall lose its legal effect as at the date bankruptcy is declared and any pending arbitration proceedings shall be discontinued.”
It is common ground that, if Article 142 of the Law is applicable, it has the effect of annulling the arbitration agreement. On 22 August 2007, Elektrim wrote to the Tribunal and Vivendi saying that, as a result of the bankruptcy, the arbitration agreement had been annulled.
On 15 October 2007, a hearing began in London. At that hearing, the Tribunal heard argument from both parties as to whether the arbitration agreement had been annulled and from Vivendi on the liability issues. On 20 March 2008, the Tribunal issued its Interim Partial Award (“the Award”) on these issues. The Tribunal by a majority (Dr Wolfgang Peter and Mr Alan Redfern, Professor Jerzy Rajski dissenting) rejected Elektrim's objections to the Tribunal's jurisdiction and declared that Elektrim had breached the terms of the TIA. Questions relating to remedy were left for later consideration.
On 16th April 2008 the claimants issued an application under section 67 of the Arbitration Act 1996 whereby they sought an order setting aside the Award on the grounds that the arbitration agreement ceased to have effect as from 21st August 2007 1.
The issue
The critical question is: what law governs the effects of the Polish bankruptcy order? If, as Elektrim contends, the law is that of Poland, the arbitration agreement was from 21st August 2007 at an end and the Tribunal ceased to have any jurisdiction to make an award. If, as Vivendi contends, the applicable law is that of England and Wales, the arbitrators retained and retain jurisdiction.
The Insolvency Regulation
Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings (“the Regulation”) is a piece of subordinate Community legislation which forms part of English Law. It was introduced in order to lay down mandatory rules for choice of law, jurisdiction, recognition, enforcement and co-operation applicable to cross-border insolvencies within the European Union.
Article 4
Article 4 of the Regulation provides:
“1 Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened, hereafter referred to as the 'State of the opening of proceedings'.
2 The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. It shall determine in particular:
……
(e) the effects of insolvency proceedings on current contracts to which the debtor is party;
(f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending;”
Article 15
Article 15 of the Regulation provides
“Effects of insolvency proceedings on lawsuits pending
The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending”.
The effect of these Articles is that, unless the exception in Article 4. 2 (f) for “lawsuits pending” and/or the provisions of Article 15 have a contrary effect, it is Polish law, as the law of the State of the opening of proceedings, which determines the effects of the bankruptcy order. At the date of the bankruptcy the arbitration agreement was, Elektrim submits, a “current contract” within the meaning of Article 4.2 (e). By that Article Polish law governs the effect of the bankruptcy on it. Even if the arbitration agreement was not a “current contract” within Article 4.2 (e), Article 4.1 applies Polish law to the effects of the bankruptcy in the absence of some other provision.
This raises two questions. The first is whether the phrase “lawsuit pending” is apt to cover the reference. If it is, a second question arises as to whether the effect of Article 4.2 (e) is that the arbitration agreement, being a “current contract”, has been brought to an end, and, hence, the reference as well.
Interpreting the Regulation
The Regulation is intended to lay down common rules to be uniformly applied throughout the territories of the Union (with the exception of Denmark) which constitutes a single legal order. It exists in texts in each of the languages of the Union, all of which are equally authentic.
The correct approach to the interpretation of the Regulation was accurately summarized by the Tribunal when it observed that:
“the interpretation of the EC Regulation should strive to establish an autonomous (European) meaning, based on the different language versions of the Regulation, considering (i) the overall scheme and purpose of the Regulation (teleological method of construction) and (ii) taking into account interpretative sources, such as the Preamble of the Regulation and the Virgos-Schmit Report, but also the available authorities, such as Court decisions – in first line, those of the ECJ – and the opinions of legal commentators.” 2.
A similar view is expressed in the Virgós-Schmit report (“the Report”) 3 at paragraph 43:
“The Convention is a self-contained legal structure, and its concepts cannot be placed in the same category as concepts belonging to a national law. The Convention must retain the same meaning within different national systems. Its concepts may not be interpreted simply as referring to the national law of one or other of the States concerned.
When the substance of a problem is directly governed by the Convention, the international character of the Convention requires an autonomous interpretation of its concepts. An autonomous interpretation implies that the meaning of its concepts should be determined by reference to the objectives and system of the Convention, taking into account the specific function of those concepts within this system and the general principles which can be inferred from all the national laws of the Contracting States.
… Uniformity of interpretation is required in order to ensure equality in the rights and obligations derived from the Convention for the Contracting States and for the persons concerned irrespective of the Contracting State in which they are located.”
The main objectives of the Regulation are set out in Preambles (1) —(4) and (8). Preambles (2) and (4) show that the Regulation is designed to promote the proper functioning of the European internal market by ensuring that cross-border insolvency proceedings operate efficiently and effectively, and by avoiding “incentives for the parties to transfer assets or...
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