Conflict of laws – Insolvency – Applicable law – Arbitration agreements – EC law

(1) Josef Syska acting as the administrator of Elektrim SA (in bankruptcy) (2) Elektrim SA (in bankruptcy) v (1) Vivendi Universal SA (2) Vivendi Telecom International SA (3) Elektrim Telekomunikacja Sp Zoo (4) Carcom Warszawa Sp Zoo: QBD (Comm) (Mr Justice Christopher Clarke): 2 October 2008

The applicant Polish company (E) and its administrator in bankruptcy applied to set aside an arbitration award on the grounds that the arbitration agreement ceased to have effect as from the date when E was declared bankrupt by the Polish court.

E had entered into an investment agreement with the first and second defendants (V). The agreement contained an agreement to arbitrate, providing for arbitration in London under London Court of International Arbitration rules. The arbitration agreement was governed by English law, although the rest of the investment agreement was governed by Polish law. V had commenced an arbitration pursuant to the arbitration agreement, claiming that E had breached its obligations under the investment agreement. The tribunal fixed a hearing on liability issues. E was then declared bankrupt by the Polish court. E claimed that that had the effect of annulling the arbitration agreement under the Polish bankruptcy law. The tribunal by a majority rejected E’s objection to its jurisdiction and declared that E had breached the terms of the investment agreement. E issued an application under section 67 of the Arbitration Act 1996 to set aside the award on the grounds that, in accordance with the Polish bankruptcy law, the arbitration agreement had lost its legal effect from the date bankruptcy was declared. E submitted that Polish law governed the effect of its insolvency on the arbitration agreement as a ‘current contract’ within article 4(2)(e) of regulation 1346/2000, and that the arbitration proceedings were not ‘proceedings brought by individual creditors, with the exception of lawsuits pending’ for the purposes of article 4(2)(f) and article 15 of the regulation, since the latter were limited to individual execution actions against the debtor’s assets.

Held: (1) The interpretation of the regulation should strive to establish an autonomous European meaning considering the overall scheme and purpose of the regulation and interpretative sources, such as the preamble to the regulation and the Virgos-Schmit Report and available authorities. In the light of the general wording of article 4(2)(f), the purpose behind the regulation and the report, the phrase ‘proceedings brought by individual creditors’ in article 4(2)(f) included both proceedings by way of execution and actions brought to establish the validity of a claim; and the phrase ‘with the exception of lawsuits pending’ extended to actions of the latter type that, if successful, would give rise to a claim against the insolvent’s estate, but not to execution. That being so, there was no good reason why ‘lawsuit’ should not be regarded as including a reference to arbitration. The European Court of Justice appeared to have assumed that ‘proceedings brought by individual creditors’ covered an arbitration claim by the commission, Commission of the European Communities v AMI Semiconductor Belgium BVBA (C294/02) [2005] ECR I-2175 ECJ considered.

(2) When arbitration proceedings had not been commenced, article 4(2)(e) applied to the underlying contract and the arbitration agreement. But where, as in the instant case, arbitration proceedings were pending at the date of the insolvency, article 4(2)(f) and article 15 applied, so that the effects of the insolvency on the underlying contract, and on the arbitration agreement in so far as it concerned the pending reference, were governed by the law of the member state in which the lawsuit or arbitration was pending.

Application refused.

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.