Jurisdiction – Council Regulation 1346/2000 on Insolvency Proceedings – Contract concluded in Poland governed by Polish law save for arbitration clause governed by English law – Reference to arbitration – Appellant becoming insolvent under Polish law – Appellant disputing jurisdiction of arbitral tribunal on ground that arbitration agreement annulled under Polish law – Tribunal making award – Whether continuation of reference governed by Polish or English law – Whether Article 4 or 15 of Council Regulation applying – Appeal dismissed
The second appellant, a Polish company, entered into an agreement with the respondents regarding the latter’s acquisition of an interest in a Polish mobile telephone company. The agreement contained a clause that provided for arbitration in London; the arbitration agreement was governed by English law, although the remainder of the contract was governed by Polish law. In August 2003, the respondents commenced arbitration pursuant to the agreement, alleging breach of contract and seeking damages of €1.9bn. A hearing on liability was scheduled for October 2007. Meanwhile, in August 2007, the second appellant was adjudged bankrupt under Polish law. It claimed that the arbitral tribunal lacked jurisdiction to determine the respondents’ claim since, on an application of Polish insolvency legislation, the bankruptcy had annulled the arbitration agreement.
In October 2007, the arbitral tribunal issued an interim award in which it rejected the second appellant’s objections as to jurisdiction and declared that it had breached the terms of the agreement. The first appellant, who had by then been appointed as the administrator of the second appellant, applied to the English court for a declaration that the tribunal had exceeded its jurisdiction. Dismissing the claim, the judge held that, on a correct application of Articles 4 and 15 of Council Regulation 1346/2000 on Insolvency Proceedings, English law was to determine the effect of the insolvency on the arbitration; since there was no provision under English law to annul the arbitration agreement, the tribunal had correctly concluded that it should proceed. The judge held that Articles 4 and 15 conflicted and that the general provisions of Article 4, stating that the law applicable to insolvency proceedings should be that of the member state in which those proceedings were opened, and under which Polish law would be applied to the arbitration agreement as a “current contract” within Article 4(2)(e), gave way to the particular provisions of Article 15 concerning “lawsuits pending”, which could include arbitration. The appellants appealed.
Held: The appeal was dismissed.
In the first instance, the law of the state in which insolvency proceedings were opened – the lex concursus – had to determine those proceedings and their conduct and closure. The law of that state would determine matters such as the amount of the debtor’s estate that was available to satisfy creditors and the priority of competing claims on that estate. However, pending lawsuits were excluded from the general application of the lex concursus since, until the validity of that particular claim could be ascertained, it had no status in or relevance to the insolvency proceedings. Further, if a legal action had been commenced or a reference to arbitration been constituted in a member state other than that in which the insolvency proceedings had been opened, it was natural and understandable, and would be the natural expectation of businesses, that the law of the state in which the action or reference was taking place should determine whether that action or reference continued. Consequently, Articles 4 and 15 did not conflict; instead, each article operated in its own sphere. The judge’s reasoning was flawed in that respect, although his conclusion was correct. In the instant case, once it was accepted that a pending reference to arbitration was a “lawsuit pending”, the question of discontinuance was governed by Article 15. Consequently, the question of whether the reference should continue was governed solely by English law as the law of the member state in which that reference was pending. The tribunal had come to the right conclusion and the judge had correctly declined to set aside its award.
Gabriel Moss QC, Richard Millett QC and Julian Kenny (instructed by Barlow Lyde & Gilbert LLP) appeared for the appellants; Toby Landau QC and Ricky Diwan (instructed by O’Melveny & Myers LLP) appeared for the respondents.
Sally Dobson, barrister
