Vol 5 (2008) - Issue 2

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Anti-suit Injunctions Against Foreign Insolvency Proceedings:AWB Geneva SA & Anor v North America Steamships Ltd & Anor [2007] EWHC 1167 (Comm); [2007] EWCA Civ 739

Introduction

Recently Field J and the Court of Appeal (Thomas, Chadwick and Latham LJJ) were called on to consider,amongst other things, whether a party to a contract
governed by English law and subject to the exclusive jurisdiction of the English Courts was entitled to rely on those 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. This article explains the facts and the narrow 'contractual' decisions of Field J and the Court of Appeal before considering the issues in the wider domestic and international 'insolvency' context.

Background

The first claimant ('AWB') and the second claimant ('Pioneer') entered into a number of freight forward swap agreements ('FFAs') with North America Steamships
Ltd ('NASL'), a company incorporated in Canada. The FFAs were governed by the ISDA Master Agreement and were subject to an exclusive jurisdiction clause in
favour of the English Courts and an English governing law clause. Under section 2(a)(iii) of the ISDA Master Agreement, the obligations of any party were subject to the condition precedent that no event of default had occurred and was continuing in respect of the other party. The events of default included balance
sheet insolvency, cash flow insolvency, non-payment of any sums due under the FFAs, the commencement of insolvency proceedings, and compositions and arrangements with creditors

NASL became insolvent and entered into bankruptcy in Canada, its jurisdiction of incorporation. Its property was assigned to a Canadian bankruptcy trustee
('the trustee'). AWB and Pioneer, which but for NASL's insolvency and bankruptcy would have become obliged to pay substantial sums to NASL under the FFAs if the
transactions were closed out at that date, indicated that, rather than terminating the FFAs, they intended to rely instead on section 2(a)(iii) of the ISDA Master Agreement to contend that events of default had occurred and were continuing in respect of NASL and that accordingly no liability on their part could or would now ever arise.

In response, the trustee proposed to apply to the Canadian Court for NASL's restructuring under the Canadian Companies' Creditors Arrangement Act ('the
CCAA'), which provides for majority-approved restructurings in accordance with a process that is broadly comparable with schemes of arrangement and CVAs under English law. The restructuring that was proposed was in the nature of a debt-for-equity swap. The trustee intended that the restructuring would, amongst other things, restore NASL to solvency (thus bringing an end to any cash-flow and balance-sheet insolvency events of default) and terminate NASL's bankruptcy proceedings (thus bringing an end to any bankruptcy event of default). In this way, the trustee hoped to remove the existence of any continuing events of default and, in consequence, the ability of AWB and Pioneer to rely on section 2(a)(iii) of the ISDA Master Agreement, so as to oblige them to pay the substantial sums to NASL which, but for its insolvency and bankruptcy, he anticipated would in due course become due and owing under the FFAs.

However, the trustee was concerned that the restructuring would itself amount to a further event of default (in the nature of a composition or arrangement with
NASL's creditors) and, whilst 'wiping the slate clean' as regards the previous events of default, would itself provide AWB and Pioneer with a further ground for contending that section 2(a)(iii) of the ISDA Master Agreement prevented any liability on their part from arising.