Vol 5 (2008) - Issue 6

Article preview

Josef Syska and Elektrim SA (in administration) v Vivendi Universal SA and others [2008] EWHC 2155 (Comm)

In Josef Syska and Elektrim SA (in administration) v Vivendi Universal SA and others [2008] EWHC 2155 (Comm), Mr Justice Clarke was required to consider the proper scope of articles 4(2)(e), 4(2)(f) and 15 of Council Regulation 1346/2000 on insolvency proceedings (the ‘Insolvency Regulation’) in deciding whether to set aside an English arbitral award handed down after the opening of main insolvency proceedings in Poland in respect of one of the parties to that award. This case-note explores some of the issues considered by the judge and the prospect of his reasoning being upheld on appeal.

The facts

Elektrim SA and its administrator (‘Elektrim’) applied under section 67 of the Arbitration Act 1996 to set aside an arbitral award in favour of Vivendi Universal SA and others (‘Vivendi’). The award held that the arbitration reference which was proceeding to trial before the arbitrators could proceed despite the supervening bankruptcy of Elektrim. The underlying dispute was based on a breach of an investment agreement by Elektrim pursuant to which Vivendi was to acquire an interest in PTC, a Polish mobile telephone company.

The investment agreement was governed by Polish law but contained an agreement to arbitrate governed by English law and which provided for arbitration in London under LCIA rules. The arbitration commenced on 23 August 2003 and the award was handed down after a hearing on the question of jurisdiction which preceded the trial on liability between 15 and 19 October 2007.

Elektrim had been declared bankrupt by order of the Warsaw District Court pursuant to its own petition on 21 August 2007 on the basis that it could continue as a debtor in possession, and, on this basis, Elektrim sought to rely on Article 142 of the Polish Bankruptcy and Reorganisation Law (the ‘Law’) to avoid the award. Article 142 provides:

‘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 was common ground that if article 142 of the Law was applicable it had the effect of annulling the arbitration agreement. The critical question was: what law governs the effects of the Polish bankruptcy order?

The Insolvency Regulation

The Insolvency Regulation aims to secure a uniform system for the opening of insolvency proceedings and the effective administration of those proceedings. For this reason, it prescribes a series of jurisdictional rules and choice of law rules. In the absence of uniform choice of law rules, it would be difficult to secure effective automatic recognition of the powers of liquidators in main or secondary proceedings, or of any judgments given by the courts in those proceedings.

Article 4(1) is the basic choice of law rule and provides:

‘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 …’