Vol 6 (2009) - Issue 6

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(1) Jozef Syska (2) Elektrim SA v (1) Vivendi Universal SA (2) Vivendi Teleom International SA (3) Elektrim Telekomunikacja Sp z.o.o. (4) Carcom Warzawa Sp z.o.o. [2009] EWCA Civ 677

Introduction

Where an arbitration is proceeding in one Member State of the European Union and one of the parties to the arbitration becomes insolvent in another Member State, are the consequences of that insolvency, in so far as they affect the arbitration, to be determined by the law of the Member State where the insolvency proceedings have been instituted or the law of the Member State in which the arbitration is taking place?

The Court of Appeal heard an appeal from a judgment of Christopher Clarke J ([2008] EWHC 2155 (Comm), now reported at [2008] 2 Lloyd’s Rep 636). In that decision the judge had held that, where main insolvency proceedings had been opened in Poland, but arbitration proceedings had already been pending in England at the date of insolvency, then the effects of the insolvency on the arbitration agreement were governed by the law of England (the Member State in which the arbitration was pending) rather than the law of Poland (the Member State in which the insolvency proceedings had opened).

Background

Elektrim SA, the second claimant and appellant (‘Elektrim’) was a Polish company, which at one time owned a substantial shareholding in PTC, a Polish mobile telephone company.

On 3 September 2001 Elektrim entered into an agreement known as the Third Investment Agreement (‘TIA’) with Vivendi Universal SA and Vivendi Telecom International SA, the first and second respondents (together ‘Vivendi’). This was one of a series of agreements whereby Vivendi was intended to acquire an interest in PTC. Article 5.11 (c) of the TIA contained an agreement to arbitrate (the ‘Arbitration Agreement’) which provided for arbitration in London under LCIA rules. It was common ground between the parties that the arbitration agreement was governed by English law (although the rest of the TIA was governed by Polish law).

On 22 August 2003 Vivendi commenced 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 fixed a hearing on liability issues for 15-19 October 2007. The claims made were in the order of EUR 1.9 billion.

Meanwhile, on 21 August 2007, Elektrim was declared bankrupt by an order of the Warsaw District Court pursuant to its own petition of 9 August 2007. As a result of that order, Elektrim became a ‘bankrupt’ for the purposes of Polish law. The order of 21 August 2007 of the Warsaw District Court (a) declared that Elektrim was bankrupt, (b) appointed Jozef Syska (the first claimant) as Court Supervisor and (c) provided for Elektrim’s own management to retain control of all of Elektrim’s assets and to take any actions within the ordinary scope of its business. On 5 February 2008, the Warsaw Court appointed Mr Syska as the administrator over Elektrim’s assets.

On 22 August 2007, Elektrim wrote to the Tribunal and Vivendi saying that, as result of the bankruptcy, the Arbitration Agreement had been annulled pursuant to Article 142 of the Polish Bankruptcy and Reorganisation Law. This provides that: ‘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’. On 15 October 2007, the scheduled arbitration hearing began in London. At that hearing, the Tribunal heard argument from both parties as to whether the arbitration agreement had been annulled. On 20 March 2008, the Tribunal issued an Interim Partial Award (the ‘Award’). The Tribunal by a majority rejected Elektrim’s objections to their jurisdiction and declared that Elektrim had breached the terms of the TIA.