Syska & Anor v Vivendi Universal S.A. & Ors

The Court of Appeal held that Article 15 of Council Regulation (EC) No. 1346/2000 governs the effects of insolvency proceedings on lawsuits pending, and that a pending reference to arbitration falls within the phrase "lawsuits pending." Consequently the law of the Member State in which the arbitration is pending (here English law) determines whether the arbitration should continue or be discontinued. The consequence was that the arbitral tribunal correctly applied English law in deciding that the arbitration could proceed and the court declined to set aside the arbitral award.

The court rejected the argument that the general lex concursus rule in Article 4 should determine the effect of the Polish insolvency on the arbitration agreement, including the contention that Article 142 of the Polish Bankruptcy and Reorganisation Law annulled the arbitration clause and thus deprived the tribunal of jurisdiction. The court relied on the Regulation's exception for pending lawsuits, the drafting history and commentary and practical considerations about legitimate expectations and certainty of transactions.

Background and parties: Elektrim S.A., a Polish company then declared bankrupt, and its court-appointed administrator (the appellants) appealed from a Commercial Court judgment refusing to set aside an LCIA arbitral award in favour of Vivendi Universal S.A. and others (the respondents). The arbitration arose under an agreement (the TIA) containing an English-law arbitration clause providing for arbitration in London.

Nature of the application / relief sought: The Polish administrator sought a declaration under section 67 of the Arbitration Act 1996 that the arbitral tribunal had exceeded its jurisdiction because, by operation of Polish insolvency law (Article 142 of the Polish Bankruptcy and Reorganisation Law), any arbitration clause concluded by the bankrupt loses effect on the date bankruptcy is declared and pending arbitration must be discontinued.

Procedural posture: Vivendi commenced arbitration in London in 2003; Elektrim was declared bankrupt in Poland on 21 August 2007. The LCIA tribunal proceeded and issued an interim partial award rejecting Elektrim's jurisdictional objections. Christopher Clarke J in the Commercial Court refused to set aside the award and granted permission to appeal to the Court of Appeal.

Issues framed: (i) Whether the effects of the Polish insolvency on the arbitration were governed by the lex concursus (the law of the state in which insolvency proceedings were opened) under Article 4 of the Regulation, so that the Polish rule annulling arbitration clauses applied; or (ii) whether Article 15 of the Regulation, which provides that the effects of insolvency on lawsuits pending are governed solely by the law of the state where the lawsuit is pending, governed the issue; and (iii) whether a pending arbitration falls within "lawsuits pending".

Court's reasoning: The Court of Appeal treated a pending arbitration as a pending lawsuit within Article 15. It explained that Article 4 and Article 15 operate in distinct spheres and that Article 15 is the specific provision applicable to proceedings already in course when insolvency is opened. The court relied on the Regulation's recitals, the Virgos-Schmit report and leading commentary to support the view that Article 15 was intended to protect legitimate expectations and the certainty of transactions by allowing the forum of pending proceedings to determine whether they should continue. The court rejected the submission that Article 4 should be regarded as "primary" so as to annul arbitration agreements in all cases of cross-border insolvency. Applying Article 15, English law governed the question whether the arbitration should continue; there was no English law annulling the arbitration agreement and the tribunal therefore had jurisdiction. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held that Article 15 of Regulation (EC) No. 1346/2000 applies to pending references to arbitration and that the law of the Member State where the arbitration is pending (English law) therefore governs whether the arbitration should continue; the arbitral tribunal correctly applied English law and did not exceed its jurisdiction.

Appeal from the Commercial Court (Christopher Clarke J) [2008] EWHC 2155 (Comm) to the Court of Appeal [2009] EWCA Civ 677. Permission to appeal was granted from the judge's refusal to set aside the arbitral award.