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

Where insolvency proceedings are opened in one Member State while an arbitration is already pending in another, the law of the State where the arbitration is pending governs all effects of the insolvency on its continuation. This includes any issue concerning the continued validity of the arbitration agreement.

Article 15 of Council Regulation (EU) No. 1346/2000 therefore displaces the general application of the law of the insolvency proceedings. The latter law continues to govern individual enforcement measures and proceedings commenced after insolvency.

Elektrim, a Polish company, agreed to arbitrate disputes with Vivendi in London under an arbitration agreement governed by English law. Vivendi commenced arbitration before Elektrim was declared bankrupt in Poland. Article 142 of the Polish Bankruptcy and Reorganisation Law purported to invalidate Elektrim’s arbitration agreement and discontinue the pending arbitration.

The tribunal applied English law, rejected Elektrim’s jurisdictional objection and made awards in Vivendi’s favour. Christopher Clarke J dismissed a challenge under section 67 of the Arbitration Act 1996: [2008] EWHC 2155 (Comm), reported at [2008] 2 Lloyd’s Rep 636.

The appeal concerned whether the effect of the Polish insolvency on the pending London arbitration was governed by Polish law under article 4 or solely by English law under article 15 of Council Regulation (EU) No. 1346/2000.

1. The appeal was dismissed unanimously. Article 15 of Council Regulation (EU) No. 1346/2000 required English law to determine the effects of Elektrim’s Polish insolvency on the pending London arbitration. The tribunal retained jurisdiction, and the judge correctly declined to set aside its award.

2. Article 4 establishes the general choice-of-law rule. The law of the State where insolvency proceedings are opened governs those proceedings and their effects unless a specific provision of the Regulation selects another law. Article 15 supplies such a specific rule for lawsuits already pending when insolvency occurs. Article 4 and article 15 therefore have separate spheres of operation rather than conflicting applications.

3. A pending arbitration was accepted to constitute a “lawsuit pending”. Once that premise was established, article 15 required the law of the State where the arbitration was pending to govern solely whether it should continue, be suspended or be discontinued. The rule encompassed questions about the validity of the arbitration agreement where that validity affected continuation of the reference. The contractual foundation of arbitral jurisdiction did not return the issue to article 4 merely because article 4(2)(e) referred to current contracts.

4. The Regulation distinguishes proceedings which determine the existence, validity, content or amount of a claim from individual enforcement action against the debtor’s estate. The former only establish whether a creditor may participate in the insolvency with an established claim. They do not impair the collective character of the insolvency. Pending proceedings are therefore governed by the law of the forum under article 15, while individual enforcement and proceedings begun after insolvency remain governed by the law of the opening State.

5. The selection of English law protected legitimate expectations and transactional certainty. English law contained no provision annulling this arbitration agreement or requiring discontinuance. Article 142 of the Polish Bankruptcy and Reorganisation Law consequently did not deprive the tribunal of jurisdiction.

• Court of Appeal (Civil Division): By [2009] EWCA Civ 677, unanimously dismissed the appeal and upheld the refusal to set aside the arbitral award.
• High Court, Commercial Court: Christopher Clarke J held that article 15 required English law to govern the effect of the Polish insolvency on the pending arbitration and dismissed the jurisdictional challenge under section 67 of the Arbitration Act 1996: [2008] EWHC 2155 (Comm), reported at [2008] 2 Lloyd’s Rep 636.
• Arbitral tribunal: By majority, rejected the jurisdictional objection, found breaches of the investment agreement and subsequently awarded damages to Vivendi.