Cosco Bulk Carrier Co Ltd v Armada Shipping SA & Anor

Recognition of a foreign main insolvency proceeding does not require every related arbitration to remain stayed. The court applies the domestic insolvency stay regime incorporated by article 20.2 of the Model Law, including the discretion under Insolvency Act 1986, section 130(2), to permit proceedings to continue. The governing question is what is right and fair in all the circumstances, having regard to the orderly administration of the insolvency, creditor protection, contractual arbitration agreements, expertise of the proposed tribunal, cost, convenience and the ability to resolve the dispute effectively. Where the dispute is substantially governed by English law and concerns English shipping law, London arbitration may be permitted, subject to safeguards securing the participation and protection of the foreign office-holder and creditors.

Armada Shipping SA was the subject of a Swiss bankruptcy proceeding recognised in England as a foreign main proceeding under article 17 of the Model Law. Before its bankruptcy, Armada had chartered a vessel from Cosco and sub-chartered it to STX. Cosco exercised a contractual lien over sub-hire payable by STX and commenced London arbitration. The Swiss office-holder sought confirmation that recognition had automatically stayed that arbitration, or alternatively a discretionary stay. Cosco sought permission for the arbitration to continue.

The underlying dispute concerned entitlement to the sub-hire, the legal nature and validity of the lien, the amount claimed, an indemnity for bunker payments and priority in the bankruptcy. The central procedural issue was whether those matters should be determined in London arbitration, in the Swiss bankruptcy or by the High Court.

1. The court’s approach. The Model Law’s UK version is given force by paragraph 2(1) of the Cross-Border Insolvency Regulations 2006. Article 20.2 makes the British insolvency regime the primary guide to the scope and management of the automatic stay. The relevant domestic provision was section 130(2) of the Insolvency Act 1986.
2. Under section 130(2), the court has a free hand to do what is right and fair in the circumstances. The normal starting point is an orderly resolution of matters arising in the winding-up for the benefit of creditors as a whole. The court should consider cost, expedition, the office-holder’s resources, the existence of a genuine arguable claim and the protection of creditors and other interested persons.
3. It was unnecessary to determine whether the first arbitration had already been automatically stayed, or to decide the underlying questions concerning the juridical nature of the lien, assignment, quantum, bunker payments or priority. It was sufficient to proceed on the basis that Armada had an arguable beneficial interest in the asset in dispute and to exercise the available discretion.
4. The underlying dispute was characterised as two competing proprietary or contractual claims relating to one chose in action, namely STX’s payment obligations under the sub-charter. The parties had agreed English law and London arbitration. The issues were predominantly matters of English shipping law, for which London arbitrators were suitably experienced. These considerations outweighed the possible cost and time advantages of determination in Switzerland.
5. The first arbitration could continue only with safeguards. Armada’s office-holder was to have the opportunity to join effectively and without significant delay. Armada was given liberty to seek further relief if joinder proved impossible through no fault of its own. Enforcement or execution of any award was to remain stayed so that the matter could be restored to the court if the interests of Armada, its creditors or office-holder were not adequately addressed.