Global Distressed Alpha Fund 1 Ltd Partnership v PT Bakrie Investindo

A foreign insolvency composition does not discharge an obligation governed by English law where the binding rule is that contractual discharge is governed by the contract’s proper law. The principle of modified universalism may support development of the common law, but a first-instance court cannot depart from a binding Court of Appeal decision. A limitation clause referring to claims for interest becoming void after five years applies separately to each interest payment. The relevant date is when the particular payment claimed first became due, rather than the maturity date of the notes as a whole.

The claimant purchased US$2m of guaranteed notes issued by a Dutch company and guaranteed by the defendant, an Indonesian company. The notes and guarantee were governed by English law. Following an Indonesian composition plan, the defendant’s liability was discharged under Indonesian law.

The claimant accepted that discharge under Indonesian law but sued on the guarantee in England. The defendant relied on modified universalism, contending that the Indonesian composition should be recognised. It also advanced a prior-holder defence and argued that the claim for interest was time-barred under the notes.

1. English effects argument. The Indonesian composition did not discharge the defendant’s liability under the guarantee in English law. The Court of Appeal’s decision in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399 established a binding rule that discharge of a contractual obligation under foreign insolvency law is effective in England only where it is effective under the law governing the contract. The guarantee was governed by English law.
2. The decisions concerning modified universalism, including Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc and others [2007] 1 AC 508, Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 and Rubin v Eurofinance [2010] EWCA Civ 895, provided substantial support for the defendant’s argument. They did not, however, entitle a first-instance judge to disregard Gibbs. Any reconsideration or overruling of that binding authority was for a higher court.
3. Prior-holder argument. The defendant had to allege and prove that participation in the composition plan gave it a defence. It had not done so. The claimant was not required to prove the absence of every possible defence.
4. Interest. The five-year bar applied to each interest payment claimed. Under the notes, the relevant date was the date on which that particular payment first became due. Interest payments due from 17 December 2004 onwards were claimed within five years of the issue of the claim form and were not void.
5. There was judgment for the claimant for the principal sum of US$2m and interest payments falling due from 17 December 2004.