Global Distressed Alpha Fund 1 Ltd Partnership v PT Bakrie Investindo

This was a first instance action on an English-law deed of guarantee given by an Indonesian company for US$50m notes, of which the claimant purchased US$2m. The defendant relied on an Indonesian court-approved Composition Plan discharging its liabilities under Indonesian law and invited the court to apply a principle of modified universalism to recognise that discharge in English law. The court held it was bound by the Court of Appeal authority in Antony Gibbs & Sons v La S. I. C. des Métaux (the Gibbs doctrine) that a discharge under foreign bankruptcy law does not extinguish obligations governed by English law, and therefore the Indonesian composition did not discharge the defendant's liability under the English-law guarantee.

The court also rejected the defendant's alternative "prior party" defence because it had not pleaded or proved that the 2002 holder of the notes had participated in the Composition Plan, and the claimant, as a later purchaser, was not estopped by acts of a prior holder in circumstances governed by English law. Finally, the court construed the notes' time bar for interest as applying to each interest payment "in question" so that claims for interest falling due from 17 December 2004 onward were not time-barred; judgment was entered for the claimant for US$2m principal and interest due from 17 December 2004.

Background and parties. The defendant, an Indonesian investment holding company, issued an English-law guarantee in 1996 in respect of US$50m 9.625% Guaranteed Notes issued by a Dutch issuer. The notes matured in December 1999 and were not paid. The defendant obtained a provisional moratorium in Indonesia and a creditor-approved Composition Plan was ratified by the Indonesian court in 2002. The claimant purchased notes with a nominal value of US$2m in 2009 and sued on the English-law guarantee in December 2009.

Nature of the claim and relief sought. The claimant sought payment under the deed of guarantee of US$2m principal plus accrued interest. The defendant sought dismissal on three principal grounds: (1) the "English effects" argument—that the Indonesian Composition Plan discharged the defendant's liability and English courts should recognise that discharge under a modern principle of modified universalism; (2) the "prior party" argument—that any holder who participated in the Composition Plan could not claim under the guarantee and the claimant, as successor, should be unable to recover; and (3) a limitation/time-bar defence to part of the interest claim under the notes' condition 10.

Issues framed by the court.

• Whether English law should recognise the Indonesian Composition Plan's discharge of the defendant's obligations under an English-law guarantee, in light of developments in cross-border insolvency law (notably Cambridge Gas, Re HIH Casualty, and Rubin).
• Whether the claimant was barred because a prior holder had participated in the Composition Plan.
• The proper construction of the notes' interest time bar in condition 10 and whether the claimant's interest claim was time-barred.

Court's reasoning and conclusions. The judge analysed the long-standing Gibbs doctrine and later authorities advocating modified universalism. Although receptive to the policy arguments favouring recognition of foreign insolvency arrangements, the judge concluded that Gibbs remains binding on him as a Court of first instance and therefore a discharge under Indonesian insolvency law does not discharge obligations governed by English law. On the prior holder point, the judge held that any defence based on a prior holder's participation in the Composition Plan was a matter the defendant must plead and prove; it had not done so and could not rely on that defence. On interest, the judge construed the time bar as applying to each specific interest payment (the "payment in question"), and held that interest payments first due on or after 17 December 2004 were recoverable because the claim form was issued within five years of those dates. Judgment was entered for the claimant for the US$2m principal and interest payments that fell due from 17 December 2004.

Wider context. The judgment records detailed consideration of the tension between the Gibbs rule and the modern trend towards modified universalism in cross-border insolvency, but emphasises the trial judge's duty to follow binding precedent.

The court gave judgment for the claimant for the principal sum of US$2m and interest due on payments first falling due from 17 December 2004. The court held that, bound by the Court of Appeal authority in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux, a discharge under Indonesian insolvency law did not extinguish obligations governed by English law; the defendant had not pleaded or proved the prior-holder defence; and the notes' condition 10 time bar applies to each interest payment "in question", so interest from 17 December 2004 was not time-barred.