Westwood Shipping Lines Inc & Anor v Universal Schifffahrtsgesellschaft MBH

Under Council Regulation 1346/2000/EC, insolvency proceedings may be regarded as opened before formal proceedings under national law where an insolvency application has been made, a qualifying liquidator appointed, and the debtor has been partially divested of control over its assets. A debtor’s inability to dispose of assets without the liquidator’s consent, collect its debts, suffer execution, or retain its books may constitute sufficient partial divestment. The resulting judgment must be recognised in other Member States, including its prohibition on enforcement measures. An application for a receivership is itself not an enforcement measure, but it cannot be granted while the recognised prohibition remains effective. The proper disposal is dismissal rather than a stay, leaving any fresh application to be made if circumstances change.

Westwood obtained an arbitration award exceeding US$11 million against GMB/Universal arising from the cancellation of a sub-sub-charter. It sought permission to enforce the award and the appointment of receivers over an alleged claim by GMB/Universal against Kimberley and NSC. After the application was issued, a German court appointed a preliminary insolvency administrator following GMB/Universal’s application to open insolvency proceedings.

The parties disputed whether that German order constituted a judgment opening insolvency proceedings under Council Regulation 1346/2000/EC, whether its enforcement prohibition applied to the receivership application, and whether the application should be dismissed or stayed. The court also determined the parties’ liability for costs.

1. German order recognised under the ECIR. The German order was a judgment opening insolvency proceedings for the purposes of Council Regulation 1346/2000/EC. The application was based on insolvency and sought proceedings listed in Annex A. The appointed preliminary insolvency administrator was a person listed in Annex C. The decisive question was whether the order involved partial divestment of the debtor.
2. Partial divestment. Partial, rather than total, divestment was sufficient. GMB/Universal could not dispose of its assets without consent, was subject to supervision to secure and conserve the estate, could not collect its debts for itself, could not suffer execution, and had to hand over its books and records. Those restrictions meant that it had lost control of its assets to a sufficient extent. The possibility that the order might later become ineffective did not alter that conclusion.
3. Effect of recognition. Applying In re Eurofood IFSC Ltd [2006] Ch 508, and the ECIR’s policy of early recognition, the order had to be recognised in England. Its prohibition on enforcement measures therefore applied.
4. Receivership application. An application is not itself a measure of enforcement, because it does not enforce a judgment. However, the receivership sought was an application for relief which the recognised order prohibited. It should therefore be dismissed, not stayed. A fresh application could be made if circumstances changed, such as the German proceedings not being opened.
5. Costs. GMB/Universal was ordered to pay Westwood’s costs up to 15 March 2012 because its conduct had reasonably led Westwood to pursue enforcement without knowledge of the insolvency proceedings. Thereafter, costs were apportioned to reflect the parties’ conduct, the successful ECIR argument, and the misleading and inaccurate information supplied by GMB/Universal’s solicitors. The earlier enforcement order was set aside.