Enasarco v Lehman Brothers Finance SA & Anor

Proceedings challenging the admission, amount or ranking of a claim in an insolvency distribution fall within the insolvency exclusion in article 1(2)(b) of the Lugano Convention where they arise only under insolvency law, form an integral part of the liquidation, and determine entitlement to participate in the distribution. The court must apply a directness-and-closeness test, rather than balance insolvency issues against issues of general law.

A discretionary stay should ordinarily be refused where the English proceedings concern an English-law contract subject to an exclusive English jurisdiction clause, particularly where the foreign insolvency decision would not determine the parties’ substantive rights or create res judicata. Permission may be granted to commence related proceedings despite an insolvency stay where a real dispute requires prompt determination.

Enasarco claimed approximately $61.5 million from Lehman Brothers Finance SA under a derivative agreement governed by English law and containing an exclusive jurisdiction clause in favour of the English courts. Lehman’s Swiss liquidation rejected the claim and asserted that money was owed to it.

Enasarco challenged that rejection in the Swiss bankruptcy proceedings, while also commencing English proceedings concerning the parties’ contractual rights. Lehman sought a stay under articles 27 and 28 of the Lugano Convention and section 49(3) of the Senior Courts Act 1981. Anthracite sought permission to bring a related claim against Lehman despite the automatic insolvency stay under article 20 of Schedule 1 to the Cross-Border Insolvency Regulations 2006.

The central issues were whether the Swiss claim-challenge proceedings were insolvency proceedings excluded from the Convention and whether either set of proceedings should be stayed.

1. Insolvency exclusion. The Swiss proceedings fell within article 1(2)(b) of the Lugano Convention. Applying Gourdain v Nadler and German Graphics Graphischer Maschinen GmbH v van der Schee, the relevant question was whether the proceedings derived directly from the liquidation and were closely connected with it.
2. The Swiss proceedings arose, and could arise only, under Swiss insolvency law. They formed an integral part of the liquidation, were required to be brought in the liquidation court, and determined the amount and ranking of claims for distribution. Their purpose went beyond determining contractual liability. Insolvency-law provisions could reduce or extinguish an otherwise valid contractual claim. The proceedings also had no res judicata effect on the underlying contractual dispute.
3. A balancing exercise was inappropriate. Article 1(2)(b) was intended to create a clear boundary between insolvency and other proceedings, not uncertainty based on the relative weight of insolvency and general-law issues.
4. Article 27 therefore did not require an automatic stay. It was unnecessary to decide whether the proceedings involved the same cause of action. Even if article 28 applied, a stay was refused. The exclusive English jurisdiction clause and English governing law were powerful factors. The English court was the natural forum, the Swiss decision would not determine substantive rights or affect any claim against ARIC, and the risk of irreconcilable decisions was largely theoretical. The Swiss proceedings were not sufficiently advanced to outweigh those factors.
5. Permission was granted to ARIC to commence a Part 20 claim against LBF. There was a real dispute concerning the substantial liability asserted against ARIC, and determining it in the English proceedings would allow the rights and liabilities of all three parties to be resolved together.

First-instance decision. No prior appellate decision was stated in the judgment.