Bakhshiyeva (Representative of the OJSC International Bank of Azerbaijan) v Sberbank of Russia & Ors

Relief under the Cross-Border Insolvency Regulations 2006 should not generally preserve a moratorium merely to facilitate a possible appeal once a foreign restructuring plan has been implemented and does not alter rights governed by English law. The court should distinguish the question whether relief may be granted from the domestic question whether its effect should be stayed pending appeal. Proceedings may be permitted to establish rights, while judgment, arbitral award or enforcement may be restrained where necessary to prevent the appeal becoming nugatory. The appropriate protection depends on the nature of the proceedings and the enforceability of any undertaking offered.

The foreign representative of the OJSC International Bank of Azerbaijan sought continuation of a moratorium imposed in recognition of an Azeri restructuring proceeding. The court had previously refused continuation of the moratorium, holding that the restructuring plan did not affect English-law contractual rights because of the rule in Gibbs. Following an amendment to Azeri banking law and an extension of the restructuring proceeding, Franklin Templeton sought permission to commence arbitration and pursue enforcement, while Sberbank sought permission to issue English proceedings for its loans. The central issues were whether the moratorium should be lifted under the Model Law and whether that lifting should be stayed pending the permitted appeal.

1. Separate questions. The court first considered whether the cross-applications should succeed under the Model Law, and then whether the effect of lifting the moratorium should be stayed under ordinary domestic principles and CPR 52.16.
2. Model Law relief. The restructuring plan had been implemented under Azeri law. The court had held that it did not bind the applicants’ English-law rights. The judge tended to the view that a contractual claim which is within a foreign plan under its governing law, but outside it under the law applicable to the claim, should be treated as outside the plan once the plan has been implemented. The Model Law’s temporary breathing space should not be extended to restrict rights which cannot substantively be changed by the foreign plan.
3. The judge did not consider it necessary to reach a concluded view on the strict jurisdictional limits of the Model Law. Even assuming jurisdiction to continue the moratorium, Article 22 and the court’s discretion did not justify continuing it solely to accommodate the possibility of a successful appeal. The moratorium was therefore lifted to enable Franklin Templeton and Sberbank to pursue their claims, including enforcement by Franklin Templeton if otherwise permitted.
4. Stay pending appeal. A complete stay of proceedings was not necessary. Commencement and pursuit of proceedings would not substantially negate the utility of the appeal, since the rule in Gibbs remained binding at this level. However, there was a realistic risk of irremediable prejudice if judgment or an arbitral award could be obtained and enforced before the appeal. The court therefore contemplated permitting proceedings to continue while preventing Sberbank from proceeding to judgment and Franklin Templeton from obtaining an award, pending appeal or further order.
5. The court approved an order agreed between Sberbank and IBA. Franklin Templeton’s proposed restriction, which would have required the arbitration to stop immediately before an award, was not shown to be enforceable, particularly because the trustee and arbitrators were not all parties before the court. Further submissions and an agreed order were invited.

The judgment followed the court’s earlier refusal on 21 December 2017 to continue the moratorium. Permission to appeal that decision had been granted, with the appeal expected to be heard by the Court of Appeal. This supplemental judgment determined the consequential applications pending that appeal.