2020.09.23 - Riverrock Securities LTD V International Bank of ST Petersburg (Joint Stock Company) (2020) EWHC 2483 (Comm)
2020.09.23 - Riverrock Securities LTD V International Bank of ST Petersburg (Joint Stock Company) (2020) EWHC 2483 (Comm)
Date: 23/09/2020
Before :
Mr Justice Foxton
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Between :
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MR JUSTICE FOXTON
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JUDGMENT
MR JUSTICE FOXTON RSL v IBSP
Approved Judgment
Mr Justice Foxton :
A INTRODUCTION
ii) IBSP’s application under Part 11 for an order that the Court should not
exercise any jurisdiction it may have over the claims which are the subject of
the ASI Application.
iii) IBSP’s application for permission under CPR Part 35 to adduce and rely upon
expert evidence in the form of a report on Russian law from Professor
Asoskov.
B THE BACKGROUND
The parties
3. IBSP was, until it became insolvent, a large retail bank incorporated in the Russian
Federation.
4. RSL is a company incorporated in England and Wales and regulated by the Financial
Conduct Authority.
The Contracts
5. Between 31 January and 3 July 2018, RSL and IBSP entered into nine substantially
similar contracts (“the Contracts”) under which RSL sold IBSP securities in the form
of credit linked notes which had been issued by UBS AG (“UBS”) through its London
branch (“the Notes”). The effect of the transactions was to transfer the credit risk
arising under certain loans held by UBS to the holder of the Notes (and therefore to
IBSP) in return for a coupon to be paid until the Notes reached maturity or a credit
default event occurred. The Notes formed part of a transaction involving not just RSL,
MR JUSTICE FOXTON RSL v IBSP
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IBSP and UBS, but also Hervet Investments Ltd (“Hervet”), a Cypriot company and
minority shareholder in IBSP.
6. Each of the nine Contracts was for the sale of a Note with a notional value of
US$15,000,000. The way in which each transaction worked was as follows:
iii) On the date each Loan was transferred from RSL to UBS, UBS issued and sold
the Note to RSL who sold it to IBSP.
iv) The coupon received by IBSP on each Note was directly linked to the interest
paid by Hervet under the Loan, such that IBSP would only receive coupon
from UBS under the Notes if Hervet paid interest to UBS under the Loan.
v) In the event of an Early Redemption Event or Default Event under the Loan,
UBS was to seek to redeem the Note in cash or transfer the Loan to RSL who
was to hold it on behalf of IBSP as Noteholder Representative.
7. The Notes are subject to the governing law and jurisdiction of the courts of England
and Wales. So far as the Contracts are concerned:
8. Following a review carried out by Central Bank of Russia (“CBR”) into IBSP’s
compliance with Russian banking law and practice, the authority of IBSP’s
management was suspended on 15 October 2018, and the Russian State Corporation
Deposit Insurance Agency (“the DIA”) was appointed as its administrator.
9. On 31 October 2018 the CBR placed IBSP into provisional administration and
revoked its banking licence. Bankruptcy proceedings were commenced I respect of
IBSP before the St Petersburg court on 12 November 2018. Shortly thereafter, Hervet
stopped paying interest under the Loans, triggering a Default Event which led UBS to
cease paying the coupon under the Notes. On 28 November 2018, UBS served
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Notices of Early Redemption under the Notes, notifying IBSP of its intention to
transfer the Loans to IBSP or to its order in full redemption of the Notes. In the
absence of any response from IBSP, on 21 December 2018 UBS served notice of its
intention to redeem the Notes by transferring the Loans to RSL as IBSP’s Noteholder
Representative.
10. IBSP was declared insolvent on 24 September 2019 and the DIA was appointed as its
official receiver in bankruptcy.
11. Investigations carried out by the CBR and the DIA into IBSP are reported to have
found various irregularities and improprieties so far as compliance with Russian
banking law is concerned, including that bank officials had diverted IBSP’s assets
both by making loans to legal entities incapable of meeting their obligations, and
through disposals of IBSP’s property.
12. On 18 October 2019, in the context of the bankruptcy proceedings, IBSP commenced
the St Petersburg Action against RSL. IBSP’s complaint (“the Complaint”) seeks the
invalidation of the Contracts on the basis that the transactions involving the Loans, the
Notes and the Contracts were a scheme intended to siphon off IBSP’s assets. IBSP
further seeks consequential relief in the form of repayment of all amounts paid to
RSL. IBSP contends that Hervet was fully controlled by IBSP at all material times,
and was owned by Mr Aleksander Zuev, a non-executive member of IBSP’s
supervisory board.
ii) Article 62.2(2) of the Bankruptcy Law, which provides for the avoidance of
transactions entered into within three years of the date of bankruptcy when
those transactions were concluded for the purpose of harming creditors.
iii) Article 10 and related provisions of the Civil Code of the Russian Federation
(“the Civil Code”), under which the invalidation of transactions is sought on
the basis that they involved an “abuse of rights”.
14. The Complaint was served on RSL’s English registered office (in Russian only) on 28
November 2019. After translating the Complaint, RSL wrote to the DIA on 10
February 2020 asking it to withdraw the St Petersburg Action, stating that any claim
had to be brought in LCIA arbitration and that the St Petersburg court did not have
jurisdiction. IBSP was asked to confirm by 21 February 2020 that it would withdraw
the St Petersburg Action. The contents of that letter were repeated on 25 February
2020.
15. On 14 February 2020, the St Petersburg court ordered RSL to provide its response to
the Complaint by 30 June 2020, and to attend a hearing taking place on 7 July 2020.
Those rulings were not served on RSL and only came to its attention when preparing
MR JUSTICE FOXTON RSL v IBSP
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16. Having received no response to its letters of 10 and 25 February 2020, on 5 March
2020 RSL proposed a meeting with the DIA to discuss the St Petersburg Action and
the Complaint. On the same day, the DIA wrote to RSL referring to (but not
providing) copies of the documents which had accompanied the Complaint when it
was filed in the St Petersburg Action, but not otherwise addressing the substance of
the letters of 10 and 25 February 2020. Those documents reached RSL on 11 March.
17. On 6 March 2020, the DIA informed RSL that it was considering its request for a
meeting. The restrictions on international travel imposed in response to the Covid-19
pandemic led RSL to propose a virtual meeting on 20 March and, in the absence of a
reply, again on 6 April. The DIA sent a non-committal response suggesting that the
matter was still under consideration on 9 April, but nothing further before the ASI
Application was issued.
18. RSL issued the ASI Application on 7 May 2020. Teare J gave RSL permission to
serve the ASI Application out of the jurisdiction and for alternative service on 12 May
2020, formally expedited the ASI Application and gave directions for an expedited on
notice hearing in June. On 9 June 2020, IBSP acknowledged service and stated its
intention to challenge the jurisdiction of the court. In the event, the parties reached
agreement, recorded in a consent order of Bryan J of 16 June 2020, that in return for
IBSP giving certain undertakings in relation to the progression of the St Petersburg
Action, directions would be given for the ASI Application to be heard in September
2020.
19. On 8 July 2020, IBSP issued its application under Part 11 challenging the jurisdiction
of the English Court on the basis that Russian was the natural and appropriate forum
(“the Part 11 Application”).
20. On 7 July 2020, the St Petersburg court approved applications by two additional
parties to join the St Petersburg Action.
21. The first application was by Mr Sergey Bazhanov, who owns 92.98% of the shares in
IBSP and who was until 15 October 2018 the chair of its board. Mr Bazhanov
submitted that the determination of the issues in the St Petersburg Action could result
in a subsidiary liability being imposed on him, and he has stated he intends to resist
the invalidation claim.
22. The second application was by JSC Triumph (“Triumph”), which owns 6.95% of the
shares in IBSP, and is in turn 100% owned by Mr Bazhanov. Triumph also opposes
the invalidation claim.
23. On 24 August 2020, one of IBSP’s creditors, the Central Design for Marine
Engineering Rubin (“Rubin”), filed proceedings against RSL in the St Petersburg
court seeking to annul the Contracts under Article 61.9(2) of the Bankruptcy Law, and
MR JUSTICE FOXTON RSL v IBSP
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24. At this stage, I need to say a little more about the Russian law expert evidence.
25. IBSP notified RSL of its desire to serve expert evidence on Russian law and
procedure on 9 June 2020. RSL expressed concern both as to the relevance of such
evidence, and its impact on the timetable, and attempted to reach agreement with
IBSP on the relevance and scope of such evidence. IBSP did not engage with those
attempts. On 22 July 2020, IBSP served an expert report from Professor Asoskov, and
the following day it issued an application for permission to rely on that evidence
pursuant to CPR 35. In response, RSL reserved its position as to the relevance or
admissibility of the report, but elected not to serve any expert evidence in reply on the
basis that Russian law was irrelevant. In his skeleton argument, Mr Houseman QC
made it clear that he did not object to the report being put in evidence.
26. Professor Asoskov is Professor of Law at the Lomonosov Moscow State University
and Professor of Private Law at the Private International Law Department of the
Private Law Research Centre named after SS Alekseev. In summary, it was his
evidence:
i) That the effect of IBSP’s bankruptcy was that all claims by or against IBSP
became non-arbitrable under Russian law, and had to be addressed within the
St Petersburg bankruptcy proceedings. This includes invalidation claims.
ii) This resulted from the fact that the bankruptcy process guaranteed broad
procedural rights of participation for a wide variety of persons, including
creditors and shareholders, which could not be accommodated within an
arbitration. In addition, in relation to the bankruptcy of a bank, the DIA had an
important public function of protecting and operating the deposit insurance
system and maintaining the integrity of the Russian banking sector. The
justification for the non-arbitrability of these claims was “inextricably linked
to elements of Russian public order”.
iii) The Russian courts would not recognise an arbitration agreement or award in
relation to a bankruptcy receiver’s invalidation claim, and there is “a high
probability” that a Russian court would refuse any attempt by the bankruptcy
receiver to withdraw the St Petersburg Action in response to an ASI from the
English Court, and would proceed to hear the claim anyway.
27. Logically, the first issue which arises for determination is IBSP’s Part 11 Application.
I can deal with that application briefly. IBSP suggests that England and Wales is not
the natural or appropriate forum for the determination of RSL’s application for an
injunction restraining the pursuit of the St Petersburg Action in breach of the LCIA
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Arbitration Agreements, and that the natural forum is the Russian Federation. While
formally advanced as a contention that the St Petersburg court was the natural forum
in which to seek anti-suit relief, Mr Matovu QC accepted in argument that the issue
would come before the St Petersburg court in the form of a stay application by RSL.
He submitted that the St Petersburg court was better placed to understand the nature
of the claims advanced there, for the purpose of determining whether they fell within
the LCIA Arbitration Agreements or were arbitrable, and best placed to assess the
impact on public and third party interests if the claims against RSL were stayed in
favour of LCIA arbitration.
“The English court as the court of the seat of the arbitration is necessarily an
appropriate court to grant an anti-suit injunction and questions of forum
conveniens do not arise. This follows from two essential principles. First, the
choice of the seat of the arbitration is an agreement by the parties to submit to the
jurisdiction of the courts of that seat in respect of the exercise of such powers as
the choice of seat confers. Secondly, the grant of an anti-suit injunction to
restrain a breach or threatened breach of the arbitration agreement is an exercise
of such powers. It follows, therefore, that by the choice of English seat the parties
agreed that the English Court is an appropriate court to exercise the power to
grant an anti-suit injunction.”
The parties having agreed to submit to the jurisdiction of the English court in respect
of the exercise of such powers as the choice of seat confers (which include the power
to grant anti-suit relief), the argument that the English court is not the appropriate
court to grant such relief is an extremely challenging one.
30. Further, the suggestion that the court should stay the ASI Application until RSL has
applied to stay the St Petersburg Action does not sit easily with the approach to stays
in anti-suit injunctions. It is clear that a party seeking ASI relief is not obliged to seek
to stay the foreign proceedings before applying to the English court, and that time
spent seeking a jurisdictional ruling from the foreign court will form part of the
court’s assessment of whether ASI relief has been sought promptly (Ecobank
Transnational Inc v Tanoh [2015] EWCA Civ 1309, [124]). It is also clear that a
failed attempt to stay the foreign proceedings does not of itself preclude an
application to the English court for an ASI (Ecobank, [128] noting that “in some cases
an objection to jurisdiction can be dealt with first before the substantive merits, so
there may be something to be said for pursuing that objection in the foreign court”). In
those circumstances, Mr Matovu QC accepted that if I stayed these proceedings, and
RSL applied for and failed to obtain a stay of the St Petersburg Action (which on
IBSP’s evidence would appear to be the inevitable outcome of such an application),
that would not automatically preclude a further application by RSL for ASI relief
from the English court. In those circumstances, a decision at this stage to refuse to
exercise the jurisdiction it is accepted that the court has on forum conveniens grounds
would achieve nothing.
MR JUSTICE FOXTON RSL v IBSP
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31. In any event, English law is the proper law of the LCIA Arbitration Agreements
(whichever of the two approaches to identifying that law considered in Enka Insaat
Ve Sanayi v OOO “Insurance Co Chubb” is adopted) and the issues of arbitrability
which arise are matters of English law as the law of both the arbitration agreements
and the seat. In those circumstances, the English court is clearly better placed than the
St Petersburg court to determine the scope of the LCIA Arbitration Agreements and
the arbitrability of the dispute. The provisions of Russian law in play are relatively
straightforward (and Mr Matovu QC submitted that there was “no real difference”
between those claims and their English-law equivalents). So far as the issues which
arise when considering whether there are “strong reasons” for not granting an ASI, or
whether it is appropriate to do so as a matter of discretion, it is IBSP’s case that under
Russian law, which a Russian court would be bound to apply, the LCIA Arbitration
Agreements are inoperative so far as the St Petersburg Action is concerned, with the
result that no balancing exercise would fall to be undertaken by the St Petersburg
court.
33. There was no real dispute as to the applicable legal framework and principles when
determining whether to grant an ASI:
ii) The applicant must show a “high probability of success” that the pursuit of the
foreign proceedings involves a breach of the arbitration agreement (The
Angelic Grace [1995] 1 Lloyd’s Rep 87 and Dell Emerging Markets (EMEA)
Ltd v IB Maroc.com SA [2017] EWHC 2397). This involves establishing to
that standard both (i) the existence of an arbitration agreement binding
between the applicant and the respondent, and (ii) that the subject-matter of the
foreign proceedings falls within and is subject to that arbitration agreement.
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Issue (ii) can raise both issues as to the scope of the arbitration agreement, and
whether the claim is of a kind which, as a matter of law or public policy, is
capable of being made subject to an agreement for arbitration (i.e. a question
of “arbitrability”). These issues were referred to by the parties as the Breach
Issue.
iii) If the applicant makes out such a case, it is for the respondent to show a
“strong reason” why relief should not be granted (The Epsilon Rosa [2003] 2
Lloyd’s Rep 50, 518) (“the Strong Reason Issue”).
iv) Finally, it must be just and convenient for an ASI to be granted (“the
Discretion Issue”).
Does RSL have a high probability of establishing that the St Petersburg Action is being
pursued in breach of the LCIA Arbitration Agreements?
34. IBSP contends that RSL cannot succeed on the Breach Issue for essentially three
reasons:
ii) The LCIA Arbitration Agreements do not cover the claims brought in the St
Petersburg Action as a matter of construction.
iii) In any event, the claims brought in the St Petersburg Action are not arbitrable.
35. The construction of the LCIA Arbitration Agreements is clearly a matter of English
law, as the governing law. So far as the issue of arbitrability is concerned, that is also
a matter of English law both as the governing law of the LCIA Arbitration
Agreements, and the law of the seat of the arbitration (Mustill and Boyd, Commercial
Arbitration: 2001 Companion pages 75-76). Clearly the English court, as the curial
court, would not enforce an arbitration agreement (whether by stay or ASI) or an
award in respect of a dispute which was not arbitrable as a matter of English law,
whatever the proper law of the arbitration agreement.
36. For the purpose of determining whether a claim is being brought by a party to the
LCIA Arbitration Agreements, and whether the claim falls within those agreements
and within the limits of arbitrability under English law, it is necessary to consider the
ingredients of the claim under its applicable law. However, the classification of the
claim, for the purposes of determining whether it falls within the scope of the
arbitration agreement and is arbitrable, is a matter to be determined by the English
court, considering the substance of the claim from an English law perspective.
37. In Through Transport Mutual Assurance v New India Assurance Co [2004] EWCA
Civ 1598, the issue arose as to whether a claim brought by a third party under a
Finnish statute to enforce insurance cover provided to the member of a Protection and
Indemnity Club fell within the arbitration agreement in the club’s rules. The Court of
MR JUSTICE FOXTON RSL v IBSP
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Appeal held that answering this question involved “a consideration of the substance of
the claim being advanced” ([56]) and approved the following passage in the first
instance judgment:
“The issue in the present case is whether New India is bound by the arbitration
clause which in turn depends on whether it is seeking to enforce a contractual
obligation derived from the contract of insurance or an independent right of
recovery arising under the Insurance Contracts Act. If in substance the claim is
independent of the contract of insurance and arises under the Finnish legislation
simply as a result of its having a right of action against an insolvent insured, the
issue would have to be characterised as one of statutory entitlement to which
there may be no direct equivalent in English law. In that case the issue would in
my view have to be determined in accordance with Finnish law. If, on the other
hand, the claim is in substance one to enforce against the insurer the contract
made by the insolvent insured, the issue is to be characterised as one of
obligation. In that case the court will resolve it by applying English law”.
38. The Through Transport and Yusuf Cepnioglu decisions involved claims by third
parties (under so-called “direct action” statutes) seeking to obtain the benefit of
coverage afforded by an insurance contract. In my view, the same approach of
considering the substance of the position should apply when considering whether a
claim brought for the purpose of invalidating a contract falls within an arbitration
agreement. I can see no good reason for adopting different approaches to the
classifications of claims for the purposes of determining whether they fall within an
arbitration agreement between contractually-offensive and defensive claims. In BNP
Parisbas SA v Open Joint Stock Company Russian Machines [2011] EWHC 308
(Comm), Blair J considered an application for an anti-suit injunction to restrain
proceedings brought in the Russian court by a shareholder in a Russian company
seeking to invalidate a guarantee between that company and a London bank, which it
said fell within an arbitration clause in the guarantee. He accepted that the
characterisation of the claims in the proceedings was a matter of English law (at [78]).
It is fair to say that, applying that approach, he regarded the fact that the Russian law
claim was not seeking to obtain a benefit under the contract but to impugn it, as
something which made it more difficult to suggest that the claim was one under the
contract as a matter of English law characterisation (see [66] to [78]). However, that is
a subsequent stage of analysis to the question of identifying the law which is to be
applied in answering that question. Similarly, as I explain below, Males J applied the
Through Transport approach of considering the substance of the foreign action
(although without referring to Through Transport) in determining whether an action to
invalidate a contract under the Bankruptcy Law fell within an arbitration clause in
Nori Holding Ltd v PJSC Bank Otkritie Financial Corp [2018] 2 Lloyd’s Rep 80,
[63].
The decision in Nori Holding Ltd v PJSC Bank Otkritie Financial Corp
39. In support of his contention that the claims brought in the St Petersburg Action fall
within the LCIA Arbitration Agreements, Mr Houseman QC understandably relies
MR JUSTICE FOXTON RSL v IBSP
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heavily on the decision of Males J in Nori Holding Ltd v PJSC Bank Otkritie
Financial Corp, the facts of which are strikingly similar to those of the present case.
Acting by its temporary administrator, a Russian bank (“Otkritie”) commenced
proceedings before the Arbitrazh Court of Moscow seeking the invalidation of a series
of pledge agreements which were governed by Cypriot law and subject to LCIA
arbitration, and reversal of all transactions effected thereto. Invalidation was sought
there, as here, in reliance on Article 61.2(1) of the Bankruptcy Law and Article 10 of
the Civil Code.
40. The applicant sought an anti-suit injunction restraining the Moscow proceedings on
the basis that they had been brought in breach of the arbitration agreement. The
hearing proceeded on the basis that (to the extent relevant) there was no material
difference between Cypriot and English law (Nori, [46]).
41. Males J noted that as a matter of Russian law (on which he received expert evidence):
ii) The claim brought under Articles 10 and 168 of the Civil Code did not depend
on the provisions of Russian insolvency law or the appointment of a temporary
administrator ([20]).
42. In resisting the application for an anti-suit injunction in that case, Mr Houseman QC
(acting for Otkritie) made essentially the same arguments as he finds advanced against
him in this case, including that:
i) the claim to set aside the pledges in the context of insolvency proceedings did
not, as a matter of construction, fall within the arbitration agreement; and
although not the argument that the claims were being brought by a non-party to the
arbitration agreement, no doubt because by the time of the hearing before Males J, the
Article 61.2(1) claim was vested in Otkritie which was no longer in administration.
i) He held that, given the wide language of the arbitration clause, there was no
“good reason to imply a limitation to the effect that the clause does not extend
to a claim in insolvency proceedings to avoid a transaction as a transaction at
an undervalue” ([60]).
MR JUSTICE FOXTON RSL v IBSP
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ii) At [61], he rejected the approach which had been adopted by the Singapore
Court of Appeal in Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2011] 3 SLR
414 that reasonable business people would not expect avoidance claims
brought in an insolvency context to fall within the scope of an arbitration
agreement (Larsen, [20]) and that it was appropriate to “draw a line” between
private law remedial claims and “claims that can only be made by a
liquidator/judicial manager of an insolvent company” (Larsen, [21]).
i) Males J held that what mattered was not whether the claim was properly
characterised as an insolvency claim as a matter of Russian law, but rather it
was necessary to look at the nature of the claim and consider whether it was
“capable of being determined in arbitration”.
iii) At [65], he disagreed with the conclusion in Larsen that rights which only
arose upon the onset of insolvency were, as a matter of public policy, not
arbitrable because it would be wrong if the pre-insolvency management could
restrict the post-liquidation avenues for seeking redress (which might include
redress against the former management itself) (Larsen, [45]-[46]).
46. IBSP contends that the claims in the St Petersburg Action are being pursued by the
DIA, and not by IBSP, and for that reason they do not fall within the scope of the
LCIA Arbitration Agreements. In support of that “privity” argument, they rely on a
number of English authorities which consider the proper characterisation of statutory
claims available to the liquidators of English companies under the Insolvency Act
1986, albeit in legal contexts very different from the present:
from a creditor who has been wrongly preferred enures for the benefit of the
general body of creditors, not for the benefit of the company or the holder
of a floating charge. It does not become part of the company's assets but is
received by the liquidator impressed with a trust in favour of those creditors
amongst whom he has to distribute the assets of the company: see In re
Yagerphone Ltd [1935] Ch 392.”
ii) This passage was cited with approval by the Court of Appeal in Re Oasis
Merchandising Services Ltd. [1998] Ch 170, 182, the Court of Appeal
distinguishing at pp.182-183 between the property of the company at the
commencement of litigation and property which is subsequently acquired by a
liquidator “through the exercise of rights conferred on him alone by statute and
which is to be held on the statutory trust for distribution by the liquidator”
which was not the property of the company, but concerned “statutory
privileges and liberties conferred upon liquidators as such”.
“The order [for payment for an unfair preference] does not vindicate
property rights which the company itself would have had prior to
liquidation, but statutory rights which the liquidator has under the statutory
scheme in consequence of winding up. The purpose of the order for the
payment of money to a company in liquidation is not to compensate the
company, but to adjust the rights of creditors among themselves in such a
way as to eliminate the effects of favourable treatment afforded to one or
more creditors, to the exclusion of others, in the period immediately before
an insolvent administration commences…”
47. However, it is necessary for present purposes to consider the actual claims advanced
in the St Petersburg Action, rather than English analogies thereto. So far as those are
concerned, there was no real dispute that the claim for abuse of right is a simple
private law claim on the part of IBSP. Males J in Nori Holding observed of the same
claim that that “is a claim which has nothing to do with Russian insolvency law”
([44]).
48. So far as the two claims under Article 61.2 of the Bankruptcy Law are concerned, the
effect of Articles 189.40 and 189.90 is that such claims can only be initiated in the
following circumstances:
Board of Directors of the Bank of Russia as well) has approved a plan for the
Agency’s participation in steps to prevent the bank’s bankruptcy.
49. The fact that such a claim can only be brought once a company has entered into
administration or liquidation, and only by the temporary administrator, official
receiver or other externally appointed persons does not of itself answer the question of
whether such a claim is that of the temporary administrator or official receiver in its
own right, or one which is brought on behalf of the company in administration or
liquidation.
50. I have concluded that RSL has established a strong case that the Article 61.2 claims
are IBSP’s claims which the official receiver brings on its behalf. I have reached this
view for the following reasons:
It also referred to the right of the Official Receiver under Article 189.78 of the
Bankruptcy Law to apply to the arbitrazh court “on behalf of the debtor to
declare the transactions and decisions concluded or performed by the debtor
invalid, as well as for the consequences of such invalid transactions to be
applied.” (emphasis added).
ii) Second, the language of the Bankruptcy Law also suggests that the Article
61.2 claims are those of the company or credit institution rather than the
office-holder. For example Article 61.9 refers to petitions for relief under
Article 61 being filed “on the debtor’s behalf” and Article 189.40(2) refers to
the filing of a petition “on behalf of the credit institution”. This analysis is also
consistent with the fact that it remains open to the company to continue
proceedings commenced by a temporary administrator after the company has
exited from administration.
iii) Third, this was the evidence adduced by RSL from its Russian lawyer, Mr
Volfson, who expressed the opinion that “the DIA had, in effect, replaced the
management of IBSP but has not replaced or has otherwise novated IBSP’s
obligations”. That evidence has never been challenged. Professor Asoskov does
not directly address this issue (which appears to have been identified by IBSP
after his report had been served). However he refers to the St Petersburg Action
as having been commenced “by the Bank represented by the DIA as its
bankruptcy receiver”. While there are passages in the report which refer to the
conduct of the DIA without referring expressly to IBSP, those passages are, in
my view, to be read in the light of the preceding reference as references to DIA
acting on behalf of IBSP.
iv) Fourth, this approach is consistent with IBSP’s own position in this litigation
at all times until the service of its skeleton argument, which was the first time
this point was taken. Thus Mr Giles’ first witness statement referred to the St
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52. In Larsen Oil and Gas Pte Ltd v Petroprod Ltd, the Singapore Court of Appeal had to
consider whether claims by the liquidator of a company to set aside a transaction as at
an undervalue under ss.98 and 99 of the (Singapore) Bankruptcy Act (Cap 20, 2009
Rev Ed) read with s.329(1) of the (Singapore) Companies Act (Cap 50, 2006 Rev Ed)
and to avoid certain payments under s.73B of the (Singapore) Conveyancing and Law
of Property Act (Cap 61, 1994 Rev Ed) fell within an arbitration agreement. Those
provisions give the Official Receiver the right to apply to the court to set aside
transactions at an undervalue. The Court of Appeal held that the arbitration clause,
properly construed, did not extend to those claims, but not because the claims were
those of a non-party to the arbitration agreement. Rather the Court assumed that the
claims were to be treated as those of a party to the arbitration agreement, but held that,
properly construed the arbitration agreement did not extend to claims of that kind. The
closest the Court comes to addressing the “privity” issue was when quoting from the
judgment of Barrett J in New Cap Reinsurance Corporation Ltd v A E Grants & Ors
Lloyd’s Syndicate No. 991 [2009] NSWSC 662, [87]
53. The Singapore Court of Appeal observed of this passage (at [43]):
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“Barret J's judgment in New Cap Reinsurance appears to conflate the question of
arbitrability, which deals with the question of whether a particular type of claim
can be arbitrated, with the question of the scope of the arbitration clause, which is
essentially an issue of construction. We are unable to agree with this approach
because we regard these issues as being conceptually separate. Despite this,
Barret J's insightful analysis that the scope of the arbitration clause could not
include the plaintiff's avoidance claims, because they were only available to the
liquidator of the company upon the commencement of insolvency, seems to us to
be a practical approach in evaluating the kind of claims that ought not to be
arbitrable.”
In summary, the Court of Appeal thought the fact that the claim was vested in the
liquidator was a matter relevant to the public policy question of arbitrability, rather
than to the question of whether the claims fell within the arbitration agreement.
54. I would not regard it as wholly satisfactory if the answer to the question of whether
claims of this kind met the privity requirement for an ASI or stay depended on the
particular legal mechanism adopted in the relevant insolvency legislation, in
circumstances in which the substance of an avoidance action might be thought to be
the same in both cases. It might be said that the case for treating a claim by an
administrator or liquidator to set aside a contract containing an arbitration agreement
as, in substance, a claim by the insolvent company is stronger than the situation which
clearly troubled Blair J in Russian Machines (where a creditor or shareholder sought
an order invalidating the contract) because the administrator or liquidator will
generally have supplanted the previous management of the company, which will not
retain any power of independent action in relation to the contract in issue. However,
that question can be left to a case in which it arises.
Do the claims advanced in the St Petersburg Action fall within the LCIA Arbitration
Agreement as a matter of construction?
55. Even if the Article 61.2 claims are to be treated as claims by IBSP, Mr Matovu QC
submitted that, as a matter of construction, they do not fall within the scope of the
LCIA Arbitration Agreement in any event. Mr Matovu QC’s submissions on this
issue essentially adopted the reasoning of VK Rajah JA in the Singapore Court of
Appeal in Larsen Oil and Gas Pte Ltd v Petroprod Ltd, [20-[21] and [45]-[46], to the
effect that arbitration clauses should not ordinarily be construed to cover avoidance
claims in the absence of express language, because the company’s pre-insolvency
management would not have contemplated that such claims would fall within the
scope of the arbitration agreement.
56. Subject to one point I deal with below, I can deal with this issue briefly. I agree with
the conclusions expressed by Males J in Nori Holding, [55]-[56] that the analysis in
Larsen, and in particular the presumption that an arbitration agreement should not
extend to claims which only arise on a company’s insolvency, is not part of English
law. On the contrary, since the decision in Fiona Trust & Holding Corporation v
Privalov [2007] UKHL 40, English law has adopted a generous approach to the
construction of arbitration agreements, which leaves little scope for implied
limitations of this type. Further the LCIA Arbitration Agreements are expressed in
expansive terms (“under or …. in connection with”).
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57. However, there is a further issue which must be considered. There is authority that the
question of whether the particular claim advanced in the foreign court is one which
the arbitrators could determine is relevant when considering whether an arbitration or
jurisdiction clause extends to such a claim as a matter of construction. Lord Scott in
Donohue v Armco Inc [2001] UKHL 64, [68] expressed the view that a claim brought
under the Federal Racketeer Influenced and Corrupt Organisations Act did not fall
within the English jurisdiction clause in that case for the following reason:
“In so far as the RICO Act claims are based on conduct in connection with the
transfer agreements or the sale and purchase agreement, it might seem that they,
too, fall within the language of the exclusive jurisdiction clause. But it is common
ground that a RICO Act claim could not be brought in an English court. It cannot,
in my opinion, be supposed that in submitting to the exclusive jurisdiction of the
English courts the parties had in mind claims which an English court would have
no jurisdiction to entertain. The contractually expressed purpose of the
submission to the English courts was ‘to settle any dispute which may arise’, etc.
How can this language be sensibly thought apt to cover a dispute that the English
courts would be jurisdictionally unable to settle …”
58. That approach found some favour with Laurence Rabinowitz QC in Team Y&R
Holdings v Ghossoub [2017] EWHC 2401 (Comm), [52]-[54] and [57], another case
concerned with an attempt to restrain an alleged breach of an exclusive jurisdiction
clause said to have been constituted by the presentation of an unfair prejudice petition
in Hong Kong. However the deputy judge noted the distinction which can be drawn
when determining whether an English jurisdiction clause was engaged between the
factual disputes relied upon as the basis for obtaining a remedy which the English
court had no jurisdiction to grant, and the question of entitlement to the relief itself
([53]). He concluded that a substantial part of the factual matters in issue in that case
fell within the jurisdiction clause, but the claim for relief did not. For that reason, he
held that “an unfair prejudice claim which the English court would not have
jurisdiction to hear does not come within the scope of clause 23.2 so that any
injunction would not stop Mr Ghossoub maintaining his claim of unfair prejudice
before the Hong Kong court for its ultimate resolution” [94]. So far as the factual
disputes were concerned, he declined to grant an ASI as a matter of discretion having
regard to the overall character of the Hong Kong petition, which involved other
parties and other issues.
59. It is also clear, however, that the mere fact that the parties’ chosen tribunal (whether
arbitration or court) would not have power to entertain a cause of action or grant relief
available in proceedings in a foreign court does not of itself have the effect that the
foreign proceedings (at least to that extent) fall outside the arbitration agreement, nor
that anti-suit relief is not appropriate. In Fulham Football Club (1987) Ltd v Richards
[2011] EWCA Civ 855, [103], Longmore LJ stated:
“It is well settled that the fact that an arbitrator cannot give all of the remedies
which a court could give does not afford any reason for treating an arbitration
agreement as of no effect … The inability to give a particular remedy is just an
incident of the agreement which the parties have made as to the methods by
which their disputes are to be resolved”.
“Section 1 of the Arbitration Act, 1975 requires the Court to grant a stay, unless
there is no dispute between the parties, or the arbitration agreement is ‘null and
void, inoperative or incapable of being performed.’ These words do not apply
here. Nothing has gone wrong with the arbitration agreement. All that has
happened is that the parties have discovered that the remedies available to the
arbitrator are in one respect more narrow than those which, but for the agreement,
could have been awarded by the English Court. We can see no ground here for
refusing a stay.
At first sight this result appears harsh, but the impression is misleading. It is not a
question of Clarksons being deprived of a right by the grant of a stay. On the
contrary, the parties have agreed that all their rights shall be fixed in Illinois
according to the procedures (and by implication the substantive law) in force in
that state. If the stay is refused the consequence will be that by acting in breach of
their agreement, in pursuing their claim against Howdens in the English Court,
Clarksons have obtained for themselves the possibility of a right and remedy
which they would not have possessed if they had acted as their agreement
required. In the face of this we can see nothing unjust in holding Clarksons to
their agreement, in accordance with the spirit of the Act of 1975 and the New
York Convention on which it is based”.
61. That analysis was followed in Wealands v CLC Contractors Ltd [1999] CLC. [20]-
[21] and Assaubayev v Michael Wilson & Partners Ltd [2014] EWCA Civ 1491, [68].
Consistent with that principle, an anti-suit injunction may be granted even if the effect
of doing so is to prevent the respondent from invoking constitutional grounds of
objection to the contract which cannot be raised outside of the foreign jurisdiction:
Aqaba Container Terminal v Soletanche Bachy France [2019] EWHC 471 (Comm),
[42]. One of the advantages of agreeing both the forum and applicable law for any
disputes is that the parties may avoid exposure to certain types of claim recognised by
the home courts of one or other of them. As HHJ Chambers QC noted in Beazley v
Horizon Offshore Contractors [2005] 1 Lloyd’s Rep 231, [46], when considering an
argument that requiring adherence to the jurisdiction clause in that case would deprive
the assured of the ability to pursue bad faith tort damages in Texas:
“The exclusive jurisdiction clause confers upon underwriters the agreed benefit of
not having to face claims in tort in Texas. There is no injustice in holding Horizon
to its bargain because this was known at the time that the bargain was made. To
deny underwriters the benefit of the bargain would be an injustice.”
62. In the present case, it is not entirely clear to me on what basis it is said that the causes
of action under the Bankruptcy Law would be available before an LCIA arbitration
tribunal sitting in London when the Contracts and the arbitration agreements are
governed by English law. It has been held that a submission to arbitration in London
implicitly confers on the arbitrators certain powers which statutes make available to
English courts: Wealands v CLC Contractors Ltd, [24]; Chandris v Isbrandtsen-
Moller Co Inc [1951] 1 KB 24; President of India v La Pintada Compania Navigacion
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SA [1985] AC 104, 119 (Lord Brandon) and Bridgehouse (Bradford No 2) Ltd v BAE
systems plc [2020] EWCA Civ 759, [56]. However, it is difficult to see how the
powers of the arbitrazh court under the Bankruptcy Law could be invoked before the
LCIA arbitrators (any more than the powers under the Civil Liability (Contribution)
Act 1978 would have been available to the Illinois-sited arbitrators in Eras), not
because of any want of jurisdiction in the strict sense of that term, but because they
would not form part of the applicable substantive or procedural law.
63. In those cases which have addressed the application of arbitration clauses to
complaints relied upon to found unfair prejudice petitions, the factual matters relied
upon can generally be raised before the arbitrators because they involve alleged
breaches of a shareholders agreement or similar document which is subject to the
arbitration agreement. In Fulham, that contract was constituted by the articles of
association of the Football Association Premier League Ltd which required
compliance with the Football Association Rules, and which contained the arbitration
clause. Further (at least according to Longmore LJ, [96]) an arbitration tribunal
would have had the power to determine the unfair prejudice petition on the “implied
submission basis”, because the power given to the English court by the relevant
statute was also available to an arbitration tribunal sitting in England. Similarly in
Team Y&R Holdings, the factual matters relied upon to found the Hong Kong petition
were, in the main, matters which (if established) would have constituted breaches of
the shareholders’ agreement in which the English jurisdiction clause appeared. The
Singapore Court of Appeal did not need to consider in Larsen whether the powers
under (Singapore) Bankruptcy and Companies Acts would have been available in a
Singapore-seated arbitration, although that was a case where the statutory provisions
invoked formed part of the law of the seat of the arbitration.
64. This is not, however, the position in this case, and it was not the position in Nori
Holding. Males J does not expressly consider whether (and if so on what basis) the
avoidance claims under Article 61.2 could have been invoked before the arbitrators.
This was because he held that the issue of whether the dispute fell within the
arbitration agreement involved looking at the substance of the dispute, rather than the
particular legal vehicle through which it was being advanced before the foreign court.
At [63], he stated:
“What matters is the substance rather than the form. In this case the parties’
dispute is a straightforward factual dispute whether the August transactions
constitute a fraud carried out on the Bank to replace valuable secured loans with
worthless bonds. If so, the Bank will have a claim to avoid those transactions and
to require the claimants to reinstate the position in which it was before they were
carried out. A variety of legal labels can be and have been attached to that claim,
including the labels of transaction with unequal consideration and abuse of rights
under Russian law and conspiracy to defraud under Cypriot law. But in each case
the essential dispute is the same, regardless of the label. This is a dispute which
arbitrators can determine.”
65. In the LCIA arbitration, the Bank had indicated its intention to counterclaim (if
jurisdiction was established) on the basis that the transactions were fraudulent and
void or should be set aside ([24]). In Cypriot proceedings, which the Bank had also
commenced, its claim had been advanced on the basis of a fraudulent conspiracy to
defraud, which sought to set aside the termination agreements, but did not rely on any
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insolvency related claims ([26]). I agree with Males J’s analysis, which is consistent
with the authorities considered at [37] to [38] above, and also with the principle that it
is no bar to a stay or an ASI that a particular cause of action or form of relief which is
available in a foreign court in a dispute which is categorised by English law as
contractual as a matter of substance will not be available in an arbitration with an
English seat ([59] to [61] above).
66. In this case, I am satisfied to the requisite high degree of assurance that the claims
being advanced in the St Petersburg Action are, as a matter of substance, claims
which are contractual in nature and fall within the arbitration clause, whether or not it
would be open to IBSP as a matter of choice of law analysis to advance those claims
in any LCIA arbitration. There is a claim by one party to the Contracts (IBSP acting
through its official receiver, the DIA) against its counterparty to invalidate the
Contracts and seek to recover the amounts paid, on the basis that the consideration
under the Contracts was at an undervalue and/or the Contracts were concluded by
those purporting to act on IBSP’s behalf with the purpose of prejudicing IBSP’s
creditors. The choice of law in any arbitration is ultimately a matter to be determined
in accordance with s.46 of the Arbitration Act 1996 supplemented in the present
context by Article 22.3 of the LCIA Rules. If, for any reason, the Bankruptcy Law
causes of action cannot be asserted under the applicable choice of law rules, then that
is a consequence of the parties’ agreement rather than because those claims fall
outside the scope of the LCIA Arbitration Agreements.
67. There are certain classes of claim which, even if they fall within the scope of an
arbitration agreement, are treated under the relevant law as being incapable of being
submitted to arbitration. The practical consequence of a particular claim not being
arbitrable is that the law in question will not enforce an arbitration agreement in
respect of such a dispute by stay or injunction, nor recognise or enforce an arbitration
award which purports to determine such a dispute. A claim may be non-arbitrable per
se (such that the entire claim is non-arbitrable even though its determination involves
elements which, considered in isolation or in other contexts, would be arbitrable) or it
may be that it is only some part of the dispute – for example the decision to grant a
particular form of relief – which is non-arbitrable (e.g. where that relief requires what
Males LJ termed “an order which only a court can make”: Bridgehouse, [79]), at least
where those questions are capable of independent consideration.
68. The issue of arbitrability has received its most extended consideration in cases in
which a shareholders’ agreement contains an arbitration agreement, and one of the
shareholders seeks relief from the court by way of an unfair prejudice petition. It has
never been disputed that an order winding-up a company on just and equitable
grounds is one for the court alone, nor that relief which impacts on shareholders who
are not parties to the arbitration agreement is non-arbitrable. However, in Fulham,
none of the relief sought pursuant to the unfair prejudice petition required an order
that “only a court could make” or impacted on third parties, for which reasons the
Court of Appeal held that that dispute was arbitrable (Patten LJ, [40]). Patten LJ went
further, expressing the view that even where such relief was sought, it might be
possible to resolve the dispute in two stages, with the arbitrators resolving the factual
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disputes to the extent they fell within the arbitration clause, leaving the petitioner on
the basis of those findings to go back to court to obtain the relief the arbitrators cannot
give, e.g. winding up a company [83]. That approach has also been adopted in other
jurisdictions: e.g. Quicksilver Greater China Ltd v Quicksilver Glorious Sun JV Ltd
and another [2014] 4 HKLRD 759 (Hong Kong); WDR Delaware Corporation v
Hydrox Holdings Pty [2016] FCA 1164 (Australia); and Tomolugen Holdings
Limited v Silica Investors Ltd [2015] SGCA 57 (Singapore). Where, however, a
necessary precursor to any form of relief is a decision by the court that it would be
just and equitable to wind up the company, then bifurcation will not be possible. This
was held to be the position in respect of a petition presented under the Cayman
Islands Companies Law in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman
Islands) Holding Corporation Civil Appeal Nos. 7 and 8 of 2019.
69. However, it is clear that the issue of arbitrability can involve more than simply
ascertaining whether the relief sought engages third party interests in a relevant sense,
or seeks an order that “only a court can make”. In Fulham Patten LJ recognised that a
claim might be non-arbitrable for a third reason, namely that it “represent[s] an
attempt to delegate to the arbitrators what is a matter of public interest which cannot
be determined within the limitations of a private contractual process” ([40]). He
referred elsewhere in his judgment to relief which seeks a “state intervention in the
affairs of a company which only a court can sanction” ([77]). Examples of such
intervention were matters which “engaged the rights of creditors” or impinged on a
“statutory safeguard imposed for the benefit of third parties”.
70. As set out above, in Larsen the Singapore Court of Appeal held that claims by a
liquidator to avoid transactions of an insolvent company concluded at an undervalue
were not arbitrable, even though the relief sought – a claim by the liquidator on behalf
of the company against its contractual counterparty to avoid a contract and recover the
payments made thereunder – did not involve an order which only a court could give,
or engage the interests of third parties save to the extent that the general creditors of
an insolvent company necessarily benefit if the company effects any recovery or
avoids any liability. The Court of Appeal agreed with the first instance judge’s view
that the powers in question existed “for the benefit of the general body of creditors in
an insolvency or insolvency-related context”, noting that they permitted recovery of
payments even though made under a transaction binding under general law ([8]-[9]).
The Court characterised the purpose of the statutory powers as being to address the
position where value had been subtracted from the company to the detriment of the
general creditors, allowing for an adjustment of those transactions on the onset of
insolvency ([10]). The Court concluded at [45] that:
“Many of the statutory provisions in the insolvency regime are in place to recoup
for the benefit of the company's creditors losses caused by the misfeasance and/or
malfeasance of its former management. This is especially true of the avoidance
and wrongful trading provisions. This objective could be compromised if a
company's pre-insolvency management had the ability to restrict the avenues by
which the company's creditors could enforce the very statutory remedies which
were meant to protect them against the company's management. It is a not
unimportant consideration that some of these remedies may include claims
against former management who would not be parties to any arbitration
agreement. The need to avoid different findings by different adjudicators is
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71. I find the suggestion that the court should not allow the pre-insolvency management
to determine the forum in which a liquidator could bring post-insolvency claims on
the company’s behalf less persuasive on this issue than the Singapore Court of Appeal
did. In particular, it would seem to be limited to those cases in which the arbitration
clause appears in a contract between the company and its management or vehicles
associated with them, and in which the circumstances in which the arbitration
agreement had been concluded did not themselves provide a basis for impugning that
agreement. Nor are the risk of inconsistent decisions or the benefits of a single
hearing a sufficient touchstone of arbitrability (Fulham, [25]), although they are
clearly relevant to the exercise of any discretion the court may have. However, the
conclusion that avoidance claims exist for the benefit of creditors generally, and as
such engage a public rather than purely private interest, is one which finds support in
other cases. In particular, in Fulham, [74], Patten LJ noted that:
“There is no doubt that many aspects of this regime are immune from interference
by the members of the company whether by contract or otherwise. They cannot
override the provisions of the 1986 Act which apply on liquidation by agreeing
between themselves or with a particular creditor that property which belongs to
the company in liquidation should be dealt with other than in accordance with the
Act ... . The same must go for the exercise of the liquidator's powers under
sections 238 to 239 of the Insolvency Act 1986. They involve an exercise of a
statutory power to intervene in and set aside transactions with third parties in the
context of the insolvency regime. These are rights vested in the liquidator for the
benefit of the creditors as a whole and cannot be overridden by a contract entered
into by the company prior to its liquidation”.
Patten LJ then cited paras. [44] to [46] of Larsen with apparent approval.
72. In Tomolugen, the Singapore Court of Appeal adhered to the view in Larsen that
avoidance claims arising in the event of insolvency are not arbitrable, Sundaresh
Menon CJ stating at [84]:
“In our judgment, a claim for relief under s 216 of the Companies Act stands on a
different footing from the liquidation of an insolvent company or avoidance
claims that arise upon insolvency because the former generally does not engage
the public policy considerations involved in the latter two situations. There is
certainly nothing in the text of s 216 to suggest an express or implied preclusion
of arbitration. Nor does the legislative history and statutory purpose of the
provision suggest that a dispute over minority oppression or unfair prejudice is of
a nature which makes it contrary to public policy for the dispute to be adjudicated
by an arbitral tribunal.”
73. In Rubin v Eurofinance SA, when considering whether English law should develop a
new principle for the recognition and enforcement of judgments on foreign insolvency
claims, Lord Collins JSC accepted that there was no conceptual difficulty in
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identifying claims of that type, which clearly included avoidance claims arising on an
insolvency ([99]). In relation to avoidance claims, he observed:
[95] The underlying policy is to protect the general body of creditors against a
diminution of the assets by a transaction which confers an unfair or
improper advantage on the other party, and it is therefore an essential
aspect of the process of liquidation that antecedent transactions whose
consequences have been detrimental to the collective interest of the
creditors should be amenable to adjustment or avoidance: Fletcher, The
Law of Insolvency , 4th ed (2009), para 26-002; Goode, Principles of
Corporate Insolvency Law , 4th ed (2011), para 13-03.
[96] Thus the UNCITRAL Legislative Guide on Insolvency Law (2005) says:
[97] In In re Condor Insurance Ltd (2010) 601 F 3d 319, 326, the Court of
Appeals for the Fifth Circuit said that:
74. I am satisfied that claims for relief sought under Article 61.2 are properly
characterised as insolvency claims. As I have explained, the relief sought in the St
Petersburg Action involves a claim by IBSP, but it is relief of a kind which can only
be sought once a company has entered into administration or liquidation, and which
can only be initiated on the company’s behalf by a limited classes of persons,
principally court-appointed officers. Its avowed purpose is, in respect of transactions
concluded within a certain period of the administration or insolvency, to allow
adjustment of those transactions for the benefit of the creditors generally, even where
those transactions would have remained binding on the company but for the
administration or insolvency. The position is particularly clear in relation to Article
61.2(1) – transactions at an undervalue. The claim under Article 61.2(2), which
requires that the transaction is entered into with the intention of harming creditors,
bears more similarity with claims under 13 Elizabeth Ch. 5 or s.172 Law of Property
Act 1925. There was some debate in Larsen as to the proper characterisation of such
claims (at [55]) but the particular features of Article 61.2(2) which I have identified
have persuaded me that the better view is that that too is an insolvency claim, and in
any event the argument before me did not seek to distinguish between the two limbs
of Article 61.2.
75. In Nori Holding, Males J proceeded on the basis that the essentially-similar claims
advanced in that case were insolvency proceedings under Russian law ([40]). Males J
held, nonetheless, that they were arbitrable. He noted that the first two grounds
identified in Fulham as to why a statutory claim in relation to a company might not be
arbitrable – that it sought an order which only a court could make, or engaged third
party interests in a relevant sense – did not arise. Indeed the relief sought was of a
type which did not require the two-stage approach contemplated in Fulham because
orders for rescission and restitution could be made by the arbitration tribunal ([64]).
What, however, of the third basis for a conclusion of non-arbitrability identified by
Patten LJ in Fulham – that the claim involved “a matter of public interest which
cannot be determined within the limitations of a private contractual process”? The
Judge stated that the characterisation of the claim as an insolvency claim under
Russian law was “irrelevant” ([62]), but he does not expressly discuss whether such a
claim was properly characterised as an insolvency claim under English law, beyond
noting the “broad similarity” between the relief sought in the Russian proceedings and
ss.238 and 239 of the Insolvency Act 1986 ([19]).
76. For the reasons I have set out above, I have concluded that the relief sought under the
Bankruptcy Law is relief which is properly to be regarded as insolvency relief from an
English law perspective as well. It does not automatically follow, however, that this
renders the claims non-arbitrable as a matter of English law (as the curial law and the
proper law of the arbitration agreement).
77. With characteristic insight, VK Rajah JA noted in the opening paragraph of the
judgment in Larsen that the case involved a conflict between two public policies – a
policy favouring party autonomy and the decentralisation of private dispute
resolution, and the policy underlying the insolvency process which seeks to achieve a
public centralisation of disputes to achieve optimal returns for creditors through an
efficient process for effecting recoveries and resolving disputes. In Larsen, as I have
noted, that conflict manifested itself in a conflict between the provisions of the
Singapore Arbitration Act and International Arbitration Act, and those of the
Singapore Bankruptcy, Companies and Conveyancing and Law of Property Acts. By
contrast, the present case – like Nori Holding – involves a conflict between the public
policy of the English Arbitration Act 1996 and English arbitration law, and the policy
underlying Russian legislation which, the issue of insolvency apart, would not
generally form part of the applicable law for the purpose of determining the validity
of the English law contract in issue.
78. Males J in Nori Holding was clearly influenced by the strong pro-arbitration policy of
English law. As he observed at [66], “where parties agree to arbitrate, it is the policy
of the law that they should be held to their bargain” (a sentiment he repeated in
Bridgehouse at [73] when noting that the importance of the parties’ agreement to
arbitrate a particular dispute in determining whether the dispute is arbitrable) and at
[106] he referred to the “strong international public policy in support of arbitration”. I
do not regard Males J as having decided in Nori Holding that a claim under ss.238
and 239 of the Insolvency Act 1986 is arbitrable as a matter of English law (a view
which I would regard as contrary to the general sense of the case law considered at
[69] to [72] above and as to which Newey LJ in Bridgehouse, [53] observed “there
may be room for argument”). However, that was not the issue which faced him (or
which faces me).
79. Mr Matovu QC argued that there was no relevant distinction to be drawn, when
determining whether the strong English policy of upholding agreements to arbitrate
should yield to a competing public policy which rendered avoidance claims in an
insolvency non-arbitrable, between avoidance claims arising on an English insolvency
and those arising on a foreign insolvency. He suggested that it was part of English
public policy to support and give effect to foreign insolvency procedures. At some
level, I agree that there is such a public policy, but its content is, in my view, nowhere
near as expansive as Mr Matovu QC’s submissions suggested.
80. I accept that in relation to foreign insolvencies, English law gives effect to a policy of
what Lord Hoffmann in Re HIH Casualty and General Insurance Ltd [2008] 1 WLR
852, [30] referred to as a one of “modified universalism”:
81. However, enforcing the LCIA Arbitration Agreements would not in any way conflict
with the principle (or frustrate the policy) of modified universalism. Granting an
injunction would not involve recognising a second bankruptcy on the part of IBSP,
nor prevent there being a single system of distribution. Any recoveries made by the
DIA on IBSP’s behalf in an LCIA arbitration would be subject to, and administered in
accordance with, the single scheme for distribution constituted by the St Petersburg
bankruptcy proceedings.
82. It has been held that the policy of modified universalism also supports the provision
by the English court of assistance to the foreign bankruptcy proceedings “so far as it
properly can” (Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36,
[15]). There are, however, limits to such co-operation where it would conflict with
well-established principles of English private law or English public policy. In
particular, it has been held not to justify the recognition and enforcement of avoidance
orders made in foreign bankruptcies where the traditional English law requirements
for the recognition and enforcement of foreign in personam judgments are not met:
Rubin v Eurofinance SA. Some of the reasons which Lord Collins JSC gave for
rejecting the argument to the contrary are of particular relevance to the issue before
me.
In the present case, Mr Matovu QC’s submissions would involve drawing just such a
distinction, between a claim by a liquidator on behalf of an insolvent company to
enforce a profitable contract (which would be arbitrable if the contract contained an
arbitration clause) and a claim by a liquidator on behalf of an insolvent company to
avoid an unprofitable contract and recover the amount paid because the transaction
was concluded at an undervalue (which would not).
84. Second, at [115], Lord Collins noted that there is “no international unanimity or
significant harmonisation on the details of insolvency law, because to a large extent
insolvency law reflects national public policy”. Lord Hoffmann made a similar
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Approved Judgment
comment in In re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852, [19].
If claims to invalidate contracts available under foreign insolvency proceedings were
held to be non-arbitrable, that would potentially expose an arbitrating party to a range
of claims not contemplated by the proper law and seat choices which the parties had
made, perhaps for the very purpose of avoiding exposure to national law claims of
that kind (see above).
85. Where the parties have agreed to the exclusive jurisdiction of the English court,
proceedings brought here will only be stayed where the defendant is in an insolvency
process in its home jurisdiction if “strong and compelling reasons” to do so are
shown: Jefferies International Ltd v Landsbanki HF [2009] EWHC 894 (Comm). At
[24], Cooke J held that “any stay which had the effect of depriving Jefferies of resort
to the courts of the agreed jurisdiction would not only be unjust, but contrary to
principle”. In Mazur Media Limited v Mazur Media Gmbh [2004] EWHC 1566 (Ch),
[70], Lawrence Collins J observed of an application to stay proceedings brought
against an insolvent German company:
“the power should not be used simply because the claim in the English
proceedings could be made, or more appropriately made, in the German
insolvency. I would accept that there is a power to stay English proceedings in
favour of insolvency proceedings in a Regulation state to prevent injustice, but it
would require exceptionally strong grounds for the English court to exercise that
power, particularly where (as regards the contractual claim) the parties have
conferred exclusive jurisdiction on the English court. Otherwise, the court would
be circumventing the Judgments Regulation by introducing forum non
conveniens principles by the back door.”
86. IBSP also referred to the Cross Border Insolvency Regulations (SI 2006 No 1030)
(“CBIR”), perhaps fortified by Males J’s statement in Nori Holding, [68] that it was
“not suggested that the Russian proceedings are entitled to recognition under the
Cross-Border Insolvency Regulations 2006”. However, in this case there has been no
request for recognition, or relief consequential on recognition, nor has recognition
been granted. In these circumstances, IBSP is no more assisted by the CBIR than the
Bank in Nori Holding was. It is clear from Rubin v Eurofinance SA, [141] to [143]
that even where recognition is granted, there are limits on the relief which can be
granted by the English court as a result – for example this would not provide a basis
for recognising avoidance judgments of the foreign bankruptcy court when the
English requirements for recognising a foreign in personam judgment had not been
satisfied.
Conclusion on arbitrability
i) The claims brought in the St Petersburg Action under Article 61.2 of the
Bankruptcy Law are insolvency claims, both as a matter of Russian law and as
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a matter of English law characterisation. The claim for abuse of rights is not
such a claim.
ii) In circumstances in which those claims seek relief which the arbitration
tribunal is able to grant, and do not engage the interests of third parties save to
the extent that any creditor of an insolvent company will benefit from its
success in arbitration, those claims are arbitrable.
88. It has been held that those matters which fall to be considered at the “strong reason”
stage of an ASI application, as opposed to the general discretionary phase, are
principally concerned with “justifications for suit in the foreign court” as opposed to
general discretionary considerations which arise on any application for equitable
relief: Cockerill J in Times Trading Corporation v National Bank of Fujairah (Dubai
Branch) [2020] EWHC 1078 (Comm), [102] citing Phillips J in ADM Asia-Pacific
Trading Pte Ltd v PT Budi Semesta Satria [2016] EWHC 1427 (Comm), [34]).
89. I remind myself that the burden of establishing a strong reason lies on IBSP. I also
remind myself that the ASI is sought in this case to give effect to an arbitration
agreement. As Males J noted in Nori Holding this makes establishing a strong reason
for not granting ASI relief all the more challenging:
“[105] It is apparent from Lord Bingham’s speech [in Donohue v Armco] that he
viewed the grant of an anti-suit injunction to restrain foreign proceedings
and the grant of a stay of proceedings in England as equivalent measures
for the enforcement of an exclusive jurisdiction clause. Lord Mance
echoed this in the arbitration context in para 60 of judgment in AES, when
he said in the passage already cited that “the power to stay domestic legal
proceedings under section 9 and the power to determine that proceedings
are in breach of an arbitration agreement and to injunct their
commencement or continuation are in in truth opposite and
complementary sides of a coin”. What is contemplated, therefore, is that
(subject to general equitable considerations, for example as a result of
delay in seeking relief) in circumstances where a court would stay
domestic proceedings as being contrary to an exclusive jurisdiction or
arbitration clause, it will be appropriate to grant an anti-suit injunction.
[106] However, there is an important distinction in this respect between the two
kinds of clause. In the case of breach of an exclusive jurisdiction clause,
the court has a discretion to grant a stay and may take account of factors
going to such matters as forum non conveniens, whereas in arbitration
cases a stay under section 9 of the 1996 Act is mandatory. Colman J made
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90. With those principles in mind, I turn to consider the matters which Mr Matovu QC
contended give rise to a “strong reason” not to grant ASI relief.
An order preventing an officer of a foreign court from carrying out its duties for the
benefit of IBSP’s creditors would be exceptional
91. Mr Matovu QC suggests that an order which would prevent an officer of a foreign
court from carrying out its duties to a foreign court and to the creditors of a foreign
insolvency would be “exceptional”. However, arguments of comity between courts
have limited scope when injunctions are sought to enforce forum selection agreements
for the reasons which Longmore LJ gave in OT Africa Line Ltd v Magic Sportswear
Corporation [2005] EWCA Civ 710,[32]-[33]:
“In the case of exclusive jurisdiction clauses, however, comity has a smaller role.
It goes without saying that any court should pay respect to another (foreign) court
but, if the parties have actually agreed that a foreign court is to have sole
jurisdiction over any dispute, the true role of comity is to ensure that the parties'
agreement is respected. Whatever country it is to the courts of which the parties
have agreed to submit their disputes is the country to which comity is due. It is
not a matter of an English court seeking to uphold and enforce references to its
own courts; an English court will uphold and enforce references to the courts of
whichever country the parties agree for the resolution of their disputes. This is to
uphold party autonomy not to uphold the courts of any particular country.
The corollary of this is that a party who initiates proceedings in a court other than
the court, which has been agreed with the other party as the court for resolution of
any dispute, is acting in breach of contract. The normal remedy for this breach of
contract is the grant of an injunction to restrain the continuance of proceedings
unless it can be shown that damages are an adequate remedy; but damages will
not usually be an adequate remedy in fact, since damages will not be easily
calculable and can indeed only be calculated by comparing the advantages and
disadvantages of the respective fora. This is likely to involve an even graver a
breach of comity than the granting of an anti-suit injunction.”
92. In this case, the ASI is directed to IBSP, in its capacity as the contractual counterparty
to the LCIA Arbitration Agreements with RSL. The injunction does not interfere with
the performance of the DIA’s duties to the St Petersburg court, any more than an
injunction which required any attempt by the DIA on behalf of IBSP to enforce the
terms of the Contracts would. The fact that the dispute is not arbitrable in Russia is
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not a strong reason not to grant an ASI (Electronic Arts v CTO [2003] EWHC 1020
(Comm), [86]-[91]).
The policy of the English court to support foreign insolvency proceedings constitutes a
strong reason not to grant ASI relief
93. Mr Matovu QC submitted that the policy of the English court of supporting foreign
insolvency proceedings, and its duty at common law and under the CBIR to assist
such proceedings, provides a strong reason not to grant an ASI. However, given my
conclusions on the public policy issue at [80] to [86] above, and the fact that the ASI
is sought here to enforce an arbitration agreement (bringing into play the
considerations identified by Males J in Nori Holding quoted at [89]) above), I am not
persuaded that this constitutes a strong reason for not enforcing the English law
contractual promise to pursue any such claims in LCIA arbitration in England.
The risk of inconsistent decisions which would arise from requiring IBSP to pursue its
claims against RSL in LCIA arbitration constitutes a strong reason not to grant ASI relief
94. Mr Matovu QC pointed to the risk of inconsistent decisions which would arise if the
DIA was forced to pursue IBSP’s claim in LCIA arbitration, while the claims by
Rubin and OKS-1, or the actions brought by Mr Bazhanov and Triumph to uphold the
Contracts and thereby defend their conduct, continued in the St Petersburg
proceedings.
95. I accept that if granting an ASI would create a risk of inconsistent decisions, that is a
factor which can, in an appropriate case, give rise to a strong reason not to grant ASI
relief. Mr Matovu QC relied upon the decision of Teare J in Verity Shipping SA v NV
Norexa [2008] EWHC 213 (Comm), in which a shipowner sought an ASI in respect
of proceedings commenced by cargo interests in Antwerp in breach of the London
arbitration clause in the bill of lading. In response to the cargo interests’ claims, the
owners had commenced their own proceedings in Antwerp against the entity which
had inspected and condemned the cargo there (“the FAVV”) seeking an indemnity
against any liability they might have to the cargo interests. Teare J held that the risk of
inconsistent decisions constituted a strong reason for not granting ASI relief:
“[34] In the present case the Cargo Interests will not suffer an injustice in the
event that they succeed in the London arbitration and the Antwerp Court, in
the recourse action by the Owners against FAVV, later reaches a decision
inconsistent with decision in the London arbitration. By contrast, the
Owners may suffer an injustice in that event, but they are willing to take
that risk as the price of enforcing the London arbitration clause. However,
the third party, FAVV, may suffer an injustice from inconsistent decisions if
the Cargo Interests succeed in the London arbitration but FAVV are found
liable to the Owners by the Antwerp Court. This is not an unrealistic
consideration. The Club's summary of the surveyor's provisional findings is
that the cause of the loss was the ‘unreasonable rejection of the entire cargo
by FAVV.’ If the London arbitration were to conclude that the loss of the
cargo was caused by the Owners' breach of contract the Owners may well
urge the Antwerp Court to find that the loss was caused by the unreasonable
behaviour of FAVV.
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[35] Thus, although the Owners are prepared to take the risk of inconsistent
decisions, the risk of injustice to the third party, FAVV, means that the risk
of inconsistent decisions remains a reason in favour of refusing an anti-suit
injunction. If the Antwerp Court tries both the Cargo Interests' claim against
the Owners and the Owners' recourse claim against FAVV there will be no
risk of inconsistent decisions and no risk of injustice to the third party”.
96. From the brief report of the facts in the case, I have found it difficult to identify how
there was a risk of prejudice to FAVV from inconsistent decisions, save possibly a
risk that owners might be found liable to cargo interests on a different factual basis to
that which would have engaged FAVV’s liability to owners, which risk could not be
accommodated within the terms of any indemnity ordered. For present purposes, it is
sufficient to note that there was a legal interdependence between the two claims (the
relief sought by the owners in Antwerp was an indemnity against any liability found
against the owners in the arbitration), and the owners had themselves commenced the
Antwerp proceedings against FAVV.
97. It is clear, however, that a risk of inconsistent decisions will not always constitute a
strong reason for not granting ASI relief. In particular, if it is not possible to ensure
the submission of the entire dispute to a single forum, the parties’ agreement to
arbitrate is “the decisive factor” (Nori Holding, [113]). In any event, as Males J noted
in that paragraph, and in SCM Financial Overseas Ltd v Raga Establishment Ltd
[2018] 2 Lloyd’s Rep 99, [66], some fragmentation is unavoidable in many multi-
party disputes, and, just as it does not provide a basis for refusing a stay of a dispute
which the parties have agreed to refer to arbitration, it will not of itself provide a
strong reason to refuse to grant an ASI. In this case, if RSL commenced an LCIA
arbitration seeking a declaration that the Contracts are and remain valid, it would not
be possible for this Court to restrain such an arbitration (A v B [2019] EWHC 2478
(Comm), [17]-[18]), which would proceed in parallel with the St Petersburg Action.
98. Further, it is necessary to look carefully at the claims brought by Rubin and OSK-1,
and by Mr Bazhanov and Triumph. The former are, in effect, parasitic on the claims
brought by IBSP, but as 10% creditors, Rubin and OSK-1 are able to petition for the
same relief in the St Petersburg bankruptcy proceedings. In my view, the essentially
parasitic nature of those claims (under which a third party is able to assert relief as to
the status of a contract between two other parties to the same effect as one of the
contracting parties) means that they carry less weight in determining whether there are
strong grounds for not granting ASI relief to enforce an arbitration agreement between
the principal protagonists. Not only is IBSP (acting through the DIA) the party most
central to the dispute and the “natural claimant”, but with the benefit of the
investigation the DIA has been conducting for some two-years using its extensive
powers, it is the party best placed to pursue those claims (although, of course, to the
extent that any creditor had any factual or legal insight to offer, an ASI would not
prevent it from feeding that material through to the DIA to deploy in an LCIA
arbitration). Finally the financial interest of the creditors (whether the 10% creditors
or others) is also parasitic on IBSP’s interest. If the Contracts are set aside and
consequential relief obtained, the asset pool of IBSP will be enlarged for the benefit
of all its creditors. That interest on the creditors’ part is no different in kind to that
which arises when an insolvent company through its office-holders pursues an attempt
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“The respondents accept that the Dicey rule applies to claims which may be of
considerable significance by an office-holder in a foreign insolvency, such as a
claim for breach of contract, or a tort claim, or a claim to recover debts. It is clear
that such claims may affect the size of the insolvent estate just as much, and often
more, than avoidance claims. Like claims to recover money due to the insolvent
estate such as restitutionary claims not involving avoidance, avoidance claims
may establish a liability to pay or repay money to the bankrupt estate (as in the
present cases). There is no difference of principle.”
99. It is also far from clear that Rubin and OSK-1 will continue their claims in the St
Petersburg Action if IBSP pursues its own claim in LCIA arbitration. For Rubin and
OSK-1 to advance and support those claims acting in their own right and without the
DIA making the same arguments would be a very different proposition from
supporting a claim by IBSP in which the DIA was there to do the “heavy lifting”.
100. So far as the position of Mr Bazhanov and Triumph are concerned, they do not have
legal interests which are directly engaged in the claims of IBSP against RSL to avoid
the Contracts, but they appear to be concerned that findings of fact about their
conduct made in the course of determining those disputes may lead to claims against
them. That is a rather weaker connection than that in Verity Shipping on which IBSP
relied. Further, any findings made in an LCIA arbitration will not be binding upon
them, and it is far from clear that those findings would become public at all, still less
carry any weight in any Russian proceedings brought against Mr Bazhanov and
Triumph.
101. For these reasons, I am not persuaded that the risk of inconsistent decisions, and of
prejudice to third parties resulting from such inconsistency, provides a strong reason
for not granting ASI relief in this case.
102. In these circumstances, it is not necessary to consider whether this factor would have
been neutralised by RSL’s offer to consent to the joinder of Rubin and OSK-1, and
perhaps Mr Bazhanov and Triumph, to any LCIA arbitration under Article 22.1(viii)
of the LCIA Rules 2014. This gives the tribunal power:
“to allow one or more third persons to be joined in the arbitration as a party
provided any such third person and the applicant party have consented to such
joinder in writing following the Commencement Date or (if earlier) in the
Arbitration Agreement; and thereafter to make a single final award, or separate
awards, in respect of all parties so implicated in the arbitration”.
this would deprive the manager of the ability to advance those claim anywhere,
Stanley Burnton LJ held at [81]:
“I reject the contention that Russia is the only available forum for the
determination of the Appellant's invalidity claim. The claim that the Guarantee
was not binding on D1 because the necessary corporate approvals had not been
given, so that it was entered into without corporate authority, which is the
essential claim made by the Appellant, is justiciable in this country. If there were
no arbitration agreement, D1 or the Bank (if claiming relief) could rely on the
gateways in PD6B 3.1(6)(c) and, more importantly, (d), and both D1 and the
Appellant (if claiming relief) could rely on CPD6B 3.1(8). There is an arbitration
agreement, but as mentioned above, rule 22.1(h) of the LCIA Rules would enable
the Appellant to be joined in the arbitration, and I have little doubt that the
agreement of D1 and of the Bank would have been forthcoming if the Appellant
had requested joinder (although the agreement of either one would have sufficed).
Moreover, the claim, in so far as it asserted that the approval of the Board of D1
was required, was raised (and has been determined) in the arbitration”.
104. In the present case, no ASI has as yet been sought against any non-party to the LCIA
Arbitration Agreements. However, if I had been otherwise persuaded that the risk of
inconsistent findings constituted a strong reason not to grant ASI relief, I would not
have regarded the possibility of joinder under the LCIA rules as a sufficient answer to
that point. At least on the evidence before me, there is nothing to suggest that Rubin
and OSK-1 are companies connected to IBSP, and the suggestion that they would (or
ought to be) willing to join in an LCIA arbitration in London in support of IBSP
seems a little unreal. The same is true of Mr Bazhanov and Triumph, whose principal
concern appears to be the impact upon them of findings of wrongdoing on their part
being made by a Russian court which might then lead to proceedings being
commenced them in Russia.
IBSP would face “an unbearable burden” in having to pursue its claims in an LCIA
arbitration
105. Mr Matovu QC suggested that having to fund and participate in an LCIA arbitration
in isolation from the collective process of asset realisation taking place in the St
Petersburg bankruptcy court, with the expense and inconvenience that would entail,
would place “an unbearable burden” on IBSP. However, forum conveniens arguments
of this kind can only carry limited weight when relied upon in support of the
argument that the parties should not be held to the neutral forum to which they have
agreed (Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch), [37]). In any
event, the amount which IBSP says is in issue in its claims is $140m, which is said to
represent almost half of the deficit in IBSP’s assets. There can be no serious
suggestion that a requirement to pursue such a claim in London arbitration would be
disproportionate or oppressive.
If the Bankruptcy Law claims would not be available in an LCIA arbitration, that would
constitute a strong reason not to grant ASI relief
106. Finally, perhaps encouraged by the Court, Mr Matovu QC submitted that the effect of
an ASI might be to prevent the avoidance claims being pursued at all, if those claims
did not arise under the applicable law(s) in an LCIA arbitration (see [59] to [61]
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107. There are two matters to be considered at this stage of the analysis.
108. The first is that it is said that it is “highly probable” that the injunction will not be
obeyed, and that the Court should not act in vain. As Blair J noted in Impala v
Wanxiang [2015] 2 All ER (Comm) 234, [137], it will be a rare case in which
difficulties in enforcing an English injunction in the country where proceedings have
been commenced would constitute a strong reason to refuse to grant an anti-suit
injunction. Further, if any judgment obtained against RSL in the St Petersburg Action
was obtained in breach of an injunction of this Court, that might well have
implications so far as attempts to enforce such a judgment or hold RSL to its findings
were concerned (The Wadi Sur [2010] 1 Lloyd’s Rep 193, [125]).
109. The second is the prejudice which IBSP may suffer if the court decides no final anti-
suit injunction is appropriate. There was nothing before me to suggest that IBSP
would suffer any prejudice beyond that ordinarily inherent in the delayed recovery of
money, and that is capable of being compensated for by an award of interest. In any
event, RSL has offered an undertaking in damages. Its latest accounts suggest it has
net assets of just over Euros 1 million. Given the high probability of success which I
have found, I am satisfied that it would be just and equitable to grant the negative ASI
which RSL seeks.
110. Mr Houseman QC also seeks a mandatory injunction ordering IBSP to take immediate
steps to withdraw, discontinue or terminate the St Petersburg Action with prejudice.
However, this is an interim application, and mandatory relief is usually granted only
after the final hearing (Mobile Telecommunications Co v HRH Prince Hussam Bin
Saudi Bin Abdulaziz Al Saud [2018] EWHC 1469, [19]). Further, the interim
application has raised issues of arbitrability which I have not found straightforward.
Taking these factors into account, I have concluded that it would not be appropriate to
grant a mandatory injunction at this stage.
CONCLUSION
ii) On the basis of the undertakings to which I have referred, the negative ASI
sought in the ASI Application is granted.