The High Court held that "final determination" signifies the very last stage of any proceedings, without the chance to appeal. Sberbank were therefore still bound by their undertaking to take no further steps in an arbitration against the Company.
Agrokor DD ("the Company"), Croatia's largest privately owned company, and the holding company of a group of companies specialising in agriculture and food production, encountered financial difficulties. The sheer size of the Company appeared to have prompted the enactment of new legislation in Croatia allowing the Company and its subsidiaries to enter into Extraordinary Administration.
This created a moratorium on actions within Croatia, but in order for the moratorium to bite in England it was necessary to apply for the Extraordinary Administration to be recognised in England under the Cross-Border Insolvency Regulations 2006 ("CBIR").
The applicant, Sberbank, contested the recognition application on the grounds that the Extraordinary Administration did not amount to a "foreign proceeding" under the CBIR.
Sberbank undertook, pending the "final determination" of the Company's recognition application, that they would take no further steps in an LCIA arbitration against the Company and its subsidiaries, or carry on any further arbitration in England and Wales, or make any other application to the court relating to debts arising prior to the commencement of the Extraordinary Administration.
HHJ Matthews granted an order recognising the proceedings in Croatia as main proceedings for the purposes of CBIR. Sberbank were denied permission to appeal at a further hearing before HHJ Matthews and subsequently applied to the Court of Appeal for permission to appeal.
Sberbank argued that the undertaking was no longer applicable because the recognition application had been determined by the English court when HHJ Matthews granted the recognition order.
However, the Extraordinary Administrator argued that the final determination of the recognition application had not yet occurred, because there was still an outstanding application for permission to appeal against the recognition order.
In considering whether there had been a "final determination" of the application, HHJ Matthews made two key points:
- the issue was context-specific and involved interpreting the undertaking which, whilst being a court order, was also a contract between the parties; and
- the undertakings were wider than the automatic stay imposed by the recognition order, because the recognition order only applied to the Company and not to any of the affiliates or subsidiaries, whereas the undertaking referred to the affiliates and subsidiaries known as the “Relevant Companies”.
HHJ Matthews noted that he "must look at what words they have used in the context in which they have used them" as he was construing a voluntary undertaking amounting to a contract, rather than a statute or a rule of court. He was surprised not to have been shown direct authority relating to this precise situation but instead was shown authorities in similar situations using similar language.
HHJ Matthews made clear that in construing the contract, he had to take into account the whole commercial context.
In applying for recognition it was clear that the Extraordinary Administrator wanted to stop an arbitration launched by Sberbank against the Company and its subsidiaries. This would have the effect of a wider moratorium than would be available under the automatic stay provisions of CBIR. He was also conscious that, whatever the outcome, Sberbank or the Extraordinary Administrator might appeal the decision.
Applying the principles of contractual interpretation and taking into account the whole commercial context and factual matrix, HHJ Matthews found in favour of the Extraordinary Administrator. HHJ Matthews noted that "final" must refer to a point in time when that determination can no longer be challenged. It must therefore be either the end of the possibility of any appeal or, when the losing party at first instance acknowledges that there will be no appeal or further appeal. Final determination therefore signifies the very last stage of any proceedings. Accordingly, the undertaking had not yet come to an end.
It is worth noting from this judgment that precise drafting is key. When considering a contract, the court will always look at the words used in the context in which the parties have used them. If Sberbank had referred to "determination" rather than "final determination", the outcome of the case might have been entirely different.