26 November 2013
[2013] EWHC 3689 (Comm)
Commercial Court, Queen's Bench Division (Burton J)
Foreign insolvency proceedings do not override arbitration agreements
The trustee of a large bankruptcy in Israel commenced proceedings in the Israeli insolvency court against Dr Bannai to recover assets (worth $150m) said to be due to the bankrupt under a 2002 agreement. The 2002 agreement was governed by English law and contained a London arbitration clause which it was accepted covered the claims in question.
Dr Bannai applied in Israel for a stay pending arbitration. The Israeli court dismissed the application without determining the validity of the arbitration clause. Instead it ordered the defendants to first put in their defence on the merits.
Dr Bannai turned to the English courts and commenced an action for an anti-suit injunction to give effect to the arbitration clause. Burton J cited The Angelic Grace [1995] 1 Lloyds Law Rep 87 and AES Ust-Kamenogorsk [2013] 1 WLR 1889 SC for the propositions that in such cases the respondent generally has to show a good reason not to support the arbitration clause, but that in some cases it would be appropriate to leave that to the foreign court.
The judge rejected the trustee’s argument that it should be left to the Israeli court to uphold the clause, as it had already declined to do so; that was the practical effect of its refusal to determine the stay application as a preliminary issue.
Burton J disagreed with the submission that the existence of long-running insolvency proceedings in Israel constituted a good reason for overriding the clause. Firstly, even applying Israeli law the Israeli court probably did not have the discretion ultimately to override the clause; and secondly, on a practical level the arbitration was feasible even if streamlined insolvency proceedings in Israel would be more convenient for the trustee.
The bankruptcy proceedings were recognised under the Cross Border Insolvency Regulations and the trustee prayed in aid the English court’s requirement of cooperation with foreign proceedings under Article 25. The judge held that this too was insufficient to displace the English court’s allegiance to arbitration agreements, especially since arbitration should be an efficient process.
The question of costs was considered later (see below for that decision)
The English courts will hold international insolvency representatives to the debtor’s agreement to arbitrate, notwithstanding the approach of the foreign insolvency court; though it remains to be seen if any greater deference would be shown under the EC Insolvency Regulation.
