Syska & Anor v Vivendi Universal SA & Ors

Factual and Procedural Background

This appeal arises from a judgment of Judge Clarke in the Commercial Court concerning the application of Council Regulation (EU) No. 1346/2000 on Insolvency Proceedings ("the Regulation"). The central issue is the determination of which Member State's law governs the effects of insolvency on arbitration proceedings when insolvency is opened in one Member State, but the arbitration is pending in another.

The dispute involved a Polish company ("Plaintiff") which entered into an investment agreement with two defendants ("Defendant") governed by Polish law except for an arbitration agreement governed by English law. Arbitration was commenced in London under LCIA rules. The Plaintiff was declared bankrupt in Poland during the arbitration. The Polish insolvency administrator contended that under Polish law the arbitration agreement was annulled upon bankruptcy, arguing that the arbitrators exceeded their jurisdiction by continuing the arbitration. The English court held that English law governed the continuation of the arbitration under Article 15 of the Regulation and upheld the arbitrators' jurisdiction, granting permission to appeal.

The arbitration tribunal had issued an interim award rejecting the Plaintiff's jurisdictional objections and subsequently a final award for damages in favor of the Defendants.

Legal Issues Presented

1. Whether the consequences of insolvency on arbitration proceedings pending in one Member State are governed by the law of the Member State where the insolvency proceedings are opened or by the law of the Member State where the arbitration is pending.
2. Whether a pending arbitration reference qualifies as a "lawsuit pending" within the meaning of Article 15 of the Regulation.
3. Whether the arbitration agreement is annulled by the insolvency proceedings under the lex concursus (law of the state opening insolvency) or if the continuation of arbitration is governed by the law of the seat of arbitration.
4. Whether the arbitrators exceeded their jurisdiction by continuing the arbitration after the insolvency declaration.

Arguments of the Parties

Appellant's Arguments

• Article 4 of the Regulation is the primary provision governing the effects of insolvency, including on current contracts such as arbitration agreements.
• The lex concursus (law of the state opening insolvency) governs the effects of insolvency on the arbitration agreement, which must be regarded as annulled upon bankruptcy.
• Consequently, the pending arbitration cannot continue independently once the arbitration agreement is annulled.
• The arbitrators had no jurisdiction to proceed with the arbitration after insolvency.
• Although Article 15 applies to pending lawsuits, arbitration is different because it depends on the validity of the arbitration agreement, which is governed by the lex concursus.

Respondent's Arguments

The opinion does not contain a detailed account of the Respondent's legal arguments.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court analysed the Regulation's provisions distinguishing between the general rule in Article 4 and the specific exception in Article 15. Article 4 establishes that the law of the Member State where insolvency proceedings are opened (lex concursus) governs the insolvency and its effects, including on current contracts. However, Article 15 provides that the effects of insolvency on lawsuits pending at the time insolvency proceedings begin are governed solely by the law of the Member State where the lawsuit is pending.

The court accepted that a pending arbitration reference qualifies as a "lawsuit pending" under Article 15. It rejected the appellant's argument that Article 4 predominates, explaining that both articles have separate spheres of operation and that Article 15 applies exclusively to pending lawsuits or arbitrations. The court emphasized the policy rationale to protect legitimate expectations and the certainty of transactions by allowing the law of the seat of arbitration to govern the continuation or discontinuance of pending proceedings.

The court further noted that the Polish insolvency provision invalidating arbitration agreements upon bankruptcy was unusual and did not displace the application of Article 15. The court reasoned that it would be inconsistent for the Regulation to apply different choice of law rules to the arbitration agreement than to the arbitration proceedings themselves.

Supporting authorities, including the Virgos-Schmit report and leading academic commentary, were considered to affirm that individual enforcement actions are governed by lex concursus but pending lawsuits, including arbitration, are governed by the law of the forum where they are pending.

Accordingly, the arbitrators correctly applied English law in deciding to continue the arbitration and did not exceed their jurisdiction.

Holding and Implications

The court DISMISSED THE APPEAL.

The direct effect of this decision is that the arbitration proceedings pending in England were properly governed by English law under Article 15 of the Regulation despite the insolvency proceedings being opened in Poland. The arbitration agreement was not annulled by the Polish insolvency law for the purposes of the arbitration's continuation. No new precedent beyond the interpretation of the Regulation's application to arbitration and insolvency was established.