Factual and Procedural Background
The proceedings arise from an investment of 780,470,000 in notes issued by Company B, a special purpose vehicle incorporated in the Cayman Islands, as part of a secured euro medium-term note programme structured and marketed by the Lehman group of companies. The notes were protected by a Derivative Agreement between Company A and Company B governed by English law and subject to the exclusive jurisdiction of the English courts under the ISDA Master Agreement.
Following the filing for bankruptcy protection of the ultimate holding company of Company A under the US Bankruptcy Code in September 2008, and subsequent liquidation and bankruptcy proceedings of Company A in Switzerland, Company B calculated a termination payment under the Derivative Agreement and filed a claim in the Swiss bankruptcy. This claim was assigned to the Plaintiff, who subsequently initiated proceedings in England to resolve issues relating to the calculation of loss under the Derivative Agreement.
The Swiss bankruptcy proceedings were recognised as foreign main proceedings under the Cross-Border Insolvency Regulations 2006 (CBIR), triggering an automatic stay of proceedings in England against Company A. The Plaintiff obtained an order lifting the stay to permit certain proceedings in England. After trial, the English court ruled on the method of calculating loss but did not determine the amount of liability. The liquidators of Company A rejected the Plaintiff’s claim in the Swiss liquidation and the Plaintiff challenged this rejection in Swiss court proceedings.
The Defendant, Company A, applied for a stay of the English proceedings under the Lugano Convention and domestic case management powers, while Company B applied for permission to bring a claim against Company A in England despite the automatic stay.
Legal Issues Presented
- Whether the Swiss insolvency proceedings fall within the exclusion of insolvency proceedings under article 1(2)(b) of the Lugano Convention.
- If the Swiss proceedings do not fall within the exclusion, whether the English court is required to stay the English proceedings under article 27 of the Lugano Convention.
- If the Swiss proceedings do fall within the exclusion, whether article 28 of the Lugano Convention nonetheless applies to permit a discretionary stay of the English proceedings.
- If article 28 applies, whether the court should exercise its discretion to stay the English proceedings.
- Whether the court should stay the English proceedings pursuant to section 49(3) of the Senior Courts Act 1981 on case management grounds.
Arguments of the Parties
Defendant's Arguments
- The Lugano Convention applies to both the English and Swiss proceedings, requiring a stay of the English proceedings under article 27.
- Alternatively, the court should exercise its discretion to stay under article 28 or under section 49(3) of the Senior Courts Act 1981.
- The Swiss proceedings and the English proceedings involve the same cause of action and parties, justifying a stay to avoid irreconcilable judgments and duplication of costs.
- The Swiss proceedings are more advanced and could reach judgment earlier.
- The Plaintiff’s claim in the Swiss proceedings is the same as the claim in the English proceedings.
Plaintiff's and Company B's Arguments
- The Swiss proceedings are insolvency proceedings excluded from the Lugano Convention under article 1(2)(b), so articles 27 and 28 do not apply.
- The court should not exercise discretion to stay the English proceedings.
- The exclusive jurisdiction clause in the Derivative Agreement supports the English courts as the natural forum.
- The Swiss proceedings do not have res judicata effect on the merits of the contractual claim.
- The Plaintiff was compelled to commence the Swiss proceedings to preserve its rights in the insolvency, not by choice.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Gourdain v Nadler (C-133/78) [1979] 3 CMLR 180 |
Definition and exclusion of insolvency proceedings under the Brussels and Lugano Conventions; insolvency proceedings must derive directly from bankruptcy and be closely connected with liquidation. |
Applied to determine that Swiss proceedings are insolvency proceedings excluded from Lugano Convention under article 1(2)(b). |
| German Graphics Graphischer Maschinen GmbH v van der Schee (C-292/08) [2009] ECR I-8421 |
Clarification of the scope of insolvency exclusion; claims independent of insolvency proceedings are not excluded. |
Used to distinguish the English proceedings as independent claims outside the insolvency exclusion. |
| Re Hayward [1997] Ch 45 |
Claims by trustees in bankruptcy not falling within insolvency exclusion if claim exists independently of bankruptcy. |
Supported the view that the English claim is not excluded from Lugano Convention. |
| Ashurst v Pollard [2001] Ch 595 |
Similar to Re Hayward; claims by trustees in bankruptcy for realising debtor’s interest not excluded. |
Reinforced the principle that certain claims are independent of insolvency proceedings. |
| Byers v Yacht Bull Corp [2010] EWHC 133 (Ch), [2010] 2 BCLC 169 |
Claims by liquidators to assert ownership of assets purchased with company funds are independent of insolvency proceedings. |
Confirmed that actions to determine rights under pre-liquidation contracts are outside insolvency exclusion. |
| UBS AG v Omni Holding AG [2000] 1 WLR 916 |
Actions concerning rights and obligations under contracts pre-liquidation are not insolvency proceedings. |
Supported the position that the English proceedings are not within insolvency exclusion. |
| Rahman v GAMC Commercial Finance Ltd [2012] EWCA Civ 1467 |
Consideration of article 28 of Lugano Convention concerning discretionary stays and related actions. |
Court declined to decide principle but upheld refusal to stay English proceedings. |
| The Alexandros T [2013] UKSC 70 |
Exclusive jurisdiction clauses and the natural forum for contractual disputes governed by English law. |
Supported refusal to stay English proceedings in favour of foreign insolvency proceedings. |
| AWB (Geneva) SA v North America Steamships Ltd [2007] EWCA Civ 739, [2007] 2 Lloyd's LR 315 |
Refusal to stay English proceedings in favour of foreign insolvency proceedings; role of English courts in interpreting contractual rights. |
Applied to support refusal of stay and recognition of English courts as natural forum. |
| Re Rodenstock GmbH [2011] EWHC 1104 (Ch), [2011] Bus LR 1245 |
Interpretation of insolvency exclusion under Judgments and Insolvency Regulations. |
Supported view that insolvency exclusion is limited to matters within scope of Insolvency Regulation. |
| Re Stanford International Bank Ltd [2010] EWCA Civ 137, [2011] Ch 33 |
Authoritative commentary on Insolvency Regulation and Lugano Convention. |
Used to support interpretation of insolvency exclusion and jurisdictional issues. |
Court's Reasoning and Analysis
The court analysed the nature of the Swiss proceedings and their relationship to the insolvency of Company A. It found that the Swiss proceedings, which consist of challenges to the schedule of creditors' claims, are integral to the liquidation process and arise exclusively under Swiss insolvency law. The proceedings determine the existence, amount, and ranking of claims for distribution of assets and do not produce res judicata effects on the merits of the underlying contractual dispute.
Applying the test from Gourdain v Nadler, the court held that the Swiss proceedings derive directly from the liquidation and are closely connected to it, thus falling within the insolvency exclusion under article 1(2)(b) of the Lugano Convention. Consequently, article 27 requiring an automatic stay does not apply.
The court considered whether it should exercise its discretion under article 28 or domestic case management powers to stay the English proceedings. It concluded that the exclusive jurisdiction clause in the Derivative Agreement, the governing law being English law, and the importance of having contractual issues determined by the English courts weigh heavily against a stay. The risk of irreconcilable judgments was deemed theoretical, as the Swiss court’s decision would be limited to insolvency proceedings without binding effect on the substantive rights.
The court further rejected arguments based on the advancement of the Swiss proceedings and the choice of forum by the Plaintiff, finding that the Plaintiff was compelled to commence Swiss proceedings to preserve its rights in the insolvency.
Finally, the court granted permission to Company B to commence a claim against Company A in England despite the automatic stay, on the basis that the liability issue could not be determined in the Swiss insolvency proceedings and that a timely resolution was justified.
Holding and Implications
The court REFUSED the application by Company A for a stay of the English proceedings under the Lugano Convention and domestic case management powers.
It granted Company B permission to commence a Part 20 claim against Company A in the English court despite the automatic stay imposed by the Cross-Border Insolvency Regulations.
The decision ensures that the contractual disputes governed by English law and subject to an exclusive jurisdiction clause will be resolved in the English courts. The Swiss insolvency proceedings remain limited to determining claims for distribution purposes without affecting substantive contractual rights. The ruling does not establish new precedent but clarifies the application of the insolvency exclusion and the exercise of discretion regarding stays in cross-border insolvency contexts.