In AWB Geneva SA v. North America Steamships Ltd (July 2007), the main issues before the English Court of Appeal were:
- whether the Canadian trustee in bankruptcy ("the
Trustee") of North America Steamships Ltd
("NASL") was in breach of an exclusive jurisdiction
clause in contracts between NASL and AWB Geneva SA
("AWB") and Pioneer Metals Logistics Co. Ltd, BVI
("Pioneer"), when the Trustee issued a petition in
the Canadian insolvency proceedings that sought to change the
contractual position between the parties; and
- whether the English proceedings should be stayed pending
the outcome of the insolvency proceedings in Canada.
NASL was party to a number of freight forward swap agreements ("FFAs") with AWB and Pioneer for 2006 and 2007. Each FFA incorporated the 1992 International Swaps and Derivatives Association ("ISDA") Master Agreement and so was subject to English law and exclusive jurisdiction. Under the Master Agreement, the obligation on each party to pay sums owing on settlement dates is subject to the condition precedent that no event of default has occurred and is continuing with respect to the other party. One such event of default is bankruptcy.
In 2006, NASL became insolvent. Subsequently, however, the market rate turned in NASL's favour such that AWB and Pioneer would owe money to NASL under the 2007 swaps. Termination of the FFAs would have resulted in AWB and Pioneer owing substantial sums to NASL. In the meantime, the Trustee affirmed the FFAs and filed a petition to restore NASL to solvency, thus "curing" the insolvency default, and sought an order from the Canadian court that no party to any FFA with NASL could refuse to make payments to NASL on the ground of its bankruptcy.
AWB and Pioneer sought an anti-suit injunction against the Trustee to restrain him from proceeding with the Canadian petition, a declaration of non-liability and a determination of AWB's claim for US$2.6m against NASL in respect of its 2006 liabilities. AWB and Pioneer argued that the Trustee was bound by the choice of law and jurisdiction provisions in the FFAs and that the Trustee's petition to the Canadian court was an unconscionable breach of the exclusive jurisdiction clause which should be restrained by an injunction.
At first instance, Field J. struck out the claim for a permanent injunction, stayed permanently AWB's money claim, and stayed the declaratory proceedings until the steps in the Canadian insolvency proceedings were exhausted and the Trustee had had a chance to bring an application under s.426 of the Insolvency Act 1986 seeking recognition in England of the Canadian order.
On appeal by AWB and Pioneer, the Court of Appeal held that:
- the Trustee's petition in Canada did not seek to
determine a contractual issue but rather was part of
insolvency proceedings and the issues that arose within these
were governed by Canadian law. For that reason, the petition
was not within the scope of the exclusive jurisdiction clause
and the question whether the court should grant an antisuit
injunction did not arise. The appeal on this point was
therefore dismissed.
- the stay of the declaratory proceedings should be lifted
as it was desirable that the meaning of disputed provisions
in the 1992 ISDA Master Agreement was determined by the
English court.
The Court of Appeal's decision has important practical consequences: on the one hand, it is authority for the proposition that a trustee in foreign insolvency proceedings who seeks relief permitted under the relevant foreign insolvency law is not in breach of exclusive jurisdiction provisions of contracts between an insolvent company and a third party, even if the purpose of the relief sought was to change the contractual position in favour of the defaulting insolvent company. On the other hand, the Court of Appeal confirmed the willingness of English courts to allow declaratory proceedings in relation to contractual rights to proceed irrespective of the insolvency stay, in particular where declarations concerning the respective parties' rights had wider market implications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.