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In the Matter of Pan Ocean Co Ltd v Pan Ocean Co Ltd & Ors (2014)

Summary

A notice terminating an English law contract on the insolvency of a Korean company was not "the commencement or continuation of individual actions or individual proceedings" which could be stayed by the court under the Cross-Border Insolvency Regulations 2006 Sch.1 art.21(1)(a). The court's power under art.21(1) to grant "any appropriate relief" did not extend to relief which would not be available to the court in a domestic insolvency.

Facts


The applicant Brazilian company (F) applied for an order permitting it to commence an arbitration seeking declaratory relief as to its entitlement to terminate a contract of affreightment with the first respondent Korean shipping company (P), and P's administrator, the second respondent, applied for an order that F should not exercise its contractual right to terminate.

F was a producer of wood pulp and entered into the contract as charterer. It undertook to provide, and P undertook to carry, the cargoes identified in the contract. The contract was a long-term contract. It was governed by English law and provided for London arbitration. Clause 28 provided for termination with immediate effect on notice in writing for default including insolvency. That provision was valid as a matter of English law. The contract permitted assignment and P had assigned the benefits under it to certain Marshall Islands companies it controlled and they in turn had assigned to a bank as security agent. F had been given notice of the assignments. F became unable to pay its debts as they fell due and applied to the Korean bankruptcy court for the commencement of rehabilitation proceedings. The Korean court made the order sought and the administrator was appointed. On the administrator's application the English court recognised the Korean rehabilitation proceedings as foreign main proceedings under the UNCITRAL Model Law in the Cross-Border Insolvency Regulations 2006 Sch.1. F considered the contract onerous and sought to terminate it under cl.28. The administrator considered the contract profitable and gave notice to F pursuant to the Korean bankruptcy statute that P would continue to perform it.

The administrator submitted that the provision for termination on insolvency under cl.28 was invalid under Korean bankruptcy law, and that the English court could and should make an order restraining F from relying on the clause by way of a stay of proceedings under art.21(1)(a)

Held

(1) The administrator had a good arguable case that the insolvency termination provisions in cl.28 of the contract were automatically void by reason of Korean bankruptcy law or, if not automatically void, would be held to be void after a Korean court considered all of the relevant circumstances (see para.59 of judgment). (2) The court did not have power under art.21(1)(a) to restrain F from serving a termination notice under cl.28 because serving such a notice was not "the commencement or continuation of individual actions or individual proceedings" which could be stayed under art.21(1)(a), Bristol Airport Plc v Powdrill [1990] Ch. 744 and Olympia & York Canary Wharf Ltd (No.1), Re [1993] B.C.C. 154 applied (para.75). (3) The non-exhaustive words "any appropriate relief" were capable of being given a wide literal meaning. However, the very width of their literal meaning and consideration of art.21(1)(g) in particular led to the conclusion that it was not intended that they should be given such a wide literal meaning. The court was directed by reg.2 of the Regulations to consider the documents relating to the working group on the Model Law and it appeared from the reports of the working group that it was not intended that "any appropriate relief" would allow the recognising court to go beyond the relief it would grant in relation to a domestic insolvency. The court declined to follow the United States decision in Re Condor Insurance Co Ltd (2010) 601 F 3d 319 which supported an interpretation of those words which would allow the recognising court to give effect to an order of the court of the foreign proceedings even if the recognising court could not itself have made such an order in its own domestic proceedings, Condor Insurance considered. The words "any appropriate relief" did not allow the court to grant relief which would not be available when dealing with a domestic insolvency. The court would not have granted the administrator relief even if it had the power to do so under art.21(1). The relief available under art.21(1) was of a procedural nature, Rubin v Eurofinance SA [2012] UKSC 46, [2013] 1 A.C. 236 followed. The difference between F being entitled to terminate the contract and not being so entitled went well beyond matters of procedure and affected the substance of the parties' rights and obligations. The parties might be very surprised to find that an English court would apply Korean insolvency law to the substantive rights of the parties under a contract which they had agreed should be governed by English law. The enforceability of clauses such as cl.28 had been reviewed by the Supreme Court taking full account of the policy considerations, Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 A.C. 383 considered. The English court should not prefer the policy choice made in Korean law (paras 105-113).

Judgment accordingly

Chancery Division
Morgan J
Judgment date
30 June 2014
References

LTL 30/6/2014 : [2014] Bus LR 1041 : [2014] EWHC 2124 (Ch)