Arbitrability under English law for foreign insolvency proceedings brought by receivers
Riverrock Securities Limited (Riverrock) applied for an interim anti-suit injunction against the International Bank of St Petersburg (IBSPB) in relation to insolvency proceedings before the Arbitrazh Commercial Court in St Petersburg initiated by IBSPB against Riverrock. Riverrock contended that the Russian proceedings were brought in breach of various LCIA arbitration agreements with their seats in London. The anti-suit injunction was granted on the basis that the dispute before the Arbitrazh Commercial Court in St Petersburg was arbitrable and fell within the scope of the arbitration agreements.
Between 31 January and 3 July 2018, Riverrock and IBSPB entered into nine substantially similar contracts for the sale of securities in the form of credit linked notes. The notes contained LCIA arbitration clauses which provided that any arbitrations arising in respect of the notes were to be seated in London and governed by the law of England and Wales.
The Central Bank of Russia (CBR) investigated IBSPB’s non-compliance with Russian banking law and practice and, on 15 October 2018, suspended the authority of IBSPB’s management and placed IBSPB in provisional administration on 31 October 2018. The Russian State Corporation Deposit Insurance Agency (the DIA) was appointed as IBSPB’s administrator.
Bankruptcy proceedings were commenced against IBSPB on 12 November 2018. IBSPB was declared insolvent on 24 September 2019 and the DIA was appointed as its official receiver in bankruptcy.
The CBR and the DIA investigated IBSPB and found irregularities as to compliance with Russian banking law. The DIA, on behalf of IBSPB, commenced proceedings before the Arbitrazh Commercial Court in St Petersburg relying on Article 61.2(1) and (2) of the applicable Russian Bankruptcy Law seeking (i) the invalidation of the contracts on the basis they constituted a scheme intended to siphon off IBSPB’s assets; and (ii) the repayment of all amounts paid by IBSPB to Riverrock.
On 7 May 2020, Riverrock made an application for an interim anti-suit injunction before the English Commercial Court. Riverrock had to show to a “high probability of success” that the pursuit of the proceedings before the Arbitrazh Commercial Court amounted to a breach of the arbitration agreements.
On 8 July 2020, IBSPB challenged the English court’s jurisdiction under Part 11 on the basis that Russia was the natural and appropriate forum to determine the issue of an anti-suit injunction.
In his Judgment handed down on 23 September 2020, Mr Justice Foxton described IBSPB’s argument that the English Courts did not have jurisdiction to hear the anti-suit injunction as “hopeless” and dismissed their application. This was on the basis that the choice of the seat of an arbitration constitutes an agreement to submit to the procedural jurisdiction of the courts of that seat.
Further, Mr Justice Foxton granted Riverrock an anti-suit injunction restraining IBSBP from continuing the proceedings in the Arbitrazh Commercial Court. This was on the basis that:
- English law was the applicable law when considering the construction of the arbitration agreements. In addition, the issue of arbitrability (i.e. whether the arbitration agreements covered the claims brought in Russia) was a matter of English law.
- The claims in the proceedings before the Arbitrazh Commercial Court were in reality brought by IBSPB (a party to the arbitration agreements) rather than, as IBSPB contended, the DIA in its capacity as official receiver. This was on the basis of, amongst other things, multiple references in Russian bankruptcy legislation to the official receiver “representing” the party in respect of which it holds office.
- The claims advanced in the proceedings before the Arbitrazh Commercial Court were within the scope of the arbitration agreements. The presumption that an arbitration agreement should not extend to insolvency claims was not a feature of English law.
- The claims in the proceedings before the Arbitrazh Commercial Court were arbitrable because they sought relief which the Tribunal was capable of granting and did not engage the interests of third parties.
This decision provides an interesting recap on the principles of arbitrability under English law when foreign insolvency proceedings are underway. As the DIA was not pursuing the proceedings before the Arbitrazh Commercial Court in its own right, but rather on behalf of IBSPB, it will be interesting to see how this body of English case law develops. Mr Justice Foxton considered that it was not necessary in the circumstances to consider what the position would be if the DIA pursued proceedings in its own name although he referred to relevant Singapore case-law which touched upon this issue.