The effect of insolvency proceedings

The Court of Appeal, in Syska v Vivendi Universal SA [2009] EWCA Civ 677, has upheld the decision of Mr Justice Christopher Clarke, [2008] EWHC 2155 (Comm) – discussed in the February 2009 issue of Arbitration Law Monthly – on the question of the effect of insolvency on arbitration proceedings. If the insolvent party is undergoing an insolvency procedure in England, the general principle is that the liquidator, administrator or trustee in bankruptcy (as the case may be) has the right to disclaim the contract to which the arbitration clause relates. The arbitration may, accordingly, continue unless and until this occurs. However, not all jurisdictions adopt this approach, and instead the effect of the insolvency of a foreign party may, under the insolvency rules applicable to that party, operate to terminate the insolvency proceedings forthwith. That solution is adopted by the law of Poland. In Syska the question was whether English or Polish insolvency law should be applied to a Polish company which was party to an arbitration with its seat in England.

Syska: the facts

In 2001, Elektrim, a Polish company that owned a substantial interest in PTC, a Polish mobile telephone company, entered into an agreement – the Third Investment Agreement (TIA) – with Vivendi under which Vivendi was to acquire an interest in PTC. The TIA was governed by Polish law, but it also contained an arbitration clause which was governed by English law and which provided for arbitration in London in accordance with the rules of the London Court of International Arbitration.