Construction of language used in an undertaking in CBIR proceedings (Sberbank of Russia v Ramljak)

Alan Bennett, partner in the restructuring and insolvency team at Ashfords LLP, who has particular experience in cross-border insolvency, finds in reviewing Sberbank of Russia v Ramljak that precise drafting of a contract is key to determining a dispute.

What are the practical implications of this case?

Re Agrokor D.D.; Sberbank of Russia v Ramljak [2018] EWHC 348 (Ch), [2018] All ER (D) 141 (Feb)

The key point to take away from this case is that the phrase ‘final determination’ is defined as meaning ‘a point in time when determination can no longer be changed’. This indicates that final determination signifies the very last stage of any proceedings.

The judge placed great emphasis on the use of the word ‘final’, and considered what the use of that word added to the undertaking. Without the use of that word it may have been arguable that the recognition application was ‘determined’ when HHJ Paul Matthews made the recognition order.

This judgment emphasises that precise drafting is key. When considering a contract, the court will always look at the words used in the context in which the parties have used them—if Sberbank had referred to ‘determination’ rather than ‘final determination’, the outcome of the case might have been entirely different.

What was the background?

Agrokor DD, Croatia’s largest privately-owned company, and the holding company of a group of companies specialising in agriculture and food production, encountered financial difficulties. The sheer size of the company appeared to have prompted the enactment of new legislation in Croatia allowing the company and its subsidiaries to enter into extraordinary administration.

This created a moratorium on actions within Croatia, but in order for the moratorium to bite in England it was necessary to apply for the extraordinary administration to be recognised in England under the Cross-Border Insolvency Regulations 2006, SI 2006/1030.

The applicant, Sberbank, unusually, wished to contest the recognition application on the grounds that the extraordinary administration did not amount to a ‘foreign proceeding’ under SI 2006/1030. The recognition application was issued on 28 July 2017, and the parties came before Mr Justice Barling on 3 August 2017.

Critically, at that hearing, Sberbank undertook by way of a consent order that, pending the ‘final determination’ of the company’s recognition application, that they would take no further steps in an arbitration at the London Court of International Arbitration against the company and its subsidiaries, or carry on any further arbitration in England and Wales, or make any other application to the court relating to debts arising prior to the commencement of the extraordinary administration.

On 9 November 2017, HHJ Paul Matthews granted an order recognising the proceedings in Croatia as the main proceedings for the purposes of SI 2006/1030. Sberbank was denied permission to appeal at a further hearing before HHJ Paul Matthews on 18 December 2017, and has subsequently applied to the Court of Appeal for permission to appeal.

In the present proceedings, Sberbank argued that the undertaking in the consent order was no longer applicable because the recognition application had been determined by the English court on 9 November 2017 (when HHJ Paul Matthews granted an order for recognition).

However, the extraordinary administrator averred that the final determination of the recognition application had not yet occurred, because there was still an outstanding application for permission to appeal against the recognition application.

What did the court decide?

A key issue was whether there had been a ‘final determination’ (emphasis added) where the application had been determined but there was still an outstanding application for permission to appeal.

HHJ Paul Matthews made two key points:

  • the issue is context-specific and involves interpreting the undertaking which, at the same time as being a court order, is also a contract between the parties, and
  • the undertakings are wider than the automatic stay that was imposed by the recognition order itself, because the recognition order only applies to Agrokor DD and not to any of the companies affiliates or subsidiaries. The undertakings expressly applied referred to the affiliates and subsidiaries known as the ‘relevant companies’

Therefore, the question that HHJ Paul Matthews had to determine was simply one of construction of the language used in the undertaking.

HHJ Paul Matthews asserted that ‘I must look at what words they have used in the context in which they have used them’, as he was not construing a statue or a rule of court, but a contract. He was surprised not to have been shown direct authority which covers this precise situation, but was shown a number of authorities that were analogous situations using similar language.

He was referred to various analogous cases by Sberbank, including ones concerning the principle that a court, once having made a final conclusion at trial, no longer had jurisdiction to adjudicate on any matters save for costs or permission to appeal, for example.

The company referred the judge to a number of decisions including a number of tax cases dealing with VAT liability. These cases used the precise term ‘finally determined’. In Liaquat Ali v HMRC [2006] EWCA Civil 1572, Lady Justice Arden held that ‘finally determined’ included the time taken for any appeals. While this is helpful, the judge expressed caution because the context of tax appeals was very remote from the current circumstances.

The judge was also referred to various other authorities which, while helpful, were not in the same context and therefore not on point.

Accordingly HHJ Paul Matthews made clear that in construing a contract he had to take into account the whole commercial context.

In applying for recognition, it was clear that the extraordinary administrator wanted to stop an arbitration launched by Sberbank against the company and its subsidiaries. This would have the effect of a wider moratorium than would be available under the automatic stay provisions of SI 2006/1030. He was also conscious that, whatever the outcome, either Sberbank might appeal the decision or he may appeal the decision himself if he was unsuccessful.

Sberbank, on the other hand wanted to oppose the application but have sufficient time to prepare evidence in reply. Pragmatically, following negotiation, the undertaking was agreed.

Applying the principles of contractual interpretation and taking into account the whole commercial context and factual matrix, HHJ Paul Matthews found in favour of the extraordinary administrator:

‘The word “final” in the phrase “final determination” must refer to a point in time when that determination can no longer be changed. In my judgment, it must therefore be referring either to the end of the possibility of any appeal or, if sooner, to a point at which the losing party at first instance acknowledges that there will be no appeal or no further appeal.’

Accordingly, the undertaking had not yet come to an end.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

When does UNCITRAL (implemented by the Cross-Border Insolvency Regulations) apply and what are the effects?

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

Relevant Articles
Area of Interest