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Can English proceedings be stayed under the Lugano Convention or under the court's inherent jurisdiction on case management grounds? The case of Fondazione Enasarco v Lehman Brothers Finance SA  EWHC 34 (Ch),  All ER (D) 90 (Jan) looked at this. In the case Lehman Brothers Finance SA's (LBF) application for a stay of English proceedings in respect of a claim brought by the claimant (Enasarco) for relief under a derivative agreement was refused where there were strong grounds for such refusal and where the English court was the natural court to consider the issues raised because they raised contractual questions governed by English law.
Mr Justice Richards decided that:
Enasarco invested in notes marketed by the Lehman group. ARIC was the special purpose vehicle for the notes programme. The principal amount of the notes was protected by a derivative agreement between LBF and ARIC. The agreement was governed by English law and contained an exclusive jurisdiction clause, as regards states which are parties to the Lugano Convention, in favour of the English courts.
In 2008, LBF's holding company filed for protection under Ch 11 of the US Bankruptcy Code, which constituted an event of default under the derivative agreement and resulted in its automatic early termination, with LBF as the defaulting party. LBF subsequently entered bankruptcy proceedings in Switzerland. In 2009, the English court recognised the Swiss bankruptcy proceedings of LBF as foreign main proceedings under the Cross-Border Insolvency Regulations 2006, SI 2006/1030 (the CBIR).
ARIC filed a claim in the Swiss bankruptcy of LBF for the loss under the derivative agreement. LBF rejected ARIC's calculation of loss and contended that ARIC in fact owed it money under the derivative agreement. ARIC's claim under the derivative agreement was assigned to Enasarco, which sought to resolve the loss calculation in the English courts.
The effect of the recognition of the Swiss bankruptcy proceedings as foreign main proceedings was the imposition of an automatic stay of all proceedings in England against LBF (under the CBIR, Sch 1 art 20). Enasarco obtained an order lifting the stay to permit proceedings to resolve issues regarding the derivative agreement, but the court did not determine liability. The liquidators of LBF subsequently rejected ARIC's claim.
In April 2013, Enasarco filed a claim with the Swiss court, challenging the liquidators' rejection of its claim and seeking an order for inclusion of its claim in the schedule of creditors.
In August 2013, Enasarco issued the current proceedings in the English courts seeking recovery of the sums due under the derivative agreement and a declaration that no sums were payable by Enasarco or ARIC to LBF.
The purpose of the Lugano Convention is to extend the principles laid down in the Council Regulation (EC) 44/2001 ( the Judgments Regulation) to the parties to the convention. It is accepted that judgments of the Court of Justice of the European Union (CJEU) on the Brussels Convention and the Judgments Regulation provide authoritative guidance on the interpretation of the Lugano Convention.
Insolvency proceedings are excluded from the ambit of the Lugano Convention under art 1(2)(b) because of the special nature of certain matters and of the profound differences between the laws of the contracting states (seeGourdain v Nadler). In addition, work was proceeding on a separate convention for insolvency. This gap has been filled by the Regulation on Insolvency Proceedings (EC) 1346/2000. Professor Peter Schlosser stated that the Brussels Convention and the intended Bankruptcy Convention were 'intended to dovetail almost completely with each other'.
Richards J concluded that 'as regards the exclusion of insolvency proceedings, the Judgments Regulation and the EC Regulation on Insolvency must be read in the light of the other, and the same in my judgment is true of the Lugano Convention'.
As for proceedings relating to the insolvency proceedings, Richards J considered the guidance in Gourdain v Nadler that the scope of application of the EC Regulation on Insolvency should not be broadly interpreted, and 'an action is related to bankruptcy if it derives directly from the bankruptcy and is closely linked to proceedings for realising the assets or judicial supervision'.
Richards J concluded that the Swiss proceedings (relating to construction of the derivative agreement and whether the claim should be included in LBF's schedule of claims) were derived directly from LBF's liquidation and closely connected to it, as the Swiss proceedings:
The Swiss proceedings couldn't exist, nor have any relevance outside the Swiss liquidation. As such, the Swiss proceedings fell within the exception to the Lugano Convention.
Richards J concluded that there were strong grounds against a stay of the English proceedings:
This pragmatic decision is welcomed—it is in everyone interests that claims are dealt with quickly and, where possible, by the courts of one country so dividends can be paid to creditors with agreed claims and the insolvency proceedings concluded quickly, rather than incurring the extra cost and delay arising from a multiplicity of proceedings in several different jurisdictions, further eroding the pot of money available to creditors.
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