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The English Court’s take on the impact of foreign insolvency proceedings on a London-seated arbitration

  • United Kingdom
  • International arbitration
  • Litigation and dispute management

19-03-2021

Summary

In a recent judgement issued on 26 February 2021, the High Court of England & Wales in Republic of Uganda v Rift Valley Railways (Uganda) Limited (Defendant) and (1) RVR Investments (Pty) Limited and (2) KU Railways Holdings Limited (Additional Parties) [2021] EWHC 3653, rejected a s. 67 challenge filed by Uganda challenging a tribunal’s jurisdiction arising from the question of whether a pending arbitration should be maintained even though the liquidator of the claimant (who was appointed after arbitral proceedings commenced) had not given express consent for the claimant to continue the proceedings.

Outcome

The arbitral tribunal had initially determined, by way of a procedural order, that as an issue of party representation the absence of liquidator’s express consent was not a bar to the arbitration continuing. The Court dismissed Uganda’s jurisdiction challenge and affirmed that English Courts do not have a general and broad power to supervise the conduct of an arbitration prior to the issuance of an award (in this case the issue in question was determined by procedural order rather than by an arbitral award).

Key Takeaways:

i.   An English-seated Arbitral Tribunal will not stay arbitration proceedings because of an ongoing foreign liquidation of the claimant unless the liquidator requests it (on the basis of his powers as granted by the law applicable to the insolvency proceedings).

ii.   The English Court will not revisit an Arbitral Tribunal’s decision on who has the right, in the arbitration, to represent a party which is in liquidation.

iii.   This decision is further confirmation of the English Court’s “minimal intervention” doctrine with regard to ongoing arbitration proceedings.

iv.   The High Court affirmed the distinction between an arbitral award and an procedural direction, and that the Court does not have the power to revisit a procedural direction issued by the president of a tribunal.

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A. Factual and Procedural Background

The dispute arose out of a long term concession agreement entered into between Uganda and Rift Valley Railways (Uganda) Limited (“RVRU”), under which RVRU would provide freight services to Uganda. The Concession Agreement is governed by Ugandan law, and provides for a London-seated arbitration.

Following RVRU’s admitted failures to perform the Concession Agreement, Uganda accepted what it claimed was “RVRU’s repudiatory breach” and, as a result, the Concession Agreement was terminated.

Almost immediately after termination, RVRU commenced an arbitration against Uganda in London, claiming damages for breach of contract arising from Uganda’s alleged wrongful repudiation of the Concession Agreement.

During the arbitration, RVRU was placed into involuntary liquidation (as a result of its inability to pay one of its suppliers) by the Ugandan High Court which also appointed a liquidator for RVRU. A few months after the appointment of the liquidator, Uganda asked the Arbitral Tribunal to stay the arbitration pending a decision from the liquidator of whether to continue the arbitration or not. Uganda’s application was rejected by the Arbitral Tribunal on the basis that the appointment of a liquidator was already subject to a challenge (by RVRU’s shareholders) before the Ugandan Courts, and that the Tribunal would wait for the outcome of such a challenge and the Parties’ further submissions in the arbitration.

In the arbitration, Uganda argued that “the existing management and shareholders of RVRU have lost their corporate powers, which have vested in the liquidator”, and “any already-commenced proceedings cannot be continued, as it is the responsibility of the newly-appointed liquidator to assess whether continuation of the proceedings would be in the interests of the company’s creditors”. In response to a direct question from the tribunal, Uganda’s counsel expressly confirmed that this solely was an issue of authorised representation of the claimant, a question which had arisen following the claimant’s liquidation. A few months later, in June 2020 the Arbitral Tribunal issued a Procedural Order No. 5 (“PO No. 5”) refusing to stay the arbitration in the absence of an express confirmation by the Liquidator.

The Tribunal found that the relevant Ugandan insolvency legislation imposes no statutory stay on claims brought by a company in liquidation, so the liquidation order, the appointment of the liquidator, and his ongoing consideration of the proceedings do not automatically pose an impediment to the continuation of the arbitration. The Tribunal also noted that the liquidator was aware of this arbitration, but had not yet taken a decision on whether or not to sanction its continuation. In the absence of any contrary direction from the liquidator, the Tribunal determined that RVRU may continue to pursue the arbitration.

Uganda then filed a challenge before the English Courts under s. 67 of the English Arbitration Act 1996 (“AA”), seeking to set aside PO No. 5 on the basis that it is an award of the Tribunal as to its substantive jurisdiction. Uganda also applied for a declaration that the former management of RVRU, which continued to control RVRU pending the Ugandan Court’s determination of questions on the liquidator’s appointment, “have no standing to take any action on behalf of RVRU, including in purported response to [Uganda’s] application under s. 67”.

B. The Decision of the Court

Was the English Court in a position to hear the question of whether the liquidator was required to provide his consent to the continuation of the arbitration proceedings?

Butcher J did not delve into the substantive issue of whether the liquidator had to provide his express consent to the continuation of the arbitration, because the Parties had already agreed that issues relating to the RVRU winding-up petition on who could represent that company were matters for the Tribunal.

Do English Courts (as supervisory courts) have the power to set aside a procedural order?

First, Butcher J identified the type of arbitral decision or ruling which may be eligible for a challenge. He referred to the wording of s.67 of the English Arbitration Act which allows a party to challenge an “award of the arbitral tribunal as to its substantive jurisdiction”.

Second, Butcher J identified the commonly accepted features of an arbitral award, by referring to provisions governing the form of an arbitral award both under the AA (s. 52) and the UNCITRAL Arbitration Rules (Articles 33 and 34).

Third, he distinguished between what constitutes an arbitral award and what qualifies as a procedural direction, by relying on ZCCM Investments Holdings Plc v Kansanshi Holdings Plc [2019] EWHC 1285 (Comm), where the court set out points to consider when determining whether a tribunal’s ruling is an ‘award’ or not.

He concluded that the tribunal’s ruling in Procedural Order No. 5 is not an award capable of being challenged because: (i) it is not, on its face, called an award; (ii) it would not have been understood by a reasonable recipient as an award (partly because of what it was called and also because it did not comply with the formal requirements for an award stated by the AA 1996 and the UNCITRAL Rules); (iii) it would not have been understood by a reasonable recipient as an award as to jurisdiction, because the points raised by Uganda had been expressly put as issues going to the authority of the liquidator to represent the claimant, rather than any argument before the Tribunal as to its jurisdiction; and (iv) the challenged Procedural Order did not finally determine any issue or dispute between the parties, including no final determination as to the Tribunal’s jurisdiction.

Does RVRU’s former management have standing to take action on its behalf?

The Court rejected Uganda’s application on this point, on the basis that: (i) making such a determination would be outside the scope of the Court’s powers and would be more appropriately be heard by the arbitral tribunal; and (ii) the position in relation to the Ugandan liquidation of RVRU is still uncertain, and further developments in the Ugandan proceedings could affect any declaration which could be made by the English Courts.

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