In Elektrim SA (In Bankruptcy) v Vivendi Universal (& Ors) [2008] EWHC 2155 (Comm) the claimant and defendant companies had entered into an investment agreement governed by Polish law, which contained an arbitration clause providing for arbitration in London. It was common ground that unlike the rest of the investment agreement , the arbitration agreement was governed by English law.  In 2003, Vivendi commenced arbitration proceedings in London which were still ongoing on 21 August 2007 when Elektrim was declared bankrupt by an order of the Warsaw court. Under Polish law, an arbitration clause will lose its legal effect upon the bankruptcy of either party and any pending arbitration proceedings must be discontinued.

On 15 October 2007 the  arbitral  tribunal heard arguments on whether the arbitration agreement had been annulled and on liability. It rejected Elektrim’s objections to the Tribunal’s jurisdiction and declared that Elektrim had breached the terms of the investment agreement.  Elektrim appealed under s67 of the Arbitration Act 1996.

The issue before the English court turned on the interpretation of Council Regulation (EC) No 1346/2000 on Insolvency Proceedings (the Regulation). Article 4 of the Regulation states that the law of the member state where insolvency proceedings were commenced shall govern the effect of such proceedings on actions brought by individual creditors, with the exception of “lawsuits pending”. This exception is further explained in Article 15 of the Regulation which states that “lawsuits pending” should be governed by the law of the member state where the relevant lawsuit was commenced and in progress.

Mr Justice Christopher Clarke, having considered the Regulation, the Virgos-Schmit report and available European and English authorities, held that arbitration proceedings which were pending at the time the insolvency proceedings were commenced fell within the exception. As such, the effects of the Polish insolvency regime on the continuation of the arbitration should be governed by English , not Polish  law . Therefore the appeal against the award  was dismissed.

This case demonstrates that where actions (whether they be court actions or arbitrations) are commenced in England and one of the parties subsequently goes into liquidation elsewhere in the EU, English law will continue to be the relevant law in terms of deciding what effect, if any, the insolvency will have on the continuation of the action.