Sberbank of Russia v The OJSC International Bank of Azerbaijan, Court of Appeal - Commercial Court, October 19, 2018, [2018] EWHC 2777 (Comm)

Resolution Date:October 19, 2018
Issuing Organization:Commercial Court
Actores:Sberbank of Russia v The OJSC International Bank of Azerbaijan
 
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Case No: CL-2018-000249

Neutral Citation Number: [2018] EWHC 2777 (Comm)

IN THE HIGH COURT OF JUSTICE

IN THE BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

The Rolls Building

7 Rolls Buildings

Fetter Lane

London EC4A 1NL

Date: 19/10/2018

Before:

MR. JUSTICE BRYAN

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Between:

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MR. FRED HOBSON (instructed by Fried, Frank, Harris, Shriver & Jacobson LLP) for the Claimant

MR. RYAN PERKINS (instructed by White & Case LLP) for the Defendant

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JudgmentMR. JUSTICE BRYAN:

  1. There is listed before me today a case management conference in an action between Sberbank of Russia, the claimant, and the OJSC International Bank of Azerbaijan (IBA), who are the defendant. The claim is, in essence, a simple debt claim.

  2. IBA's position before me today is that I should not hear the case management conference, and should adjourn it generally, with no further steps being taken in the action until after an appeal before the Court of Appeal (and potentially the Supreme Court) in relation to an order of Hildyard J (reported at [2018] Bus LR 1270) concerning what has been defined as the ``Moratorium Continuation Application'' which was issued in the Insolvency and Companies List and heard by Hildyard J in December 2017. Notwithstanding that, in a subsequent judgment in April 2018, Hildyard J held that Sberbank should be permitted to bring a claim against IBA to enforce its debts (reported at [2018] BPIR 837), which is the claim brought in this action, and which is listed before me today for a case management conference. For its part Sberbank submits that I can, and should, give case management directions to trial.

  3. In order to understand the issues that arise it is necessary to set out the relevant events that have occurred at some length to put in context the issues that arise in the appeal to the Court of Appeal, and the issues that arise in this action, which are of relevance to the application that is before me.

    The Loan

  4. The claimant Sberbank, and the defendant IBA, entered into a facility agreement on 15th July 2016 under which Sberbank lent IBA US$20 million. IBA is an Azeri bank. It fell into financial difficulties in 2007. In April 2017, it embarked on a voluntary restructuring procedure in Azerbaijan, with a view to restructuring certain of its debts ("the Restructuring Proceeding"). This was a rescue procedure which I am instructed is broadly similar to an administration process.

    The Restructuring Plan

  5. Between May and July 2017, IBA announced a restructuring plan. This was approved by a majority of creditors in July 2017 and sanctioned by the Azeri court in August 2017. It became effective as a matter of Azeri law on 1 September 2017. I will refer to it as "the Plan".

  6. In broad outline, the Plan involved the following. The Plan relates to certain foreign debts owed by IBA, referred to in the Plan as "Designated Financial Indebtedness", amongst those is the Sberbank loan. The effect of the Plan as a matter of Azeri law was to cancel existing indebtedness in return for which the creditors received a package of new debt instruments (on less favourable terms) called "Entitlements".

    The recognition application under the CBIR

  7. In May 2017, IBA's foreign representative applied for an order before the English court to recognise the Azeri Restructuring Proceeding as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (CBIR). Barling J granted that application on 6th June 2017. As an automatic consequence of the recognition of the order, Barling J also imposed a temporary moratorium that prevented creditors from commencing claims against IBA before the English courts. The purpose of the temporary moratorium was to give IBA a breathing-space pending its restructuring plan taking effect. The temporary moratorium was therefore to last no longer than the duration of the Azeri Restructuring Proceeding (which at that time was due to terminate on 30th January 2018). Once that temporary moratorium expired, creditors would then be free to pursue any claims they had in the English courts.

    The application to continue the moratorium

  8. In November 2017, IBA's foreign representative applied for an order under CBIR Article 21 for a permanent moratorium, so that the moratorium on creditor claims would continue indefinitely. This has been referred to as the Moratorium Continuation Application.

  9. It will be seen, therefore, that the purpose of IBA's application was to permanently deprive Sberbank from enforcing its claim by making its claim subject to an indefinite moratorium continuing beyond the termination of the Azeri Restructuring Proceeding.

  10. That application came before Hildyard J in December 2017, and Sberbank, along with another creditor, Franklin Templeton, resisted that application. Hildyard J refused IBA's application in a judgment on 18th January 2018, which, as I have already noted, is reported at [2018] Bus LR 1270.

  11. By way of brief summary:

    (1) The judge held that the court had no jurisdiction under CBIR Article 21 to order an indefinite moratorium. An important part of the judge's analysis was what is known as the Gibbs rule, named after the Court of Appeal decision of Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux [1890] 25 QBD 399. That rule, in summary, provides that a debt governed by English law, as indeed this debt is, cannot be discharged by a foreign insolvency process. Therefore, the effect of the Gibbs rule is that whatever the position may be as a matter of Azeri law, the Sberbank loan has not been discharged as a matter of English law. Certainly, that was the conclusion of Hildyard J.

    (2) The judge also held that there was no jurisdiction to grant relief under the CBIR which prevents or interferes with the exercise of substantive rights. In broad outline, he held that the CBIR provides a framework of procedural mechanisms to facilitate the efficient disposition of cross-border insolvencies, it is not concerned with the exercise of substantive rights, and therefore cannot be used as a vehicle to discharge substantive rights.

    (3) The judge decided the application principally on the issue of jurisdiction...

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