Court Varies Order Recognising South Korean Insolvency Proceedings To Allow Pursuance Of Claims in London Arbitration

Re Pan Ocean Co Ltd [2015] EWHC 1500 (Ch)

The Applicants had entered into a pool agreement and time charter with Pan Ocean, both of which were governed by English law and provided for London arbitration. The agreements were terminated, and the Applicants sought damages. Pan Ocean went into rehabilitation in Korean, and the Applicants submitted claims which were rejected by the administrator. The Korean court confirmed that rejection. The Applicants lodged an objection to the court's decision, and the proceedings were ongoing in Korea.

The English High Court made a recognition order in respect of the Korean rehabilitation proceedings pursuant to the Cross-Border Insolvency Regulations 2006 Sch.1 art.15. The order stayed the commencement of actions or proceedings against Pan Ocean.

The Applicants applied for the order to be varied so that they could pursue claims against Pan Ocean in London arbitration, on the understanding that they would not seek to enforce any arbitration award or subsequent court judgment against Pan Ocean's assets without the administrator's agreement or a further court order.

The application was granted.

In considering whether to vary the order, the Court noted that it had a free hand to do what was right and fair in the circumstances. A stay would usually be lifted when disputed claims needed to be resolved by legal proceedings, and it was right and fair in all the circumstances to implement that need. In this case, the court had to undertake a balancing exercise, weighing various factors including:

• the lack of evidence to suggest that an arbitration would adversely affect the result of the rehabilitation proceedings;
• the possibility that arbitration was not the most efficient and cost-effective way of proceeding; and
• the lack of provision of an alternative, in the event of insolvency, to arbitration in London.

The balancing exercise weighed heavily in favour of varying the stay.

In its conclusion, the Court noted that it may appear strange that the decision to vary the stay was made in England, rather than in the Korean courts where the parties were currently involved in proceedings in respect of the relevant claims. The reason that the decision had to be made by the English court was because it concerned the contractual right of the parties to apply for arbitration of a dispute. The application was required because of a stay established by the English courts, and so it was for the English courts to decide whether to vary it.

The ability to pursue claims against insolvent parties remains a very current issue. It is clear from this case that the English court will consider varying orders recognising foreign insolvency proceedings to allow claims to be pursued in London arbitration. It should be noted however that the order was varied on the understanding that there would be no subsequent enforcement against Pan Ocean's assets. Where a Respondent is insolvent or in rehabilitation, it could be questioned whether it is cost-effective to obtain an arbitration award which may be unenforceable due to lack of assets. This, however, is a strategic decision to be made based on the circumstances of any given case.

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