Korean rehabilitation proceedings. Tricky English law issues may be resolved in English proceedings.

Ronelp Marine Ltd vs. STX Offshore & Shipbuilding Co Ltd : [2016] EWHC 2228 (Ch)

In May 2016 rehabilitation proceedings were commenced against STX, a South Korean shipbuilding company, and in June 2016 the English court recognised these as the foreign main proceeding under the 2006 Cross Border Insolvency Regulations (the ‘CBIR’) which give the force of law to the UNCITRAL Model Law on Cross Border Insolvency.

At the time of the rehabilitation proceedings, there were already actions afoot against STX in the English Commercial Court under guarantees it had provided in respect of five shipbuilding contracts entered into by its Chinese subsidiary Dalian, which were subject to English law and jurisdiction. In 2014 the contracts had come to an end with Dalian’s entry into Chinese insolvency process under which the Chinese office holder had issued a notice stating that the ships would not be built. STX raised two defences which involved complex issues of English law. First, it was alleged that the contracts were vitiated by illegality in that there had been a sideletter which intended to mislead third parties as to the true price paid under the contracts. Second, the contracts did not entitle the Buyers to damages but confined them simply to the return of instalments plus interest and since Dalian has received no instalments, it was not in breach of any obligation, which raised difficult issues relating to the interaction of contractual remedies and common law remedies for repudiatory breach.

Under the UNCITRAL Model Law, article 20.1(a) provides for a stay of actions subject to courts power under art. 20.6 to modify the stay on such terms as it thinks fit, provided the court is satisfied that interest of creditors and other persons interested are adequately protected. Article 21 provides that the Court has power to grand discretionary relief including any relief under paragraph 43 Schedule B1 of the Insolvency Act 1986.

The buyers applied to the court to exercise its discretion to allow the proceedings already commenced in England to continue. Their sole object was to obtain an adjudication of the claim, with a view to presenting the outcome to the Korean Rehabilitation Court. It was accepted that any judgment obtained from the Commercial Court could not be enforced against STX and that the conversion of the claim into a judgment could not alter the priorities within the Korean insolvency. The Buyers would continue to have an unsecured claim, but one that would be verified and quantified by the Commercial Court, which it was up to the Korean Rehabilitation Court to adopt or reject.

Norris J found himself in a similar position to that of Briggs J in Cosco Bulk Carrier: Ltd v Armada Shipping SA [2011] EWHC 216 where he was concerned with competing claims to sub-freights of the shipowner pursuant to a lien on sub freights and the time charterer, a Swiss Company subject to Swiss liquidation. The resolution of that dispute involved a consideration of competing views, expressed at first instance (and once in the Court of Appeal) on the one hand and in the Privy Council on the other hand, about the juridical nature of a lien on sub-freights. Briggs J had there exercised his discretion to allow the English arbitration proceedings brought by the shipowners against the sub-charterers to continue.

Accordingly Norris J. exercised his discretion to lift the stay and to allow the English proceedings to continue, given that otherwise the Korean Rehabilitation Court would have to grapple with these difficult issues of English law in assessing the buyers’ claims against STX under the guarantee.

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