Insolvency and Arbitration21 June 2018
Insolvency and arbitration have returned on the menu of the international arbitration community. The German Arbitration Institute (DIS), made it the overarching topic of its annual spring conference in Zurich earlier this year, and the DRI, the leading organization of defense attorneys, chose to make it a topic for a panel session at its annual conference in London last week.
In what the audience found to be a lively Q&A style debate, the recurring issues arising in an arbitration involving an insolvent party were brought to the table:
- The panelists first discussed whether an arbitration is automatically stayed when a party to the arbitration becomes subject to insolvency proceedings, and whether the trustee remains bound to an arbitration agreement concluded by the debtor prior to the insolvency.
- Whereas there appear to be concise legal approaches in domestic arbitration laws, international arbitrations have a special twist: the arbitral tribunal, which does not have a lex fori, is confronted with the question which conflict of law rules to apply to determine the applicable law which eventually decides over the effects of the insolvency on the arbitration.
- An additional element that may arise is whether and subject to which conditions an arbitral tribunal is required or authorized to recognize a foreign insolvency. In this context, the question arises when an insolvency is considered foreign. General practice and case law show that arbitral tribunals tend to look at the place of arbitration in this respect.
- As far as EU jurisdictions are concerned, the European Insolvency Regulation comes into play as it covers these cross-border issues. It will have to be seen how Great Britain will position itself in this respect following Brexit.
- Another subject of the discussion were the Vivendi v. Elektrim decisions in Switzerland as well as London resulting in different outcomes at the time, as the respective courts followed a different conflict of laws approach. However, the Swiss Federal Court has meanwhile reversed its jurisprudence in line with the English decision in another case.
In the end, however, the dilemma of two diverging systems remains and will have to be solved in a case-by-case approach in an international setting. Whereas insolvency attempts to concentrate all assets in proceedings in one place and in one hand, arbitration follows a decentralized approach, which takes into account various applicable laws.
On a personal note, I particularly enjoyed participating on the panel as the event took place almost exactly 10 years from when my dissertation on the same topic was published and, to summarize the above, the issues continue to be as relevant as they were back then.
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The law firm WAGNER Arbitration has its offices in Berlin and specializes in dispute resolution with a focus on arbitration. In addition, the firm offers comprehensive counseling services related to domestic and international business disputes and transactions.