Fried Frank represented Sberbank before the Court of Appeal of England and Wales in successfully defending an appeal by the International Bank of Azerbaijan (the IBA) to block Sberbank's claims for outstanding amounts due under a loan facility agreement. This upholds the decision before Mr. Justice Hildyard dated 21 December 2017 in which Fried Frank also represented Sberbank. It was held (for a second time) that the IBA is not entitled to a “permanent moratorium” under the Cross Border Insolvency Regulations (CBIR) in support of a voluntary restructuring of the IBA in Azerbaijan, and that Sberbank is able to continue its claims against the IBA for recovery of the debt. Fried Frank continues to represent Sberbank in the linked Commercial Court proceedings.
In the Judgment of Lord Justice Henderson, agreed by Lord Justice Lewison and Lord Justice Baker, the Court of Appeal held that the procedural mechanism of Article 21 of the Cross Border Insolvency Regulations 2006 (the CBIR) (implementing into English law the UNCITRAL Model Law on Cross-Border Insolvency) could not be used to grant a permanent moratorium to circumvent the substantive rule of English private international law that a foreign insolvency procedure is only able to discharge the liability of a debtor if that is the effect of the proper law of the debt (known as the 'rule in Gibbs') (Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Mataux (1890) 25 QBD 399). Additionally, the Court of Appeal held that the Court's powers to grant a stay could not extend beyond the life of the foreign restructuring proceeding (whether or not those proceedings, as in the IBA's case, had been kept alive artificially for the sole purpose of seeking to rely on the English Court's powers under the CBIR). Lord Justice Henderson (at paragraph 95) said it would be “wrong in principle to use the powers in article 21(1)(a) and (b), or any other provisions of the Model Law as incorporated in the CBIR so as to circumvent the English law rights of the English creditors under the Gibbs rule.” In relation to the application to grant a permanent moratorium, Lord Justice Henderson (at paragraph 98) said: “it would… be anomalous if a stay granted before the termination of the foreign proceeding were permitted to remain in force indefinitely…”
London litigation partner Justin Michaelson led the team for Fried Frank, including litigation associate Simon Camilleri, pupil barrister Kimberley Taieb, and litigation paralegal Azhar Bagdatova.
Fried Frank instructed Mark Howard QC and Fred Hobson of Brick Court Chambers. Mr. Michaelson of Fried Frank commented: “This further underlines the Gibbs rule as an important principle of private international law, and reinforces the key underlying English law principle of certainty in contract. As the Court of Appeal notes, the IBA had the option of applying for a Scheme of Arrangement for the English law creditors, but for its own reasons chose not to do so. Instead, it has attempted twice to secure some form of permanent moratorium against claims through the use of the Model Law. At each stage, it spends hundreds of thousands of pounds in adverse costs, when it could be paying these fees directly to creditors. This creative attempt to block creditor claims has now been rejected twice, first by the Chancery Division, and now the Court of Appeal. As explained in the Commercial Court claim, Sberbank joins issue with the Azeri Plan, and how Sberbank's debt was treated. On a more general level, this judgment helps to maintain the continuing popularity of English law and the English Courts as the vanguard for Governing Law and Jurisdiction in finance documents, by prioritising the key concept of certainty in finance documents.”