F had a long-term contract with P (a Korean company) governed by English law. Under clause 28, F was entitled to terminate the agreement on notice in the event of default including insolvency. When P became unable to pay its debts as they fell due, it commenced “rehabilitation proceedings” in the Korean bankruptcy court which appointed the Second Respondent as the administrator. The Korean rehabilitation proceedings were recognised in England as foreign main proceedings under Cross-Border Insolvency Regulations 2006.
F sought to terminate the contract under clause 28 because it considered the contract was onerous but the administrator considered it to be profitable. Clause 28 was apparently void under Korean bankruptcy law. The administrator sought an order restraining F from relying on the clause under art.21(1)(a) of Sch.1 of the Regulation, alternatively, under the Court’s power to grant “appropriate relief” under art.21(1) to protect the debtor’s assets.
The English Court declined to grant relief to the administrator. The Court did not have power to restrain F from serving a contractual termination notice because the service of such a notice was not the “commencement or continuation of individual action or individual proceedings” which could be stayed under art.21(1)(a). The Court held that its power under art.21(1) to grant “any appropriate relief” should not be given a wide literal meaning. It did not allow the Court to grant relief which would not be available in a domestic insolvency. Relief under art.21(1) was of a procedural nature but F’s entitlement to terminate the contract affected the substantive rights and obligations of the parties and did not fall within art.21(1). The Court would not apply Korean insolvency law (under which the termination clause was apparently void) to the substantive rights of the parties which were governed by English law.
This case illustrates that the nature of relief under art.21(1) is confined to procedural matters and that where foreign insolvency laws purport to alter substantive rights under an English law contract, the English Courts will not grant relief giving effect to such substantive changes.
