Aria Inc and another v Credit Agricole Corporate and Investment Bank and another - Cross Border Restructuring and Insolvency Update - June 2014

Aria Inc and the Greek Liquidator of Allied Maritime ("Allied") applied for an injunction to prevent Agricole Corporate and Investment Bank ("the Bank") paying from World Fuel Service ("WFS") under an "on demand" bank guarantee.

Aria sub-chartered a ship to Allied. The ship was subsequently held under arrest by WFS pending payment by Allied for goods that it had purchased. Aria therefore procured an "on demand" bank guarantee to obtain the ship's release. It was a key term of the guarantee that the Bank would pay to WFS on demand sums due to WFS by Aria and Allied as a result of any court decision, binding arbitration or settlement agreement. The guarantee was governed by English law and subject to the jurisdiction of the English courts.

Allied was placed into liquidation in Greece. WFS obtained a decision from the Bordeaux Court and sought payment from the Bank under the guarantee.

Aria obtained an interim injunction to prevent the Bank making payment to WFS. An application was later made in the English High Court to determine whether the injunction should be extended and if Allied should be granted an injunction in its own right.

It was decided that damages would be an adequate remedy and, as such, the Court held it was not appropriate to extend the interim injunction Aria had obtained.

The Court then considered the application brought by the Liquidator on behalf of Allied. This was more complicated given that Allied was the subject of insolvency proceedings in Greece. The guarantee was governed by English law and therefore, in order to restrain payment, the Liquidator applied to the English High Court. The court decided the correct interpretation of Article 18 of the EU Insolvency Regulation meant the Liquidator's powers were governed by Greek insolvency law, including the power to apply for the injunction. However, the Court should determine the application in accordance with English legal principles.

The English court had to decide if damages would be an adequate remedy if the injunction application was refused. The Court held that damages would be inadequate as, if the Bank paid out under the Guarantee, Allied faced a potential claim from Aria.

This case provides useful clarification of the application of Article 18 when a foreign officeholder seeks an injunction under English law.

In the recent case of Re Westmoreland Estates [2014] (also known as Mackellar v Griffin & Anor) the Court considered the 'proper purpose' test, which is a necessary hurdle for an applicant to overcome when seeking a declaration in their favour.

The Liquidator of a British Virgin Island company ("the Company") applied for a declaration that the appointment of the English Administrator was invalid on the basis that the Company was not incorporated nor had its Centre of Main Interest ("COMI") in England and Wales or in a European Economic Area Member State.

The Company was incorporated in the BVI. While its three directors operated variously in Portugal and Ireland, the majority of the Company's operational activities were carried out in Jersey. The Company had no connection with the English jurisdiction, apart from owning a property in England that was managed by English agents. The Company had no employees in England and Wales.

The property was subject to a charge in favour of a creditor of the Company in respect of a loan agreement which recited the Company's COMI was in the BVI and that it was not established in any other jurisdiction. The Agreement was also subject to the Company's further confirmation that it would ensure its registered office and COMI would remain in the BVI.

The Company defaulted on the loan and the Creditor appointed an English Administrator to sell the property. The property was sold but there was a shortfall to the Creditor.

The BVI Liquidator sought a declaration that the Administrator's appointment was invalid, arguing that the Company had not been incorporated in England and Wales and its COMI was presumed to be in the BVI.

The Administrator argued that no useful purpose would be served if the declaration was granted as the Liquidator would never recover any more than nominal damages and/or the COMI presumption had been rebutted as the Company owned the property that was managed by agents.

In granting the application, Mr Justice Mann, emphasised that it was proper for a Liquidator to seek clarification and that this did not amount to a mere academic exercise to confirm the Liquidator's view. The Company's COMI remained in the BVI and the Liquidator had a proper purpose in applying for the declaration.  

Short Stories

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