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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Westwood Shipping Lines Inc & Anor v Universal Schifffahrtsgesellschaft MBH [2012] EWHC 1394 (Comm) (25 May 2012) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2012/1394.html Cite as: [2012] EWHC 1394 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN AN ARBITRATION CLAIM

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/05/2012

Mr Justice Christopher Clarke:

1. Only two issues now fall for decision: (a) whether the Receivership Application should be struck out or stayed; and (b) costs, of which the principal dispute is as to the latter. In order to decide that question it is necessary to consider a complicated sequence of events; and, according to the defendants, a debatable question as to the meaning of the relevant EC Regulation.

The Charters

2. The vessel "Atalanta" was at the material time owned by a company - now named FHH Fonds Nr. 33 MS "Kimberley" GmbH & Co. KG ("Kimberley"). Its managers were NSC Schifffahrtsgesellschaft mbH & Co KG ("NSC").
3. By a charter dated 26 July 2005 Kimberley let the vessel to the defendants - GMB Schiffahrts GMBH ("GMB") for 84 months. GMB is half owned by NSC.
4. On 28 July 2005 GMB sub-chartered the vessel for five years +/- 30 days to the first claimant – Westwood Shipping Lines Inc ("Westwood").
5. On 11 June 2008 Westwood let the vessel back by way of sub-sub-charter to GMB for the balance of the charter period under the sub-charter from GMB. GMB is now Universal Schifffahrtsgesellschaft MBH.
6. In January 2009 Kimberley withdrew the vessel from the charter service in order to carry out repairs. Thereafter GMB cancelled the sub-sub-charter after the vessel was, as they claimed, off-hire or reasonably estimated to be off-hire for 60 days, relying on a clause in the sub-sub-charter which permitted cancellation in that event. There then followed an LMAA arbitration in which Westwood claimed that the cancellation was unlawful. Westwood's case was that GMB had failed to meet its maintenance obligations under the 2005 sub charter in respect of the No 1 crane and the No 2 pump, and that, if and to the extent that any right to cancel the 2008 sub-sub charter arose on the basis of actual or estimated off-hire, any such right only came into existence as a result of GMB's breach of the 2005 sub-charter.
7. GMB did not bring arbitration proceedings up the charter chain against Kimberley relying on the identical maintenance obligations which are to be found in the head charter.
8. By an exchange of emails on 20 and 22 April 2009, representatives of GMB and NSC (acting on behalf of Kimberley) agreed that GMB should have a general extension of time in relation to any claims by GMB which might arise under the head charter against Kimberley in respect of the termination by GMB of the sub-sub charter.
9. Despite this, on 5 November 2009, GMB and NSC apparently entered into a written agreement ("the November 2009 agreement)", governed by English law, which was also agreed to and signed by Kimberley as far as it was concerned. I say "apparently" because the claimants do not accept that the agreement which has been produced to them was executed in November 2009. I shall assume that the November 2009 Agreement was made on or about 5 November 2009. Whether that is so is a matter which falls to be determined at some other time. The November 2009 agreement records that it was agreed, "in view of the good commercial relationships" between the parties, that NSC would "support" GMB in its defence of Westwood's claim in the arbitration and that there would be no claims or proceedings as between GMB and either NSC or Kimberley relating to the cancellation of the sub-sub-charter and any proceedings initiated by Westwood or any other third parties in this matter. The agreement recorded the parties' agreement "that it was the sole decision of GMB to cancel the sub-charter and that NSC was under no liability with regard to this decision".
10. Reed Smith acted for GMB in the arbitration. Mr Mark O'Neil, a partner, knew of the existence of an agreement to the effect of the November 2009 agreement, the idea of which he had previously discussed with representatives of NSC and GMB. He did not draft the November 2009 agreement and, at this stage, he was not given a copy. The purpose of the agreement, so far as he was concerned, was to ensure that Kimberley/NSC assisted in the defence of the arbitration by GMB. It also enabled Reed Smith to continue acting for both GMB and NSC.
11. Westwood was not told of the existence of the November 2009 Agreement during the course of the arbitration.
12. On 21 January 2010 Ms Kjaerstad of Reed Smith emailed Thomas Cooper, who acted for Westwood in the arbitration. She said that GMB had not commenced proceedings against Kimberley and had no intention of doing so because they saw little merit in the claim and it would be wasteful to do so. She said that GMB's position as against Kimberley had "of course" been reserved. The fact that GMB's position had been reserved was repeated in emails of 9 April 2010 and 26 April 2010.
13. If the November 2009 Agreement had by then been made, these statements, which gave the impression that a claim against Kimberley was still available, were not true; in fact GMB's position against Kimberley had been given up. Ms Kjaerstad did not know that. All three emails were copied to Mr O'Neil, who had been told that an agreement had been made of the nature of the November 2009 agreement. No correction to what Ms Kjaerstad had said was made until much later.
14. On 14 December 2011, following a hearing between 19 and 27 September 2011, LMAA arbitrators made a final arbitration award in favour of Westwood for over $ 11 million against GMB ("the Award"), on the footing that GMB's cancellation was invalid. The arbitrators held that the vessel had been delayed by the need to carry out repairs which took longer than they should have done because GMB had failed properly to maintain the vessel's hull and equipment, and that GMB could not rely on the excessive delay as meaning that the vessel was off hire because it resulted from their own breach of the charter by them to Westwood.
15. Westwood submits that GMB's failure to claim up the line against Kimberley, and its abandonment of any such claim, was a very surprising omission since, had it made a claim, it would have secured an effective indemnity against the liability established by the Award. Such a claim was GMB's most significant asset and would have been unanswerable. The maintenance defects which prevented GMB relying on the right to cancel if the vessel was off-hire were breaches of the selfsame obligations as those owed by Kimberley to GMB under the head charter.
16. In their letter of 16 April 2012 to Thomas Cooper, Reed Smith expressed a different view:

"2. The underlying claim in respect of which your clients have succeeded in arbitration arises from the termination by GMB of its sub-sub-charter. Notwithstanding the fact that your clients have succeeded in the arbitration, the view originally taken in 2009 was that your clients' claim was without merit. Moreover, it was considered that if, contrary to expectations, your clients were to succeed in their claim against GMB and establish that there had been wrongful termination of the sub-sub-charter sounding in damages, GMB would not be able to pursue a reflective claim for loss in respect of those damages against Owners. It would not be a foreseeable consequence of breach or delay by Owners of their contractual maintenance obligations that GMB would wrongfully breach its sub-sub-charter with your clients. The view expressed by Mr Williams in paragraph 19 of Williams 2 that there would be a "a claim … on its face worth over US$11 million" appears to proceed on a false legal premise and is not a view which was shared in 2009 by experienced shipping lawyers in this firm."

17. I do not propose to express any view on the rival propositions other than to observe that any liability of Kimberley may depend on whether it was foreseeable that GMB would rely on Kimberley to have fulfilled its obligations in deciding whether it could rely on the cancellation clause, or on whether all that would need to be shown to establish Kimberley's liability is that it was foreseeable (a) that the cancellation clause would be invoked if the vessel was or was estimated to be off hire and (b) that if the off hire arose from a failure of maintenance for which Kimberley was responsible the cancellation would be invalid.

The demand for payment

18. On 29 December 2011 Thomas Cooper wrote to Reed Smith demanding payment of the Award.
19. On 16 January 2012 Reed Smith wrote to Thomas Cooper stating that GMB had changed its name to "Universal Schifffahrtsgesellschaft mbH" and saying, inter alia, that GMB/Universal, as I shall now call them, would "of course" honour the Award as soon as it was in a financial position to do so. Current trading difficulties rendered this impossible and GMB/Universal asked for Westwood's forbearance until such time as conditions improved, failing which GMB/Universal would have no alternative but to declare bankruptcy.
20. On 18 January 2012, unbeknownst to Westwood, Mr Klaus Götsch was appointed Geschäftsfuhrer, i.e. "Managing Director", of GMB/Universal.

Insolvency proceedings in Germany

21. On 20 January 2012, Herr Götsch filed documents to open insolvency proceedings in respect of GMB at the Local Court of Düsseldorf (Amtsgericht Düsseldorf). The documents were an Eigenantrag auf Eroffnung des Insolvenzverfahrens or, in translation, a Debtor's own application for the Opening of Insolvency Proceedings. The application was made on the basis that GMB was unable to pay its debts as they fell due and had balance sheet indebtedness.
22. It is apparent from the terms of this application that it is not, in German law terms, the opening of insolvency proceedings. It is an application to open them.
23. At 18.15 on 25 January 2012, the Düsseldorf Court appointed Mr Michael Bremen, an independent practitioner, as the GMB/Universal's Vorläufiger Insolvenzverwalter - literally "preliminary insolvency liquidator". I shall call him "the liquidator".
24. The order by which the Court did so ("the Order") contains the following provisions:

"Disposals of the debtor over its assets are only valid with the consent of the preliminary insolvency administrator (sec. 21 para. 2 no.2 alternative 2 InsO).

The preliminary insolvency administrator is not the general representative of the debtor. It is his obligation to supervise the debtor and to secure and conserve its estate.

The debtors of the debtor (third party debtors) are prohibited to pay to the debtor. The preliminary insolvency administrator is empowered to collect the claims of the debtor and to collect incoming payments. Third party debtors are requested to pay only in accordance with this order (sec. 23 para 1 sentence 1 InsO).

Measures of enforcement including the execution of an arrest in rem or a preliminary injunction are prohibited unless it affects immovable property; any measure currently in progress must be suspended (sec. 21 para 2 no. 3 InsO).

The preliminary insolvency administrator is empowered to enter the offices and other business facilities of the debtor including the secondary rooms and to investigate there. The debtor has to grant access to its books and business documents and hand them over until the decision on an opening of the insolvency proceeding. The debtor has to provide him with any information that is relevant for the protection of the insolvency estate and the clarification of the debtor's financial circumstances. In a case of the neglection of these duties the court is entitled to summon the debtor or its legal representatives for an affidavit on the financial circumstances, to enforce the summons on them or to arrest them (secs. 22 para 3, 97, 98, 101 InsO).

The preliminary insolvency administrator is simultaneously instructed to verify as an expert whether a reason for the opening of insolvency proceedings exists according for such legal entity as the debtor and whether there exists possibilities to continue the business for the debtor He shall further verify whether the estate is sufficient to cover the cost .of an insolvency proceedings (sec. 22 para1 no 3, para 2 InsO).

25. The Order was of a type which ought to be registered on the German Insolvency Register. There is, however, no time limit within which such an order must be placed on the register (where it is visible on the internet). There came a time when notice of the making of the Order appointing Mr Bremen as Insolvenzverwalter was put on the web site (but not the full terms of the Order), with a date of 26 January 2012. But Mr Gantenberg, a German lawyer instructed by Westwood, has not been able to find out from the court when that was. The notice was not on the register on 30 January or 23 February 2012. There is no evidence that it was there before 15 March 2012 when Mr Gantenberg first saw it there.

Proceedings to enforce the Award

26. On 2 March 2012, i.e. after the filing of documents with the Dusseldorf Court, Westwood issued an application in this jurisdiction seeking: (a) permission to enforce the Award against GMB/Universal; and (b) the appointment of receivers to bring and enforce the claim GMB/Universal is alleged to have against Kimberley and/or NSC towards satisfaction of the Award ("the Enforcement Application"). On that date, at a without notice hearing, Eder J gave permission to enforce the Award and to serve the Enforcement Application out of the jurisdiction.
27. On 5 March 2012, at a without notice hearing, Gloster J made a freezing injunction restraining GMB/Universal from dealing with or disposing of its putative claim against Kimberley or the proceeds of such a claim. Service was effected in Germany on 20 March 2012.
28. On 15 March 2012, by an email from Reed Smith, Westwood was told of the German insolvency proceedings, of which they were previously unaware and of the November 2009 agreement, which Reed Smith had obtained for the first time that day. In their email Reed Smith stated that they were not presently instructed by GMB/Universal. It is not clear by whom (if anybody) they were instructed. The email said that it appeared that Westwood had misrepresented the position to the court because, if it had performed a simple company search on GMB/Universal it would have realized that it had gone into bankruptcy liquidation soon after the award. This is not correct. A company search would not have revealed this.
29. On 30 March 2012 Reed Smith wrote to Thomas Cooper and the Court to say that they were instructed by GMB/Universal and had not been able to obtain instructions from the liquidator.

2^nd April 2012

30. The initial return date for the application was 2 April 2012. On the morning of the hearing Reed Smith told Thomas Cooper by email that they had received formal instructions from GMB/Universal's liquidators (sic) over the weekend, who had confirmed that they adopted the position set out by Reed Smith in their letters to Thomas Cooper and the Court. Westwood was invited to show the email to the Court (which it did). Both statements contained in the email turned out to be incorrect. Reed Smith were not instructed by the liquidators (and there was only one); and the liquidator did not confirm that he adopted the position set out in Reed Smith's letters, which included a claim as to the validity of the November 2009 agreement.
31. These developments were a cause for serious and legitimate concern to Westwood. They had received an Award in their favour for over $ 11 million. The company against whom the Award was made had filed an insolvency application days after indicating that payment would be forthcoming if Westwood only had patience. The claim over against Kimberley, previously said to have been reserved, had supposedly been given up; and the liquidator(s) apparently adopted the position that the November 2009 Agreement which did so was perfectly regular.
32. Eder J gave directions for the exchange of evidence and stood over the application for the freezing injunction, which he continued, and the Enforcement Application to this hearing ("the 2 April Order"). Mr Anthony Trace QC, Westwood's counsel, explained to him Westwood's concern as to the bona fides of the November 2009 Agreement given what Reed Smith (who had now produced it) had previously said about reserving rights against Kimberley. He suggested that the document was either a sham or some sort of fraud, which might involve Reed Smith, and that the agreement could be set aside under section 423 of the Insolvency Act 1986 as an agreement in fraud of creditors which gave up valuable rights in exchange for no real consideration since Kimberley would be practically bound to assist in GMB's defence of the arbitration anyway. He said that Westwood wished to investigate Mr Bremen's attitude to their position. The suggestion was the he might be a "stooge" of GMB. I am sure that he is not. But it is not wholly surprising, in the circumstances, that Westwood should have been suspicious that there was some sort of collusive arrangement between GMB and Kimberley to deprive Westwood of the benefit of GMB's claim against Kimberley; and that the liquidator might not be truly independent.
33. On 3 April 2012, Reed Smith sent a further email to Thomas Cooper, who had indicated that they intended to approach the liquidator, in which they said:

"As we understand German law, the Liquidator (of Universal in liquidation) is now our client and you should not meet with him or contact him before we have had the opportunity to clarify the situation, which we will do soonest."

34. It has since transpired that Reed Smith's 2 and 3 April 2012 emails were misleading. It appears (see paragraphs 3 to 23 of Mr Gantenberg's Second Witness Statement, Mr Wood of Reed Smith's Affidavit and Mr Götsch's affidavit) that the position was as follows:

i) Reed Smith had been taking their instructions not from the liquidator, but from GMB/Universal's interim manager Mr Götsch;

ii) the liquidator merely confirmed that he did not object to GMB/Universal instructing Reed Smith, as long as GMB/Universal did not have to pay the costs of this representation;

iii) Kimberley has been paying for Reed Smith to act for GMB/Universal – a circumstance which, if the liquidator had been adopting Reed Smith's contention as to the efficacy of the November 2009 agreement would have involved Kimberley, against whom Westwood seeks to advance what they say is GMB/Universal's valid claim, financing GMB/Universal to contend that it had no such claim;

iv) the liquidator was unaware that Reed Smith were maintaining that the November 2009 agreement was valid or saying or implying that he adopted their arguments in relation to the November 2009 Agreement;

v) the liquidator would be recommending to the Court that they open proceedings in the following week (being the week after 19 April 2012 when Mr Gantenberg spoke to him); and

vi) the liquidator would be content, provided he was put in funds and once insolvency proceedings had been opened, to conduct any proceedings against Kimberley in cooperation with Westwood.

35. On 16 April 2012 Reed Smith wrote a long letter explaining how the November 2009 agreement came to be made, Mr O'Neil's knowledge of it, and Ms Kjaerstad's ignorance of it. In it they stated that Reed Smith acted for GMB/Universal with the authority of the liquidator. On 17 April Thomas Cooper asked whether this meant that Mr Bremen was himself instructing them or that he had consented to GMB/Universal instructing them.
36. On 19 April 2012, Reed Smith supplied most of GMB/Universal's evidence and said that Mr Götsch's evidence showed the approval by Mr Bremen of GMB/Universal instructing themselves. GMB/Universal issued a formal application to clarify its procedural stance and identify the orders the Court was to be invited to make at this hearing. It asked for the Enforcement Application to be struck out.
37. On 8 May Thomas Cooper asked for a clear statement as to whether Reed Smith was instructed by (i) Mr Bremen; (ii) Mr Götsch; (iii) Universal's former principals; or (iv) Kimberley/NSC.
38. On 9 May Reed Smith replied to say that they continued to be instructed by GMB/Universal and that their communications had been with Mr Götsch.
39. In light of the fact that GMB/Universal is subject to preliminary insolvency proceedings Westwood no longer seeks to continue the freezing order, which will now lapse, and does not seek to pursue the Receivership application. Hence the only issues are those identified in the first paragraph of this judgment.
40. On Thursday 10 May at 09:10 Westwood made an open offer to the effect that there should be a stay of the proceedings generally with liberty to restore and no order as to costs. That has not been accepted.
41. It is Westwood's intention to seek to procure that GMB/Universal pursues a claim against Kimberley, asserting, to the extent necessary, that the November 2009 agreement was a transaction in fraud of creditors which in England would be impugnable under section 423 of the Insolvency Act 1986.

Should the Receivership application be struck out or stayed?

42. The answer to this question may depend on the true interpretation of the EC Regulation on Insolvency Proceedings ("the ECIR"): Council Regulation 1346/2000/EC. The ECIR is intended to be automatically binding and directly applicable in all Member States: see Recital (8). Recital (6) records that it should be confined to provisions governing jurisdiction for opening insolvency proceedings. Recital (10) records that insolvency proceedings to which the ECIR applies should be "collective insolvency proceedings which entail the partial or total divestment of the debtor and the appointment of a liquidator". Recital (16) records that the courts having jurisdiction to open the main insolvency proceedings should be enabled to order provisional and protective measure from the time of the request to open proceedings. Recital (22) records that the Regulation should provide for immediate recognition of judgments concerning the opening of insolvency proceedings and for automatic recognition such that the effects attributed to the proceedings by the law of the State in which the proceedings are opened extend to all other Member States.
43. Since the liquidator was appointed in Germany both parties have filed evidence of German law. In the case of GMB/Universal the evidence comes from Dr Dieter Armbrust, who is principally a shipping lawyer; and in the case of Westwood it comes from Mr Gantenberg – who is a German lawyer and insolvency expert instructed by Thomas Cooper in relation to Westwood's attempt to enforce the Award.
44. Such evidence is relevant because it is necessary to understand some of the workings of German insolvency law. But the construction of the ECIR is not a German law question to be determined in an English court as a matter of fact. The ECIR must receive a community interpretation which gives due effect to the purposes for which it was enacted.

The Regulation

45. Art 1 of the ECIR provides that the Regulation applies to "collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator".
46. By Art 2(a) ECIR, "insolvency proceedings" mean the collective proceedings referred to in Art 1(1) and listed in Annex A. Das Insolvenzverfahren [Insolvency proceedings] is listed under Deutschland in Annex A.
47. By Art 2(b) ECIR, a "liquidator" for these purposes will be "a person or body whose function is to administer or liquidate assets of which the debtor has been divested or to supervise the administration of his affair"… and will be a person listed in Annex C. A Vorläufiger Insolvenzverwalter is listed under Deutschland in Annex C.
48. By Art 2(e) ECIR, a "judgment" in relation to the opening of insolvency proceedings "shall include the decision of any court empowered to open such proceedings or to appoint a liquidator" (the term "liquidator" bearing the meaning referred to in the previous paragraph).
49. Art 3(1) ECIR provides that the courts of the Member State within which the "centre of main interests" ("COMI") of a debtor is situated "shall have jurisdiction to open insolvency proceedings". GMB/Universal's COMI is in Germany. In any case it is for the court to which application is made to determine the question of jurisdiction and the Düsseldorf Court has made its order.
50. By Art 4(2)(f) ECIR, it is the law of the State of the opening of proceedings which determines the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of "lawsuits pending", and the rules relating to voidness, voidability or unenforeability of legal acts detrimental to all the creditors.
51. Art 16 ECIR requires "[a]ny judgment opening insolvency proceedings" to be recognised in all the other Member States.
52. Art 17(1) ECIR is headed "Effects of Recognition" and provides:

"The judgment opening the proceedings referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under the law of the State of the opening of the proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that Member State"

There is no relevant other provision and there are no Article 3 (2) proceedings opened.

53. Article 25 (1) provides that:

"Judgments handed down by a court whose judgment concerning the opening of proceedings is recognized in accordance with Article 16 and which concerned the course and closure of insolvency proceedings, and compositions approved by that court shall also be recognized with no further formalities …."

…

"The first subparagraph shall also apply to judgments relating to previous measures taken after the request for the opening of insolvency proceedings."

54. As is apparent from the above it is of critical importance to know whether a judgment is the judgment "opening insolvency proceedings" for the purposes of the ECIR.
55. GMB/Universal submits that the position is entirely clear, especially in the light of Dr Armbrust's report (paragraph numbers of which are in brackets below):

i) There has been an application for the opening of formal insolvency proceedings [§15] (the Eigenantrag auf Eroffnung des Insolvenzverfahrens). An Insolvenzverfahrens is one of the proceedings listed in Annex A. That application constitutes the opening of insolvency proceedings for the purpose of the ECIR;

ii) The Court has appointed a Vorläufiger Insolvenzverwalter, a species of liquidator mentioned in Annex C; this is similar to a provisional liquidator;

iii) A Vorläufiger Insolvenzverwalter is an independent practitioner who is appointed by the German Insolvency Judge from a list kept by that judge;

iv) The German Court has a discretion as to the extent of the moratorium in any particular case, and in this case "the effect of the Order is that the enforcement of claims by individual creditors is prohibited…." [§38]; there is a prohibition on any new enforcement proceedings [§41];

v) The effect of the Order [§27] is:

a) GMB/Universal is not permitted to dispose of its assets without the consent of the liquidator;

b) GMB/Universal loses control of its claims and book debts, which it cannot take for itself and which are to be paid to the Liquidator;

c) GMB/Universal has to hand over to the liquidator its books and business records; and

d) the management of GMB/Universal can only exercise their powers subject to the supervision of the liquidator.

56. There is, however, a further matter to be considered. The German procedure contemplates that, after the appointment of a liquidator, an order may be made to open Insolvensverfahren (formal insolvency proceedings) in which case the Insolvency Court will appoint an Insolvenzverwalter. The question is, therefore, whether (a) the order made in January was a judgment opening the proceedings; or (b) there would only be such a judgment at a later stage when the proceedings are formally opened in German law and an Insolvenzverwalter is appointed.
57. The ECJ has given a decision which bears on this question in In re Eurofood IFSC Ltd [2006] Ch 508. In that case a petition to wind up the debtor company had been presented but not yet determined, and the Irish court had appointed a provisional liquidator. At the time an Irish, but not an English, provisional liquidator was included in Annex C. The ECJ observed at [28] that the insolvency proceedings opened in accordance with Art 3(1) "produce universal effects in that they apply to the assets of the debtor situated in all the member states to which the Regulation applies". The ECJ recorded [52] the importance of the Regulation being capable of being applied as soon as possible in the course of the (insolvency) proceedings to avoid courts other than the court of the State of the COMI claiming concurrent jurisdiction over an extended period.
58. It then said this at [54]:

"…a "judgment opening insolvency proceedings" for the purposes of the Regulation must be regarded as including not only a decision which is formally described as an opening decision by the legislation of the member state of the court that handed it down, but also a decision handed down following an application, based on the debtor's insolvency, seeking the opening of proceedings referred to in Annex A to the Regulation, where that decision involves divestment of the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment involves the debtor losing the powers of management which he has over his assets. In such a case, the two characteristic consequences of insolvency proceedings, namely the appointment of a liquidator referred to in Annex C and the divestment of the debtor, have taken effect, and thus all the elements constituting the definition of such proceedings, given in article 1(1) of the Regulation, are present.

and at [58]:

…. on a proper interpretation of the first sub-paragraph of article 16(1) of the Regulation, a decision to open insolvency proceedings for the purposes of that provision is a decision handed down by a court of a member state to which application for such a decision has been made, based on the debtor's insolvency and seeking the opening of proceedings referred to in Annex A to the Regulation, where that decision involves the divestment of the debtor and the appointment of a liquidator referred to in Annex C to the Regulation. Such divestment implies that the debtor loses the powers of management that he has over his assets"

59. In the present case (a) an application has been made based on GMB/Universal's insolvency, (b) seeking the opening of proceedings referred to in Annex A and (c) a decision has been made following that application which involves the appointment of a liquidator referred to in Annex C. The only question is whether the decision involves the divestment of GMB/Universal.
60. As to that the ECJ judgment refers to "divestment" simpliciter, but it is apparent from Art 1(1) ECIR that partial divestment is sufficient. That Article shows that divestment whether partial or total is one of the characteristic consequences of insolvency proceedings.
61. There are apparently two different types of order which the German Court may make. In one of them the Court may order that the debtor shall be prohibited in general from disposing of its assets. Such a liquidator is known as a "strong" liquidator. The alternative is an order that the debtor may dispose of its assets only subject to the consent of the liquidator, who is then described as a "weak" liquidator.
62. Dr Armbrust fairly records that there is no determinative decision of the German Court or of the ECJ but says that the prevailing view in Germany is that the appointment of a "weak" liquidator constitutes the opening of insolvency proceedings for the purposes of the ECIR [§26]; and it is his opinion that the German Court has opened insolvency proceedings within the meaning of the ECIR [§28].
63. Mr Gantenberg takes the view that the appointment of a "weak" preliminary insolvency liquidator does not have the necessary quality of divestment of the insolvent company's power to manage its assets which is required in order for there to have been an opening of insolvency proceedings under the Regulation.
64. He takes this view on two grounds

a) the liquidator is not the general representative of GMB/Universal (as the Dusseldorf decision makes expressly clear) and is not entitled to act on behalf of GMB/Universal in relation to the assets that are presently within the company's possession, but merely has a negative right to prevent the management from disposing of those assets. Mr Götsch, however, remains fully responsible for the management of GMB/Universal's business; and

b) Mr Götsch is in a position to withdraw his insolvency filing at any time prior the opening of insolvency proceedings in Germany, and, were he to do so, Mr Bremen's appointment would be terminated automatically. GMB/Universal is therefore in a position to retake full control of the business and its assets at any time, at its option.

65. In addition, it is apparent that the German Court has the option to open the insolvency proceedings or not to do so. If it decides not to do so it is required to lift the preservation measures such as the appointment of a liquidator with the effect that any creditor can recommence such measures.
66. These characteristics, Westwood submits, show that the liquidator is not at all like an English provisional liquidator.
67. I do not accept that these points mean that there has not been at least a partial divestment of the debtor company given that (a) GMB/Universal cannot dispose of its assets without the liquidator's consent, (b) it is subject to his supervision for the purpose of securing and conserving its assets, which, at least in Mr Götsch's understanding, as stated in his affidavit, prevents it from incurring liabilities without his consent; (c) it cannot collect its debts for itself and they are to be paid to the liquidator;; (d) it cannot suffer execution to be levied against it; and (e) it must hand over its books and records. To that not inconsiderable extent it has lost control of its assets. Where the liquidator has not given his consent, GMB/Universal's inability to dispose of its assets is as absolute as it is in the case where a "strong" liquidator is appointed.
68. I do not regard the fact that the Order may become ineffective if Mr Götsch withdraws the filing or if the Court decides not to open the insolvency proceedings (in German law terms) - circumstances that would appear to be equally applicable in the case of a "strong" liquidator - as meaning that there has been no opening of proceedings for ECIR purposes. As things stand they have been opened.
69. Accordingly I regard the Order as a judgment opening the insolvency proceedings for the purpose of the ECIR. That is a conclusion which is consistent with, and one which gives effect to, the policy of early recognition referred to in para [52] of Eurofoods. Thus the Order falls to be recognized; and in particular the prohibition of measures of enforcement.
70. There is an issue between the parties as to the meaning of that part of the order which provides:

"Measures of enforcement including the execution of an arrest in rem or a preliminary injunction are prohibited unless it affects immovable property; any measures currently in progress must be suspended"

71. GMB/Universal submit that the term "measures" embraces an application for the opening of an insolvency. If no application has, at the date of the order, been made it is prohibited. If one had been made it would be suspended. Since, in this case, no application had been made by January 25 2012, the application for enforcement of the Award made in March should be struck out or dismissed and not merely stayed.
72. I do not accept this analysis. A measure of enforcement is something such as an arrest or an injunction (to which the Order expressly refers) which enforces a judgment. An application for a measure is not a measure and does not itself have any enforcing affect.
73. But I do not regard that as making any difference. The applications that have been made are now reduced to an application for a Receiver. That is an application which, as things, stand, is an application for what is prohibited. (The same would apply in respect of the freezing order).
74. Mr Trace submitted that the sensible course would be to stay the application, which could cause no prejudice to GMB/Universal, because it might well turn out that the application for a Receivership falls to be revived e.g. if the liquidation proceedings in Germany are not opened. Further, the existence of the application might be a useful spur to encourage the liquidator to claim in GMB/Universal's name against Kimberley, or GMB/Universal itself, when it was at liberty to do so.
75. I do not agree. In my judgment the Receivership application should simply be dismissed. That is prima facie the correct disposal of an application which cannot be granted because the Order prohibits the measure for which application is made. Further, a stayed Receivership application does not seem to be much of a spur to action on the part of the liquidator, since, whilst he remains liquidator, no order can be made; and, if he ceases to be liquidator, he has no concern as to whether it is made or not. In addition I do not think it appropriate to use a stay for that purpose. If circumstances change a fresh Receivership application can be made.
76. In those circumstances it is not necessary to consider whether I would reach the same result applying common law principles. Mr Glen Davis QC invoked the established principle of private international law that there should be unitary insolvency proceeding in the court of the bankrupt's domicile and that the English courts should, so far as is consistent with justice and UK public policy, cooperate with the courts of the principal liquidation to ensure that all the company's assets are distributed to its creditors under a single system of distribution: Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 at [6] [30].
77. He submitted that, consistently with this principle, the Court should apply the same approach to an application to enforce an arbitration award which would enable a creditor to put itself in a preferential position as it would if the same question arose in a domestic insolvency. In such a case the court would not grant an interim charging order or make absolute one already granted Roberts Petroleum Ltd v Bernar Kenny Ltd [1983] 2 AC 192, 208F – 209A; or, in the case of administration, permit registration of a charge out of time: Re Barrow Borough Transport [1990] Ch 227. To do so would allow one creditor to improve its position notwithstanding the insolvency.
78. There seems to me much force in these contentions which, if the ECIR was inapplicable, would have led me at least to stay the application. The case for striking out would have been less compelling because the application would not have been for a prohibited measure.
79. In truth, save in respect of costs, very little turns on whether the application is dismissed or stayed. It is to those that I now turn.

Costs

80. Westwood claims, firstly, its costs up to 15 March 2012, when it first learnt of the appointment of the Liquidator. GMB/Universal has incurred no costs up to then and thus makes no claim. Both sides claim their costs thereafter from each other.

Up to 15 March 2012

81. GMB/Universal submits that there is no basis on which Westwood should be awarded its costs. It made an application after the Order for relief which, in the light of the Order, the court has no power to grant. The fact that the application might be doomed to failure because of an order made in German insolvency proceedings of which it was unaware was simply a risk that it had to bear when launching its application, particularly when GMB/Universal had shown that it was unable to pay its debts as they fell due.
82. Westwood claims its costs on the basis that it acted entirely reasonably in attempting to enforce the Award made in its favour, in circumstances where it was never told until 15 March that GMB/Universal had filed for insolvency and had been positively led by GMB/Universal to believe that GMB/Universal intended to trade out of its difficulties.
83. Costs normally follow the event; but not necessarily. Westwood had an Award in its favour for a sum in excess of $ 11 million. It was highly likely that Westwood would take steps to enforce the Award and pursue the only apparent method of recovery by seeking to enforce a claim by GMB/Universal against Kimberley, which Reed Smith on behalf of GMB/Universal had on 3 occasions confirmed that GMB/Universal had reserved. On 16 January GMB/Universal had said that the money would come in the end, without any inkling that GMB/Universal was poised to start insolvency proceedings which it did 4 days later. When the liquidator was appointed this was not announced (either in a publicly available register or by letter) although it would have been the work of a moment to inform Westwood, GMB/Universal's major creditor, of the appointment, and thus correct the more favourable impression contained in the email of 16 January 2012. If that had been done it is unlikely that the applications would have been brought.
84. I do not regard GMB/Universal's conduct as reasonable or consistent with the overriding objective of saving costs. In my judgment GMB/Universal should pay Westwood its costs of the application contained in the arbitration claim form up to and including 15 March 2012.

Costs after 15 March

85. GMB/Universal submits that, whatever the position before 15 March, thereafter there can be no justification for Westwood recovering any costs from GMB/Universal and they are entitled to be paid their own costs. Westwood have failed to secure either a Receivership or the continuation of the freezing order because of the insolvency proceedings of which they became aware on 15 March. They should pay the costs accordingly.
86. There is considerable force in these submissions which would have been unanswerable if GMB/Universal had been more open and their solicitors more accurate than they were. As it was, Westwood was on 15 March presented with the news that any claim against Kimberly had not been reserved but given up; and that the supposedly independent liquidator supported what Reed Smith had been saying. This was a complete and unexplained reversal of the position that had been represented prior to the Award being made. The circumstances cried out for investigation.
87. Time and expense was taken up (a) by Westwood seeking to discover what the true position of the liquidator was (the inquiries and their result being set out in Mr Gantenberg's second witness statement of 3^rd May); (b) by Reed Smith explaining how they had come to say that GMB/Universal's position against Kimberley had been reserved, when it had not; and (c) by Reed Smith/GMB/Universal seeking to demonstrate the authenticity of the November 2009 Agreement, which had been called into doubt by their own erroneous assertion that GMB/Universal's rights against Kimberley had been reserved. Items (b) and (c) form major parts of Reed Smith's long letter of 16 April and the affidavits, filed on behalf of GMB/Universal, from (i) Mr Dammers; (ii) Mr O'Neil; (iii) Mr Echevarria; and (iv) Ms Kjaerstad.
88. Mr Wood of Reed Smith's affidavit of 8 May finally confirmed that GMB/Universal did not suggest that Mr Bremen had investigated, or reached any conclusion regarding, the status of the November 2009 Agreement. He also purported to explain how he came to say in his email of 2 April that the liquidators (sic) adopted the position set out in Reed Smith's letters. On his account he understood that to be the position because a draft of the letter of 30 March sent to Thomas Cooper had been sent to Mr Bremen and Mr Bremen had raised no objection.
89. The matters in that letter to which he refers are the statements that:

"..this matter clearly should be brought in Germany in association with current and ongoing German insolvency Proceedings …"

… the effect of the assignment/agreement should be put before the Insolvency Court in Germany at the appropriate time, not the English Court"

But neither of these indicated that the liquidator had taken any position as to the validity of the agreement of November 2009. Further, the letter of 30 March said, in terms, that Reed Smith had not been able to obtain instructions from the liquidator. It is difficult, in those circumstances, to see how sending him a draft of the letter and receiving no comment back could constitute any form of confirmation.

90. In these circumstances it appears to me that a great deal of expenditure has been incurred (for which Westwood ought not to have to pay) because inaccurate and confusing information has been given to Westwood by GMB/Universal's solicitors, which has had to be corrected by a process which did not end until Mr Wood's affidavit of 8 May 2012.
91. However, although that affidavit came very late in the day I do not regard that fact as a peg on which Westwood can claim all their costs from 15 March onwards. Insofar as that affidavit confirmed that it was not suggested by GMB/Universal that Mr Bremen had reached any conclusion regarding the status of the November 2009 Agreement, it echoed what Mr Bremen had already told Mr Gantenberg on 19 April 2010. Even if the affidavit had not been forthcoming I would have dismissed the application.
92. At the same time Westwood have, in effect, had to abandon any claim to a freezing injunction or a Receiver by reason of the Order of which they have been aware since 15 March. GMB/Universal has persuaded me that the ECIR is applicable, an exercise which involved commissioning Dr Armbrust's report, and that I should dismiss the application, rather than stay it. But it has not persuaded me that they should not pay any of Westwood's costs.
93. In those circumstances I propose to make a rather complicated order to reflect what I regard as a just distribution of the incidence of costs having regard to the degree of success and the conduct of the parties both before and after the application in complicated circumstances.
94. My order will be (in addition to the order referred to in para 84 above) that:

a) GMB/Universal shall not be entitled to recover from Westwood and shall bear for themselves:

i) any of its costs incurred prior to 20 April 2012 save for the costs of and associated with the Report of Dr Dieter Armbrust;

ii) the cost of and associated with Mr Dammers' affidavit of 23 April 2012;

iii) the cost of and associated with Mr Wood's affidavit of 8 May 2012;

b) Westwood shall pay to GMB/Universal:

i) the costs of and associated with the Report of Dr Dieter Armbrust;

ii) 50% of the other costs incurred by GMB/Universal in respect of its application of 19 April 2012 on and after 20 April 2012;

if and to the extent that, in either case, GMB/Universal is liable for such costs and the fact of such liability is established to the satisfaction of Westwood or the court;

c) Any costs due to be paid by Westwood to GMB/Universal shall be set off against any costs due to be paid by GMB/Universal to Westwood.

95. I propose to make the order subject to the proviso ("if and to the extent...") in paragraph 94 (b) because of the unusual circumstances. An email from Mr Bremen of 30 March to Mr Götsch records his agreement to the instruction of Reed Smith to attend the hearing on 2 April "under takeover of the costs according to the letter by [Kimberley] according to the letter addressed to you from 29.3.2012" under the conditions (1) that Kimberley agrees to it being directly liable to Reed Smith for the costs in the estimated amount of £ 30,000 and (2) that Kimberley makes no claim against Universal. Mr Gantenberg' affidavit records that Mr Bremen told him on 19 April that he agreed that Reed Smith might continue the representation of GMB/Universal as long as GMB/Universal did not have to pay the costs of this representation.
96. I was provided at the hearing on 11 May with an email of that date timed at 10:39 from Mr Götsch which confirmed that Reed Smith was instructed on behalf of GMB/Universal and was liable to meet Reed Smith's costs. However, the email goes on to say that, in order to enable GMB/Universal to be able to meet those costs, it had arranged emergency funding from Kimberley which was initially in the sum of £ 30,000; that this funding had not replaced or varied GMB/Universal's liability to Reed Smith; and that this arrangement had been authorised by Mr Bremen. This appears to me to be inconsistent with what Mr Bremen said in his email of 30 March and what he is reported as having said to Mr Gantenberg on 19 April.
97. Since, according to the 11 May email the liability of GMB/Universal to Reed Smith has been by arrangement with Mr Bremen there should be no difficulty in his confirming GMB/Universal's liability. I doubt that Westwood or the court would be satisfied of GMB/Universal's liability in the absence of such confirmation. I note from para 7 of Mr Götsch's affidavit that Mr Bremen's authorization is required before GMB/Universal incurs a liability.
98. I shall discuss with counsel whether summary assessment is appropriate.
99. Accordingly the orders that I propose to make are (i) that Westwood's application by claim form issued on 2 March 2012 shall be dismissed; (ii) that the order of Eder J of 2 March 2012 shall be set aside; and (iii) that costs shall be paid in the manner specified in paras 84 and 94 above.