The ongoing dispute between Elektrim and Vivendi concerns the ownership of shares of PTC, a large Polish mobile telecommunications company. The dispute has already resulted in arbitral proceedings in Geneva, Vienna and London, as well as court proceedings in Poland, Austria, Switzerland and England. The total at stake is believed to be in the region of €2.3 billion.

On 21 August 2007, the Warsaw District Court declared Elektrim bankrupt. At the time the bankruptcy order was issued, Elektrim was involved in two arbitrations: one under the auspices of the ICC in Geneva and the other by way of LCIA proceedings in London (see Legal updates, Ongoing international arbitration discontinued vis-a-vis insolvent co-respondent and Court of Appeal determines effect of party's insolvency in one EU jurisdiction on arbitral proceedings in another). In both cases, Elektrim requested the tribunals to decline jurisdiction, invoking Article 142 of the Polish Bankruptcy and Reorganisation Law, which states:

The ICC arbitration related to a settlement agreement that had been concluded by (amongst others) Vivendi and Elektrim in March 2006. About a year into the arbitration, in September 2007, Elektrim notified the tribunal of the bankruptcy order and requested the termination of the proceedings. In an interim award rendered on 21 July 2008, the tribunal upheld Elektrim's jurisdictional objection. The tribunal concluded that Elektrim's capacity to be bound by the parties' (alleged) arbitration agreement must be determined on the basis of the law of the place of incorporation of the company, that is - Polish law. The arbitration agreement was thus found to have lost its legal effect and the arbitration was discontinued. The Swiss Federal Supreme Court upheld the tribunal's decision in 2009.

The London LCIA arbitration proceedings related to an investment agreement pursuant to which Vivendi was to acquire an interest in PTC and which Elektrim was alleged to have breached. The tribunal consisted of Wolfgang Peter, Jerzy Rajski and Alan Redfern.

The tribunal's findings on jurisdiction turned on the interpretation of the EC Council Regulation on Insolvency Proceedings, since the arbitration was seated in a EU Member State. Article 4 of the Regulation provides that the law applicable to the insolvency proceedings, the lex concursus, should be applied to determine the effects of insolvency proceedings on current contracts to which the debtor is a party and the effect on proceedings brought by individual creditors - with the exception of lawsuits pending. Article 15 of the Regulation states:

In March 2008, the London tribunal issued an interim partial award. By majority (Jerzy Rajski dissenting), it ruled that arbitral proceedings are a "lawsuit pending" and thus that, pursuant to Article 15, it should apply English law to determine the effect of the bankruptcy on the proceedings. Under English law, there was no provision annulling the arbitration agreement. In its award, the tribunal rejected Elektrim's objections that it had no jurisdiction. In its award on the merits, the tribunal awarded Vivendi €1.9 billion in damages.

In October 2008, the English High Court upheld the award. In July 2009, the Court of Appeal dismissed the appeal and denied Elektrim leave to appeal to the then House of Lords but the company is expected to apply to the now Supreme Court directly for permission.

Vivendi recently sought to have the LCIA award enforced in Poland.

In decisions rendered in May, July and August 2009, the District Court in Warsaw denied enforcement of the damages element of the LCIA award and also denied recognition of the jurisdiction element of the award. The judgments have not been published. However, we understand that the District Court held that it could review and potentially refuse recognition and enforcement of the arbitral awards pursuant to Articles V(1)(a) and V(2)(b) of the New York Convention on the basis that the validity of the arbitration agreement was in question, and that, where a debtor had lost the capacity to act in arbitation proceedings as a result of its bankruptcy (a matter falling within Article V(1)(a) of the Convention), this was a matter of Polish public policy within the meaning of Article V(2)(b). The court found that the relevant provisions of Polish bankruptcy law belong to the category of mandatory rules (lois d'application immédiate), and are a matter of public policy. As to Article 15 of the Regulation, the court found that it was too narrow in scope to cover arbitration proceedings (as opposed to court proceedings).

Vivendi appealed, and the Warsaw Court of Appeal has recently overturned the decisions of first instance, granting recognition and enforcement of the LCIA awards. The Court of Appeal's decision on jurisdiction was rendered on 16 November 2009. (The court's reasoning with regard to its decision declaring enforceability of the final award on the merits has not yet been issued.) Although the decision is not published, we understand that the Court of Appeal focused on the scope of Article 15 and considered that it was broad enough to cover the arbitration proceedings. The Court of Appeal confirmed Vivendi's position that arbitration clauses which formed a basis for pending arbitrations were not "current contracts" within the meaning of Article 4.2(e) of the Regulation. The Court of Appeal also held (in line with general internationally accepted doctrine) that the "incapacity" referred to in Article V(1)(a) of the New York Convention was restricted to defects existing at the time the agreement was formulated rather than any subsequent loss of capacity to act in pending arbitration proceedings, so that Article V(1)(a) of the Convention was not engaged. Importantly, the decision confirms that the recognition of an arbitral award rendered after a declaration of bankruptcy of a Polish party in a country whose laws allow for continuation of arbitration does not infringe public policy.

The Court of Appeal's decisions are final and binding on other courts in Poland, including the bankruptcy court, although the trustee in bankruptcy of Elektrim may well attempt to challenge the decisions by way of an appeal to the Polish Supreme Court. The decisions thus secure Vivendi's status as a creditor of Elektrim and should pave the way for Vivendi's claims to be recognised and satisfied in Elektrim's bankruptcy proceedings.

It is interesting that the Court of Appeal took the restrictive approach to Article V(2)(b) of the New York Convention that it did in relation to Polish insolvency law because of the potential effects for creditors of Elektrim situated within Poland. Here the Court of Appeal enforced an award in spite of the national insolvency law and seemingly to the detriment of local Polish creditors. There is support for the proposition that creditor equality is a fundamental principle of public policy: enforcing an award rendered where one party is insolvent arguably encroaches upon that principle by diminishing the value of the estate for the other creditors. It is of course crucial, however, that the public policy exception does not become the backdoor for unwarranted judicial interference with arbitration. We understand that approximately 85 percent of the recognised claims in this instance belong to foreign creditors. Counsel for Vivendi argue that the decision of the Court of Appeal thus granted Vivendi the same right to have its claims recognised against the bankcrupt company as held by other creditors.