England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM COMMERCIAL COURT
MR JUSTICE FIELD
[2007]EWCA 1167 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/07/2007

Lord Justice Thomas :

The issues and the decision of the court

1. The parties to this action are international traders who entered into Forward Freight Swap contracts (swaps) on terms governed by the International Swaps and Derivatives Association (ISDA) Master Agreement. Two issues arise: (1) whether the jurisdiction clause which provides for the exclusive jurisdiction of the English courts entitles the claimants to an anti-suit injunction preventing the trustee of bankruptcy of the first defendant from pursuing certain relief in Canadian insolvency proceedings; and (2) whether an action in the Commercial Court for a declaration as to the meaning and effectiveness of certain of the standard terms of the ISDA Master Agreement which are governed by English law should be stayed pending those insolvency proceedings. The Commercial Judge, Field J, refused the anti-suit injunction and stayed the proceedings for a declaration in the Commercial Court. He refused permission to appeal. The application for permission was referred to the Court with the hearing to follow immediately if permission was given.
2. At the conclusion of the hearing, in view of a pending hearing in Canada on 15 June 2007, the Court gave its decision:

i) Permission to appeal against the refusal of the anti-suit injunction was refused on the grounds that the proceedings in Canada were not within the scope of the clause.

ii) Permission to appeal against the stay was granted and the appeal allowed on the grounds that it was important for the Commercial Court to determine, at a hearing fixed for 24 July 2007, the dispute as to the meaning of the ISDA Master Agreement. This was governed by English law and it would also be helpful to the court in Canada hearing the bankruptcy proceedings to know the decision of the Commercial Court on the meaning of the Master Agreement. The court stated that it would give more detailed reasons in judgments that would be handed down.

3. I now give my detailed reasons.

The swaps

4. The parties to the swaps were:

i) The first claimant (AWB), a company incorporated in Switzerland and carrying on business in Geneva. It is the subsidiary of an Australian wheat trading company.

ii) The second claimant, (Pioneer) a company incorporated in the British Virgin Islands and carrying on business in Beijing. It is a subsidiary of Pioneer Iron and Steel Group and specialises in providing dry bulk ship chartering and operating services.

iii) The first defendant (NASL), a company incorporated in British Columbia. It carried on business in Vancouver as a shipbroker and ship charterer.

5. During 2006 AWB, as seller, entered into six swaps with NASL, as buyer; four of these covered the period October to December 2006 and two the period January to December 2007. Pioneer entered into one swap with NASL for the period January to December 2007. Under swaps of this type, the parties agree on a route, a settlement date or dates and a contract rate for the route. They also agree upon the method of calculating a market rate, known as the "settlement rate" for the route; this is normally calculated by reference to rates on the Baltic Exchange Index. On specified monthly dates known as "the settlement date", a settlement sum is calculated as the difference between the settlement rate and the contract rate multiplied by the specified contract quantity. If the settlement rate is greater than the contract rate on that date the seller pays the buyer the settlement sum and vice versa, if the contract rate exceeds the settlement rate. The parties are, in effect, hedging future movements in the freight market against their views of the way in which the market will move.
6. Each of the swaps was made subject to the ISDA Master Agreement. Each of the swaps was also made by the express terms of each swap and the terms of the ISDA Master Agreement subject to English law and jurisdiction in the following terms:

Clause 16 of the swap:

"Pursuant to Section 13(b) of the Standard Agreement, this Agreement shall be governed by and construed in accordance with English law and subject to the exclusive jurisdiction of the High Court of Justice in London, England…

Clause 13(b) of the ISDA Master Agreement

"With respect to any suit, action or Proceedings relating to this Agreement ("proceedings"), each party irrevocably:-

(i) submits to the jurisdiction of the English courts, if this Agreement is governed by English law, … ."

7. Only two terms of the ISDA Master Agreement are relevant to the dispute between the parties as to the meaning and effectiveness of the swaps under English law,

Clause 2(a)(iii):

"Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement."

Clause 5

"(a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:-

(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party.

(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:-

(2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;

(3) makes a general assignment, arrangement or composition with or for the benefit of its creditors;

(6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets."

The movement in the market

8. NASL entered into the swaps as seller because it believed the market rate would decline over the term of the contracts; in fact, during 2006, the rates increased significantly and, as a result, NASL became obliged to make significant payments under the swaps. On 29 November 2006, NASL became insolvent. By the end of the year NASL had incurred liabilities under the swaps of approximately US$47m against moneys due to it of approximately US$6m.
9. As regards the swaps between NASL and AWB, under the four agreements in respect of 2006, payments from NASL to AWB amounted in total to just over US$2.5m; notice of default was served by AWB in respect of the outstanding amounts on 20 November 2006 and 17 January 2007.
10. However, in 2007, the market moved in NASL's favour. In respect of the AWB and Pioneer swaps for January and February 2007 approximately US$2.8m would be due to NASL and, if the market does not change, a total sum of US$12.5m could be due to NASL by the end of 2007 from AWB (less the credit due for the 2006 swaps) and US$9.8m from Pioneer.
11. The position taken by AWB and Pioneer is that they are not liable to make any payments under the swaps that cover 2007, as, under the terms of clause 2(a)(iii), it is a condition precedent to the performance of their obligations that no event of default has occurred and is continuing. They contend that events of default have occurred under clause 5(a)(i) and 5(a) (vii) (2), (3) and (6) as a result of NASL's failure to pay and NASL's bankruptcy. As set out at paragraph 15.i) below, NASL and the second defendant (the Trustee) dispute this.

The events relating to NASL's Bankruptcy

12. The material events of NASL's bankruptcy can be briefly summarised:

i) On 29 November 2006 NASL filed an assignment in bankruptcy under the Bankruptcy and Insolvency Act Canada; under the provisions of that Act all of its property vested in the Trustee.

ii) A meeting of creditors took place on 5 January 2007. The Trustee's appointment was approved and inspectors appointed to assist in the administration of NASL's estate.

iii) On 8 January 2007 the inspectors authorised the Trustee to affirm the 2007 swaps, but the Trustee declined to do this unless it was clear that it would not incur any personal liability by doing so. An application was made to the Supreme Court of British Columbia seeking appropriate declarations. The application was heard by Tysoe J.

iv) Tysoe J in a judgment delivered on 28 February 2007 held that it was necessary for the Trustee to affirm the swaps in order to take the benefit of them, as it would thereby assure the other party that it would not be treated as an unsecured creditor in respect of the obligations it performed after the date of the bankruptcy. He also held that the affirmation of the 2007 swaps by the Trustee would not make the Trustee personally liable in respect of NASL's obligations, so long as the Trustee affirmed on behalf of the bankrupt estate and not in its personal capacity. AWB and Pioneer opposed the Trustee's application under a reservation of jurisdiction and are now appealing against that judgment.

v) On 5 March 2007 the Trustee elected, on behalf of the estate of NASL, to affirm the swaps and notified AWB and Pioneer of this.

vi) On 20 February 2007 the Trustee filed a petition under the Companies' Creditors Arrangement Act of Canada (CCAA). The Trustee asserted that the petition was part of a plan by the Trustee to preserve and realise existing tax losses, convert NASL's debt into equity and enforce the 2007 swaps against Pioneer and AWB. Under the petition, the Trustee stated:

a) NASL had estimated liabilities of US$63m against its principal asset of about US$17m due under swaps of which US$10.5m related to the 2007 swaps of AWB and Pioneer.

b) The swaps contained provisions to the effect that the counterparty to the contract might be relieved of its obligation to pay NASL as a result of the bankruptcy of NASL and other insolvency related defaults under the swaps.

c) The sum of US$17m due under the swaps would be uncollectible unless the Trustee was able to file proceedings under the CCAA and in effect cure the insolvency defaults under the various swaps by way of a compromise with the creditors of NASL, so that NASL would be rendered solvent. This could be done if the Trustee was able to obtain an order from the court prohibiting AWB and Pioneer from relying on insolvency defaults under the various swaps which constituted the receivables of NASL or an order waiving those defaults.

d) It therefore sought an initial order; paragraph 21 of the draft of that order was in the following terms:

"THIS COURT ORDERS that no party to any agreement with NASL respecting forward freight swap agreements ("FFA Contracts") may refuse to perform any obligations or make any payment to NASL under any such FFA Contracts as a result of (a) the insolvency of NASL (b) the assignment in bankruptcy by NASL (c) the appointment of the Trustee or Monitor in respect of NASL (d) the inability of NASL to pay its debts (e) the initiation of these proceedings or any other proceeding or matter related to or arising out of the insolvency of NASL or (f) the non-payment of amounts by NASL under such FFA Contracts (subject to any rights of set off). "

The proceedings in the Commercial Court

13. AWB and Pioneer commenced these proceedings on 19 March 2007 and sought an interim anti-suit injunction on 26 March 2007. They also sought to join the Trustee as a party; the order for joinder was made by the judge. Before us, NASL and the Trustee were represented by the same legal team.
14. In their application before the judge and before this court, AWB and Pioneer contended:

i) As there has been an event of default, they were no longer obliged to make any further payments under the swaps as, by the terms of Clause 2a(iii), the obligation was subject to a condition precedent that no event of default had occurred and was continuing.

ii) As the Trustee did not accept this, a declaration should be made by the court that events of default have occurred and were continuing; that AWB and Pioneer were therefore not obliged to make any payment to NASL under the swaps.

iii) If the Canadian Court made an order in the terms of paragraph 21 of the draft initial order, the effect would be to deprive them of their contractual defence under the swaps. They would therefore become debtors in Canada to NASL for very large sums. Effect might then be given to that decision if the Trustee sought to enforce the order in England under s. 426 of the Insolvency Act 1986 or in other jurisdictions.

iv) An anti-suit injunction should therefore be granted restraining NASL and the Trustee from proceeding with their claim for relief in British Columbia sought under paragraph 21 of the draft initial order. The injunction was limited solely to that paragraph as that paragraph was not relief that was the ordinary consequence of a company being insolvent, as it was an attempt to saddle these two companies with significant liabilities, contrary to the express terms of a standard form international agreement, for the benefit of NASL's other creditors.

15. NASL and the Trustee:

i) Made clear in the evidence and skeleton argument served on their behalf that they do not accept the contentions put forward by AWB and Pioneer as to the meaning and effect of the terms of the ISDA Master Agreement under English law, their proper law. When asked in the course of argument what their position was, counsel made it clear that the Trustee had not finally decided whether to oppose the declaration sought by AWB and Pioneer as to the meaning and effect of the ISDA standard terms as a matter of their proper law, but the Trustee's position was that:

a) There had not been an event of default under the swaps; the effect of the proceedings in Canada would be to remedy the position as to the past and ensure there was no ongoing event of default.

b) The provisions of clauses 2 and 5 of the ISDA Master Agreement were ineffective in so far as they purported to relieve a party of his duty to perform the contract when the other party was insolvent; they constituted a fraud on the operation of bankruptcy provisions.

ii) Contended that it was inappropriate to grant an anti-suit injunction on a number of grounds but in particular:

a) The jurisdiction clause did not extend to the bankruptcy proceedings in Vancouver.

b) It was a recognised principle of international insolvency that the appropriate forum for bankruptcy proceedings was Canada as NASL was a Canadian company. It was proper therefore to apply to a court to take the steps contemplated in Canada in connection with a scheme of arrangement and to seek the assistance of the English court to enforce it in due course

Canadian law

16. Before the judge evidence of Canadian law was provided by the Hon. James M Farley QC, the retired supervising judge of the Superior Court of Ontario Commercial List where insolvency proceedings were heard and Douglas I Knowles QC a practitioner in Vancouver specialising in insolvency throughout Canada.
17. The findings made by the judge in relation to the material provisions of the Canadian law of insolvency in paragraphs 9-10, 12-15 and 19 of his judgment were not in issue before us and can be briefly summarised:

i) There is more than one insolvency regime in Canada; the two relevant regimes were the bankruptcy proceedings under the Bankruptcy and Insolvency Act and restructuring proceedings under the CCAA; they were distinct.

ii) The purpose of the CCAA is to facilitate compromises and arrangements between companies and their creditors and debtors as an alternative to bankruptcy and thus to enable insolvent companies to continue in business.

iii) A plan of reconstruction under the CCAA is binding on all creditors if approved by specified majorities of creditors by value in each class and the court; the court has to be satisfied of a number of matters including that the plan is fair and reasonable. The judge drew a comparison at paragraph 11 of his judgment with English law; AWB and Pioneer did not accept that this was correct. It is not necessary to consider for present purposes whether the judge was correct or not.

iv) The Canadian Court is empowered to stay proceedings which have been taken or might be taken in respect of the company; stays can be granted to restrain a counterparty to a contract with the company from relying on prior breaches committed by the company which would permit the counterparty to exercise a remedy against the debtor. The Canadian Courts have made orders which provided that no party to a contract with the company can refuse to perform or terminate a contract by reason of a default or event of default arising out of the insolvency of the company.

v) The initial order sought by the Trustee was the first step in the CCAA process; if the plan was approved, then the court would make a final order. It was within the jurisdiction of the Canadian Court to make an order in the terms of paragraph 21 of the initial order sought by the Trustee, but there was a disagreement between the experts as to whether such an order would be made; the evidence of the expert called by AWB and Pioneer was that the making of such an order would be unique for several reasons, including that the CCAA would be used to defeat the effect of the events of default clause and thereby use the CCAA as a sword rather than a shield.

18. It is important to note that whilst AWB is an actual creditor of NASL in the insolvency, Pioneer is merely a contingent creditor. Unless the market moves in favour of Pioneer it will cease to be a contingent creditor.
19. There was a dispute between the parties as to whether AWB and Pioneer had submitted to the jurisdiction of the Canadian courts for the purpose of the bankruptcy and CCAA proceedings; this was not an issue for this court to determine at this stage and it is therefore unnecessary to deal with this matter.

The decision of the judge

20. The judge decided that there was no breach of the jurisdiction clause at paragraphs 28 and 29 of his judgment:

"The exclusive jurisdiction element of clause 16 applies, in my judgment, where one of the parties is seeking a judicial determination on the rights or obligations of one or both of them existing under the contract. In my view, in applying to the Canadian Court under the CCAA, the Trustee is not seeking such a determination. Rather, it is seeking relief in insolvency proceedings that is intended to prohibit various counterparties, including AWB and Pioneer, from relying on certain contractual rights which they might otherwise be entitled to rely on. In other words, the petition against NASL is not an attempt by the Trustee to assert NASL's contractual rights against AWB and Pioneer under the 2007 [swaps] but is an application to the Canadian Court to apply the free standing statutory regime of the CCAA.

The position would be the same if it was NASL which was applying to the Canadian Court under the CCAA. Such an application would not constitute a breach of clause 16 nor any other breach of the 2007 [swaps], for NASL did not covenant not to become insolvent or to make its own voluntary assignment in bankruptcy; nor did it promise only to be made bankrupt or go into liquidation in England, nor to take any steps in its bankruptcy that might prejudice the ability of AWB and Pioneer to enforce their rights under the 2007 [swaps]."

21. The judge also held that the application by the Trustee under the CCAA was not unconscionable or oppressive or vexatious. AWB and Pioneer knew, or had the means of knowing, that NASL carried on business and were incorporated in Canada; accordingly it was predictable that if NASL were to become insolvent, the insolvency would fall to be dealt with under the applicable Canadian legislation; it was a common feature of insolvency regimes that contractual rights could be overwritten. He also considered that not only would the English court recognise the insolvency proceedings in Canada as NASL were incorporated there, but it would consider itself under a duty both at common law and under s.426 of the Insolvency Act 1986 to give such aid and assistance to the foreign court as it could give.

Issues (1): The scope of the jurisdiction clause and the claim to an anti-suit injunction

22. I therefore turn to the first question that arose – whether the proceedings under the CCAA are within the scope of the jurisdiction clause and if so whether an anti-suit injunction should be granted.
23. In approaching the question as to whether the proceedings in Canada are within the scope of the clause, it is important to distinguish between that issue of construction and issues of the recognition and enforcement of any order that may be made in those proceedings in England and Wales. The latter, as it will be necessary to make clear, arose neither in the application before the judge nor in this appeal. It does not follow that, if the proceedings under the CCAA are not within the jurisdiction clause, this conclusion has any effect on the question of the recognition of those proceedings or the enforcement of any order made.

(a) Matters that were common ground

24. There were a number of uncontroversial submissions made by AWB and Pioneer:

i) Each of the swaps contained an exclusive jurisdiction clause. The Trustee abandoned the reservation made in the skeleton argument.

ii) The construction of the exclusive jurisdiction clause and clauses 2 and 5 of the ISDA Master Agreement (as incorporated into the swaps) were governed by English law as was the effect of those clauses in this jurisdiction.

iii) The Trustee by affirming the contracts took the contracts subject to the jurisdiction clause

(b) The application of the clause to the CCAA proceedings

25. AWB and Pioneer contended that the relief sought in the CCAA proceedings by the Trustee in paragraph 21 of the draft initial order was not directed at protecting NASL's estate or maintaining the status quo. Although the Trustee had made clear that the Canadian court was not being asked to rule on the existing rights and obligations of the parties under the swaps, that court was being asked to create new rights by preventing AWB and Pioneer from relying on existing rights. Any new rights could only be contractual rights. The action of the Trustee in seeking the relief under paragraph 21 was therefore to be characterised not as action in respect of insolvency, but as a matter which affected the contract and so was within the jurisdiction clause:

i) NASL had no on going business.

ii) The purpose of the Trustee was not to restructure the company.

iii) The Trustee was not seeking to preserve the estate from its creditors, but was seeking to make a claim against AWB and Pioneer.

iv) It was in fact trying to impose liabilities on Pioneer which was not a creditor of the company by making it a debtor.

v) It was not seeking to ensure that AWB had to bring into account any debts it might owe NASL, but to expose it to significant liabilities it would not otherwise have.

It was, in short, an attempt to re-write the contractual obligations and therefore fell within the jurisdiction clause.

26. I cannot accept the submission. Clearly, if the proceedings in Canada were proceedings which related to a dispute under the contract, then that would be characterised as a contractual issue and subject to the exclusive jurisdiction clause which I accept is wide in its scope.
27. However that is not the nature of the proceedings in Canada. Those proceedings are part of insolvency proceedings and the issues that arise within them are governed by Canadian law. The issues encompassed within insolvency proceedings are wide. AWB and Pioneer accepted that those included questions of whether claims should be recognised and admitted in the insolvency, the relative priority among creditors, avoidance of pre-insolvency transfers as preferences and fraudulent transfers. In my view, the scope of the insolvency proceedings extends to the present claim for relief in Canada as it is relief sought within the proceedings. AWB is a creditor and Pioneer is, at present, a contingent creditor. They are therefore within the potential jurisdiction of the insolvency proceedings and accept that the Canadian Court can, in relation to certain insolvency issues, exercise its jurisdiction. It is, in my view, a matter for the Canadian Court to decide on the relief that it is prepared to grant within the scope of those proceedings as it is concerned with issues of insolvency and not with issues that relate to the contractual obligations under the agreement. The application in relation to the exercise of its insolvency jurisdiction is therefore not within the clause.
28. Whether any relief that may be granted has any effect on the contractual obligations under the swaps is a matter to be determined after the Canadian Court has made its decision, as the question of the effectiveness of any order made by the Canadian court is governed by English law as the proper law of the swaps. It is to this entirely separate question that it is necessary briefly to turn.

(c)The effect on the swaps of any plan approved by the Canadian Courts

29. Issues relating to the effect on the swaps and the recognition by the courts here and elsewhere of any orders made by the Canadian court in giving effect to any plan approved by the Canadian court will arise if and when the Trustee seeks to enforce the orders in this jurisdiction or seeks the assistance of the court in relation to a plan approved by the court in Canada. It is then that the issue as to the effect, if any, on the swaps will fall to be determined.
30. Many issues were canvassed in the skeleton arguments and in oral argument as to effect of any order made in the Canadian proceedings on the swaps in this and other jurisdictions. Some were uncontroversial:

i) The validity of foreign legislative provisions which seek to modify or annul the provisions of the contract must be judged by the provisions of the proper law. As was said in Vita Foods,

"If a court has before it a contract good by its own law or the proper law of the contract, it will in proper cases give effect to the contract and ignore the foreign law."

ii) There are numerous examples of the courts of England and Wales holding that the provisions of a foreign law were ineffective in varying a contract governed by English law: National Bank of Greece v Metliss [1958] AC 509 (p.526, 529), Adams v National Bank of Greece [1961] AC 255 (p. 274, 282,286).

31. However there were a number of matters where there was a considerable dispute between the parties; three of the principal matters can be briefly summarised:

i) It was contended by AWB and Pioneer that a decision under the CCAA to grant relief in the terms of paragraph 21 of the draft initial order would not affect the rights under the swaps. The issue as to whether the obligations were modified as a result of any plan approved by the Canadian court was to be characterised as a matter of contract and so governed by English law as the proper law of the contract: Wight v Eckhardt Marine Gmbh [2004] 1 AC 147. Any order made in the terms sought would be ineffective under English law in modifying any rights under the swaps. The Trustee, on the other hand, contended that any plan which included an order in the terms of paragraph 21 of the draft initial order would have the effect of overriding the rights under the swaps, as the court would be carrying out an administrative (or delegated legislative) function rather than one of an adjudicative nature and would thereby be entitled to create new rights. In giving effect under s.426 to any such order, an English court would be applying English law as giving assistance under s.426 was part of English law and therefore the order could take effect under the proper law of the contract.

ii) AWB and Pioneer relied on Gibbs v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399. The Court of Appeal (Lord Esher MR, Lindley and Lopes LJJ) held in that case that a French company which was party to a contract governed by English law was not discharged from liability under the contract by the operation of French insolvency law; the other party was not bound by the law of a country to which they had not agreed to be bound. This remained good law: passages in Dicey, Morris and Collins on the Conflicts of Law at pages 1450, 1523 and 1592-1597 were relied on. It was, however, submitted by the Trustee that this decision would no longer prevent an English court from recognising and giving effect to any plan of reconstruction made by the courts in Canada under the CCAA; the effectiveness upon an insolvency of the clauses in issue in the ISDA Master Agreement were governed by insolvency law and not the proper law of the contract. The trustee relied also on the provisions of European Union law (including Council Regulation (EC) No 1346/2000) in support of its contention. The judge expressed the view at paragraph 33 of his judgment that there was force in this submission. AWB and Pioneer contended that it was the proper law of the contract that continued to govern these issues; they referred to Fletcher, Insolvency in Private International Law, 2^nd edition at paragraph 2.85 and submitted that the judge was wrong.

iii) It was contended by AWB and Pioneer that the judge was also wrong in the conclusion which he reached that the regime under the CCAA, including the relief being sought under paragraph 21 of the draft initial order, was comparable with similar regimes under English law; in particular, he was wrong in his conclusion in relation to the specific relief sought that it was a common feature of insolvency regimes that contractual rights could be overridden. There was reference to Charter Re v Fagan [1997] AC 313, Leyland DAF Ltd v Automotive Products [1994] 1 BCLC 245 and Capital Prime Properties plc v Worthgate Ltd [2000] 1 BCLC 647. It would therefore be inappropriate for the court in England to give assistance under s.426.

32. These issues simply do not arise on this appeal; they relate to the effect of any order of the Canadian Court on the contractual rights and the recognition an English court might give to such an order. They do not arise now as the Canadian court has yet to consider the proposals put forward by the Trustee. It would therefore be inappropriate now to express a view on the various submissions made. For the same reason, I express no view on the correctness or otherwise of the views expressed by the judge on these issues; the issues did not arise for decision before him.
33. As the proceedings under the CCAA in Canada are not within the scope of the clause, the further issue as to whether the court should exercise its discretion to grant an anti-suit injunction does not arise.
34. For these reasons I therefore considered that permission to appeal on the issue relating to the jurisdiction clause should be refused.

Issue (2): The determination of the meaning of the swaps

35. At paragraph 15.i), I set out the position of the Trustee in relation to the interpretation of the swaps. Mr Cheevers, a licensed trustee in bankruptcy who acts for the Trustee, stated in his witness statement that, as he considered that the proceedings under the CCAA would have an overriding effect it was considered the more efficient course and the one in the best interests of creditors not to seek to have the contractual issues determined at this stage, but for the matters to be resolved in the CCAA proceedings in accordance with and by the operation of various provisions of Canadian insolvency law. The view was put forward by Mr Farley QC (who provided expert evidence on behalf of the Trustee) that it would appear likely that a Canadian Court would regard the provisions in clauses 2 and 5 of the ISDA Master Agreement as entitling it to invoke the principle of "fraud upon the bankruptcy law" on a public policy basis; that would be because the insolvent estate would be deprived of a valuable asset which would otherwise be available to creditors.
36. The Commercial judge was of the view that, as he had refused to grant an anti-suit injunction, there would be no point in the Commercial Court hearing the claim for a declaration as to the meaning of the swaps until after the Canadian court had declined to make the proposed initial draft order or final order. The Trustee contended that the judge was right, not only for this reason, but also because under Canadian law there was an automatic stay of all proceedings against NASL; it would in all the circumstances be the better course to stay these proceedings in England in the same way pending the resolution of the CCAA proceedings in Canada. It would not be right for the court to make any declaration or determination of the rights under the swaps until an application was made under s.426.
37. I do not agree. The challenge made by the Trustee to the meaning of these swaps involves a contention that certain clauses of the ISDA Master Agreement are ineffective. The ISDA Master Agreement is widely used in all types of derivative transaction on the international markets and thus plays an important role in the efficient functioning of the international financial markets and their financial stability. The Trustee's contentions could, if correct, therefore have ramifications for the financial markets. The sooner the issues raised are determined, the better.
38. In my view, it would also be very helpful to the judge considering the proposal of the Trustee in the Canadian CCAA proceedings to have the decision on the interpretation of the ISDA Master Agreement by the Commercial Court which has the jurisdiction to adjudicate on these issues in accordance with English law. If the Trustee is correct that the Master Agreement has the effect for which it contends, then when considering the reasonableness of the plan under the CCAA, the judge will know that the clauses are ineffective by their proper law. If, on the other hand, the Trustee is wrong then the judge will know that the clauses are effective by the proper law of the contract and be in a better position to consider the proposal in paragraph 21 of the initial draft order as part of his assessment of the reasonableness of the plan. He will be able, in the knowledge that the clauses in issue are valid by their proper law, to have regard to the potential effect of a Canadian court approving paragraph 21 of the draft initial order proposed by the Trustee in the wider context of derivative transactions made on the terms of the ISDA Master Agreement.
39. It is for these reasons I considered that permission should be granted and the appeal allowed on this issue.

The cross appeal

40. NASL and the Trustee sought permission to cross-appeal on the basis that, as the judge had found that the claims for declarations were unnecessary and premature, he should have declined to exercise jurisdiction under CPR Rule 11(1) in respect of NASL and should have found that the Trustee was not a necessary and proper party. It follows from the view I have expressed that the Commercial Court should hear the claim for the declaration that the application for permission to cross-appeal made by NASL and the Trustee should be refused.

Lord Justice Latham

41. I agree.

Lord Justice Chadwick

42. I also agree.