In an important judgment, the Privy Council has addressed two key questions.
- First, whether an agreement to resolve disputes arising out of a shareholders’ agreement by arbitration may prevent a party to that agreement from pursuing a petition to wind up the company whose management is the focus of those disputes.
- Second, whether an application to the Grand Court of the Cayman Islands to wind up that company on the just and equitable ground makes all matters which are the subject matter of those court proceedings non-arbitrable, thereby rendering inoperative the agreement to resolve such disputes by arbitration.
The Privy Council’s determination of the first question aligned with the Supreme Court’s judgment in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) and others  UKSC 32, which was issued on the same day (with Lord Hodge give judgment in both cases). We have previously written about this case.
In this article, we look at how the Privy Council addressed the second question which focusses on the arbitrability of just and equitable winding up petitions.
By way of health warning, the Privy Council Board were concerned with Cayman legislation which does not find direct equivalents in English law. That said, the fundamental principles are understood to be highly persuasive as a matter of English law when determining the arbitrability of disputes which concern or seek a just and equitable winding up petition.
The Privy Council established the following starting points.
- An arbitral tribunal does not have the power to grant an order for the just and equitable winding up of a company.
- Any view espoused by an arbitral tribunal that it was just and equitable that a company be wound up would be ineffective and could not bind the parties before the court or the court itself given the interests of third parties to the arbitration agreement (such as employees and counterparties) and the need for the court to reach a decision on the facts at the date of the hearing.
The Board then went on to consider whether the subject matter which is said to justify the just and equitable winding up petition must be evaluated only by the court asked to grant the petition or should first be considered by an arbitral tribunal, where the parties have agreed to refer disputes to arbitration.
The Board held as follows.
- To seek a just and equitable winding up petition is to seek equitable relief and the petitioner must come with clean hands.
- In the exercise of the equitable jurisdiction, the court must have regard to a party’s contractual obligations, which may include an agreement to refer to arbitration disputes which fall within the scope of the relevant arbitration agreement.
- Matters which might be highly relevant to an application to court for a just and equitable winding up may also be matters which fall within the scope of the arbitration agreement. The determination of those matters may be an essential precursor to the court’s formation of its opinion whether it is just and equitable to wind up the company.
- Where those matters fall within the scope of the arbitration agreement, they should be referred to arbitration. The risk of delay of running two processes (one before an arbitral tribunal and one before the court) can be mitigated and is not sufficient to warrant avoidance of arbitration on public policy grounds. This did not amount to any interference with the Court’s jurisdiction in respect of the winding up process.
- The arbitral tribunal should use robust case management to reach a speedy determination. The parties could then present the court with an agreed statement of facts. There is no reason in principle why the court should not be bound by the determination of an arbitral tribunal in a question between the same parties, where the tribunal sets out its reasoning and findings of fact.
- A stay of the just and equitable winding up petition before the court in favour of arbitration is a “special case” in circumstances where the court rarely wishes to stay such petitions. are strong grounds for granting such a stay to allow the arbitral tribunal to reach a determination on the “essential precursor” matters.
- A stay will be issued by the court in favour of arbitration, but equally the arbitral tribunal should also consider whether a stay of the arbitration is appropriate where there are matters falling outside of the arbitration agreement that are ready to be addressed by the court.
Therefore, in the case at hand, a stay was granted by the court to allow the arbitral tribunal to determine questions of breaches of equitable rights and whether there had been an irrevocable breakdown in relationship between the parties. Once that determination has been reached, the court will then hear the just and equitable winding up petition by reference to the arbitral tribunal’s award. Such factors would be highly relevant to the court’s decision, but not conclusive by themselves.
The Privy Council is clear that effective case management both by the arbitral tribunal and the court is necessitated where there are interconnected issues between them, and that such effective case management is the answer to the potential problem, rather than one or either forum taking precedence. This may necessitate differential treatment on an issue by issue basis, and could require public proceedings to give effect to the arbitral findings or to “hold the ring” in respect of the company’s affairs.
The judgment demonstrates a continued respect for party autonomy when entering into an arbitration agreement. A careful path will have to be navigated where the limits of that autonomy come up against non-arbitral matters that fall within the exclusive jurisdiction of the court.