Winding up proceedings v arbitration – the decision in Sian Participation

The claimant brought winding up proceedings in the BVI on a loan agreement which contained a broad agreement to arbitrate rather than litigate through the courts. The BVI courts held that the traditional test for staying winding up proceedings (ie whether the debt was genuinely disputed on substantial grounds) applied notwithstanding the agreement to arbitrate; accordingly, as the defendant had not established a substantial dispute, the winding up proceedings would not be stayed. The defendant appealed to the Privy Council.

The relevant BVI arbitration and insolvency legislation was in similar terms to the English legislation.  The BVI arbitration legislation enacted the UNCITRAL Model Law including Article 8 to the effect that “a court before which an action is brought in a matter which is the subject of an arbitration agreement shall … refer … to arbitration unless it finds the agreement is null and void”.

The Privy Council contrasted the current English legislation (the Arbitration Act 1996) with its predecessor legislation. The predecessor legislation had in effect permitted circumvention of the mandatory stay in favour of arbitration where the claimant applied for summary judgment on the claim. The 1996 Act had deliberately set the bar for the mandatory stay lower than that so as to prevent this circumvention tactic. This, however, raised the question as to whether winding up proceedings were similarly mandatorily stayed given that the bar for dismissing winding up proceedings (that the debt was the subject of a genuine, serious dispute) was similar to the test required to be satisfied to obtain summary judgment.

In Salford Estates the Court of Appeal had held that a creditor's winding up petition was not a claim that was subject to the mandatory stay provisions in the Arbitration Act 1996 but that the insolvency legislation conferred a discretionary power to stay winding up proceedings; and that it would be anomalous for the Companies Court to undertake a summary judgment type analysis to see whether the debt was genuinely dispute on substantial grounds if it was the purpose of the 1996 Act to prohibit claims based on summary judgment; accordingly the winding up petition was stayed under that discretionary power.

The Privy Council reasoned as follows:

• Salford Estates was right to hold that a winding up petition does not trigger the mandatory stay provisions of the Arbitration Act. This is because it does not seek to resolve anything about the petitioner's claim to be owed money by the company
• Salford Estates was, however, wrong to introduce a discretionary stay of creditors' petitions where an insubstantial dispute about the creditor's debt was raised between parties to an arbitration agreement
• summary judgment of claims and the similar summary process undertaken by the Companies Court were distinguishable: summary judgment was a means of resolving a claim by final resolution in a judgment but the light touch used by the Companies Court resolved nothing either way
• that, accordingly, the traditional test in winding up proceedings for a disputed debt applied notwithstanding the agreement to arbitrate and it followed that the BVI courts had applied the correct test in rejecting the stay
• it was appropriate to make a Willers v Joyce direction to the effect that Salford Estates should no longer be followed in England and Wales. Accordingly, the decision of the Privy Council now represents the law of England and Wales.

Sian Participation v Halimeda International, [2024] UKPC 16, Privy Council