Arbitration and winding up
In a judgment handed down yesterday in Sian Participation v. Halimeda International [2024] UKPC 16 (Sian Participation v Halimeda), the Privy Council made a landmark decision in BVI law that will be welcomed with open arms by those in the construction industry.
The Board determined that despite a debt being subject to an arbitration agreement, unless the debt is disputed on genuine and substantial grounds, the court can make a winding up order.
This reverses the English law approach taken following the decision in Salford Estates (No 2) Limited v Altomart Limited (No 2) [2015] Ch 589, (Salford Estates) where it was determined that without "wholly exceptional circumstances", the court should not "conduct a summary judgment type analysis of liability” but should instead defer to the relevant arbitral tribunal's jurisdiction to determine the validity of the debt.
The Board based their reasoning on the following points:
- Salford Estates, and the cases that followed it, were wrong to introduce a discretionary stay of creditors’ petitions if an insubstantial dispute about the debt arises.
- A winding up petition does not resolve or determine the petitioner’s claim to the debt.
- The obligation embodied in an arbitration agreement is to refer disputes to arbitration for resolution with the negative obligation not to have them resolved by any court process. A creditor does not agree to not present a not winding up petition.
Until now, following Salford Estates, those in the construction industry were simply left with the ability to commence arbitration proceedings, with any winding up petition suspended or dismissed by the Court pending determination of the arbitration.
The Board took the exceptional step of making a Willers v Joyce direction that Salford Estates should no longer be followed in England and Wales.
The judgment in Sian Participation v Halimeda will therefore now open the door, allowing creditors to proceed with winding up petitions where the debt is undisputed on genuine and substantial grounds.
