Primacy Of Arbitration Recognised As Stay Granted In Cayman Insolvency - In Re The SPhinX Group Of Companies

Summary

The Cayman Islands Court of Appeal has recently upheld a stay of certain Cayman liquidation applications, in favour of an arbitration in New York. The applications were for a reserve to be made for a disputed debt. The Court held that the reserve application would have required the Cayman Court to consider the substantive merits of the disputed debt, which dispute was governed by an arbitration agreement. The legislative justification is grounded in section 4 of the Foreign Arbitral Awards Enforcement Law (1997 Revision) (the Foreign Awards Law) which provides that any party to Court proceedings may apply to have the proceedings stayed if they are "in respect of any matter agreed to be referred" to arbitration.

This decision is reflective of a broader international trend towards recognising the greater prominence of arbitration and the decline in the types of disputes which are considered non-arbitrable. In particular, it underlines the importance of arbitration in insolvency proceedings, and allows for potential stays in such proceedings where mandated by the contractual obligations of the insolvent company and third parties.

The judicial context

SPhinX represents a significant departure from the Grand Court's last foray into the interface between domestic liquidations and arbitration.

In Cybernaut Growth Fund2 Jones J in the Grand Court was asked to stay or strike out a petition to wind up an investment fund on the basis that arbitration proceedings had commenced in New York in relation to the fund's partnership agreement. Jones J found that a petition to wind up a company...