The Cayman Islands Court Of Appeal Relieves The Tension Between Arbitration Clauses And The Just And Equitable Winding Up Jurisdiction

• Published date: 04 June 2020
• Author: Mr Marc Kish, Gemma Lardner, Oliver Payne and Edwin Gomez
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Arbitration & Dispute Resolution, Trials & Appeals & Compensation, Shareholders
• Law Firm: Ogier

In a comprehensive judgment published on 23 April 2020, the Cayman Islands Court of Appeal, comprising Moses JA, Martin JA and Rix JA, has provided welcome clarification of the interplay between a contractual agreement to arbitrate disputes arising between shareholders and the exclusive jurisdiction of the Court to determine whether a company should be wound up on the just and equitable ground.

Having regard to an extensive compilation of authorities from England, Hong Kong, Singapore, Australia and the Cayman Islands, the Court of Appeal unanimously concluded that the underlying dispute in a Cayman Islands just and equitable winding up petition is not capable of being determined by an arbitrator, as it would amount to a trespass upon the Court's exclusive jurisdiction to decide whether it is just and equitable to make a winding up order. As such, it is not appropriate for a just and equitable winding up petition to be stayed in favour of arbitration.

The Legal Issue

There has been a broad international trend by the Courts in recent years towards adopting an expansive approach to the application of arbitration clauses, in order to give effect to what has been described as "the strong legal policy that where parties to a contract have agreed to exclusively refer a suite of disputes to arbitration, they should be held to their contractual bargain".^[1]

Arbitration clauses are readily applicable to ordinary civil disputes; the extent to which insolvency proceedings should be stayed by virtue of a private contractual agreement to arbitrate has, however, been harder to define. This is due to the Court's exclusive statutory jurisdiction to make winding up orders, which cannot be delegated to an arbitrator, irrespective of the terms of a private agreement between the parties. While it may be possible to identify a simple issue to be "hived off" for determination by an arbitrator in the case of an application to wind up a company in insolvency (such as the question of whether the debt is due and payable), the same cannot be said for just and equitable winding up petitions.

This distinction arises, in part, from the wording of section 92(e) of the Companies Law, which empowers the Court to make a winding up order if "the Court is of the opinion that" it is just and equitable for the company to be wound up. The requirement that the Court form an opinion as to whether it is just and equitable to wind up the company in the circumstances as they exist at the time of...