Too Late To Arbitrate

• Published date: 18 November 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Appleby
• Author: Mr Andrew Willins and Tamara Cameron

On 11 November 2022 the Court of Appeal of the Eastern Caribbean Supreme Court (the Court of Appeal) delivered an important - and in the context of the looming recession - a timely, decision on the relevance of arbitration clauses to disputed debt petitions: Sian Participation Corp v. Halimeda International BVIHCMAP 2021/0017.

The approach which the BVI Court takes to disputed debt petitions has been well established, at least since the seminal decision of Sparkasse Bregenz Bank v. Associated Capital Corporation BVIHCVAP 2002/0010. The Court must decide whether or not the debt is disputed on "genuine and substantial grounds." If it is, then it is an abuse of the process of the Court for the creditor to begin (or at any rate, to continue) with its application for the appointment of liquidators. In those circumstances, the Court must then dismiss the application, leaving the creditor to bring proceedings on the debt if it wishes. In all of this, the Court follows longstanding English authority.

However, the English and BVI Courts have diverged in cases where the parties have a contractually agreed mechanism to resolve their disputes. In Jinpeng v. Peak Hotels & Resorts Limited BVIHCMAP 2014/0025, the Court of Appeal refused to follow a decision of the English Court of Appeal in Salford Estates (No 2) v. Altomart (No 2) [2015] 3 WLR 491, instead holding that save in exceptional circumstances the existence of an arbitral agreement will not (as Salford Estates suggests) lead to the dismissal of the application. It considered that the test in Sparkasse was too firmly rooted in BVI law be departed from.

The key points which arise from the decision in Sian are that:

• The Company had initially argued that the existence of the arbitration agreement meant that the Court was bound to dismiss the liquidation application. However, by the time that the appeal was heard, the Company had "retreated from that position", arguing instead - by reference to a trilogy of BVI first instance decisions (namely Rangecroft v. Lenox International Holdings BVIHCM 2020/0037, IS Investment Fund SPC v Fair Cheerful BVIHCM 2020/0034 and A Creditor v. An Anonymous Company (no citation available)) - that the existence of the arbitration clause was relevant to the exercise of the Court's discretion under Section 162 Insolvency Act 2003. The Court of Appeal regarded it as "self-evident that an arbitration agreement would be relevant to a court's consideration of a liquidation application."
• ...