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Jennifer Haywood

Barrister, Serle Court Chambers

Quotation Marks
"The factual basis for a winding up petition is to be determined through arbitration, with the court determining whether the company should be wound up."

Privy Council's approach to arbitration in shareholder disputes

Privy Council's approach to arbitration in shareholder disputes


The board emphasises the importance of arbitration in resolving shareholder disputes and the court's role in this context

Shareholders often elect to resolve their disputes in arbitration, but they sometimes also want, or need, to avail themselves of remedies exclusively available to the court, such as winding up on the just and equitable ground. Does the arbitration agreement or the court’s jurisdiction prevail?  

The Privy Council’s answer is that the factual basis for a winding up petition is to be determined through arbitration, with the court determining whether, on the basis of the arbitral tribunal’s findings about the dispute between the parties, the company should be wound up. The Board’s opinion emphasizes the courts’ pro-arbitration approach and the importance of an international consensus on interpretation of statutes implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

The background to the appeal

Ting Chuan (Cayman Islands) Holding Corporation (Ting Chuan) and FamilyMart China Holding Corp (FMCH) are the shareholders of China CVS (Cayman Islands) Holding Corp (the Company), a company incorporated in the Cayman Islands which is the holding company for a substantial convenience store business. Their shareholders’ agreement contained an arbitration agreement referring “any and all disputes in connection with or arising out of this Agreement” to arbitration.

Relations between the two shareholders became strained and FMCH issued a petition alleging that it had lost trust and confidence in the conduct and management of the Company’s affairs and that the relationship between the shareholders had irretrievably broken down. By its petition, FMCH sought an order under the Cayman Islands Companies Act (2022 Revision) that the Company be wound up on the just and equitable ground, alternatively that Ting Chuan be ordered to sell its shares to FMCH.

Ting Chuan applied to strike out or stay the petition, under section 4 of the Foreign Arbitral Awards Enforcement Act (1997 Revision), which gives effect to article II of the New York Convention (Section 4). 

Section 4 provides that “If any party to an arbitration agreement … commences any legal proceedings in any court against any other party to the agreement … in respect of any matter agreed to be referred, any party to the proceedings may … apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is … inoperative…, shall make an order staying the proceedings.”

At first instance, Kawaley J granted a stay of the winding up petition, but the Court of Appeal overturned the decision to stay, holding that the court had exclusive jurisdiction to determine whether a company should be wound up and that therefore the underlying disputes were not susceptible to arbitration.

The Court of Appeal distinguished the decision of the Court of Appeal of England and Wales in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, in which the court granted a stay of an unfair prejudice petition under s994 of the Companies Act 2006, on the ground that it was a private dispute, whereas section 92 of the Companies Act required the court to make an assessment of whether it was fair and equitable to wind up the company that went beyond the private dispute between the parties, taking into account all the circumstances of the case.

The judgment of the Board of the Privy Council

The Board of the Privy Council observed that key elements of the background to the case are “the respect which the courts of many jurisdictions give to the autonomy of parties to choose how they wish their disputes to be resolved” and the fact that Section 4 implements article II(3) of the New York Convention, an international treaty, such that the jurisprudence of other countries is highly relevant.

Having reviewed the international authorities, the Board noted that there is a broad international consensus on how to approach the determination of matters which must first be referred to arbitration:

  • The court adopts a two stage process. First, the court must identify what matters have been raised or will foreseeably be raised in the court proceedings; second it must determine whether each falls within the scope of the arbitration agreement.
  • Legislation enacting article II(3) of the New York Convention allows a pro tanto stay of legal proceedings.
  • A matter is a substantial issue that is legally relevant to a claim or defence and that is susceptible to determination by an arbitrator as a discrete dispute.
  • The court must employ its judgment and common sense in evaluating the substance and relevance of the matter, but if the matter is substantial and relevant, and it falls within the scope of the arbitration agreement, it will give rise to a mandatory stay of the legal proceedings pro tanto on the application of one of the parties. The fact that it may give rise to procedural complexity does not of itself render a matter non-arbitrable.

As the board noted, the Supreme Court adopted a consistent approach in a judgment handed down on the same day, Mozambique v Privinvest Shipbuilding Sal (Holding) [2023] UKSC 32, also emphasising the international consensus as to how to approach the determination of matters to be referred to arbitration.

The board went on to distinguish between “subject matter non-arbitrability” and “remedial non-arbitrability.” The former arises as a matter of statute or public policy preserving access to the courts. For example, English employment and equality legislation prevent the parties from contracting out of access to the courts; the policy aims of an insolvency regime may also render a matter non-arbitrable. The board observed that is no international consensus as to exactly what falls within subject matter non-arbitrability, although the jurisprudence of one common law jurisdiction is relevant to another.

The issue in a petition to wind up on just and equitable grounds is one of remedial non-arbitrability, the inability of the parties to confer on an arbitral tribunal power to grant particular remedies in which third parties have a legal interest.

Not every matter in the claim is rendered non-arbitrable. On the contrary, there is substantial agreement among common law jurisdictions that there may be matters in dispute between the parties alone that can (or must) be referred to arbitration before the court takes the tribunal’s awards on such matters into account when determining whether to make a winding up order. Such matters would include whether one party has breached its obligations under a shareholders’ agreement, or flouted another’s equitable rights. 

The board concluded that the winding up petition must be stayed pending determination by an arbitral tribunal of whether FMCH had lost trust and confidence in Ting Chuan and in the conduct and management of the company’s affairs and whether the relationship between the shareholders had broken down.

The court should then determine whether it is just and equitable that the company be wound up; whether FMCH should be granted a share purchase order and if so at what price; and whether if such relief is not appropriate, the company should be wound up.

The board dismissed FMCH’s submission that bifurcating the issues between arbitration and the court would frustrate the intention that winding up be quick and efficient. As the board pointed out, an arbitral tribunal could case manage the dispute in such a way that it could be resolved speedily, and the court could not disregard the parties’ agreement to arbitrate.

The decision provides further support to the decisions of parties to resolve their disputes through arbitration, minimising the role of the courts in awarding a remedy affecting third parties to considering the broader consequences of the remedy, taking into account the factual matters between the parties as determined by an arbitral tribunal.

Jennifer Haywood is a barrister at Serle Court