Cayman Islands: Court grants Mandatory Arbitration Stay in Winding Up proceedings
By Nick Dunne, Andrew Gibsin abd Xia Li – Walkers From Mondaq
In the recent case of In the matter of China CVS (Cayman Islands) Holding Corp., Kawaley J of the Grand Court of the Cayman Islands (the “Court“) provided some helpful clarity in determining the question of when the mandatory arbitration stay under Section 4 of the Foreign Arbitral Awards Enforcement Law (1997 Revision) (“FAAEL“) would apply in the context of winding up proceedings.
In October 2018, Family Mart China Holding Co., Ltd, a Japanese company (the “Petitioner“), petitioned to wind up China CVS (Cayman Islands) Holding Corp. (the “Company“) on the just and equitable ground under Section 92(e) of the Cayman Islands Companies Law (2018 Revision) (the “Companies Law“). In the alternative, the Petitioner sought an order requiring Ting Chuan (Cayman Islands) Holding Corporation (“Ting Chuan“) to sell its shares in the Company to the Petitioner pursuant to Section 95(3) of the Companies Law. Ting Chuan responded in November 2018 seeking orders, inter alia, that the petition be struck out, or in the alternative, that the petition be dismissed or stayed pursuant to Section 4 of the FAAEL and/or the inherent jurisdiction of the Court.
Section 4 of the FAAEL provides that: “If any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.“
Kawaley J declined to strike-out the petition, but granted Ting Chuan’s alternative application for a stay under Section 4 of the FAAEL, allowing the Petitioner the liberty to further prosecute the petition after the arbitrable disputes had been contractually adjudicated.
The stay was granted because Kawaley J found that the allegations raised in the petition related to the subject matter of the Amended and Restated Shareholders Agreement (“SHA“), which contained a broadly drafted mandatory arbitration clause. Kawaley J rejected the Petitioner’s submission that the subject matter of the petition was not arbitrable because only the Court can grant relevant statutory relief, clarifying that there was a fundamental distinction between the question of whether the underlying disputes are arbitrable and the question of whether only the Court can grant the statutory relief of, inter alia, winding up. Although the case ofCybernaut Growth Fund LP (unreported, 23 July 2013, Jones J) was relied upon by the Petitioner in support of the proposition that “winding-up orders, supervision orders and orders for the appointment/removal of liquidators as class remedies…fall within the exclusive jurisdiction of the Cayman Court“, Kawaley J accepted Ting Chuan’s argument that the present case could be distinguished factually from Cybernaut because no winding-up order was actually sought. As the petition included matters which clearly constituted claims falling within the arbitration agreement that could be properly “hived off” for determination by the arbitration tribunal, the present proceedings could be stayed. Should the Petitioner succeed in the arbitration, it could then (if appropriate) (a) apply for leave to lift the stay of the present petition and leave to make appropriate amendments to the petition; and (b) by way of enforcement of or reliance upon the award, seek appropriate statutory relief from the Court on the grounds that the tribunal’s findings supported the summary or conclusory finding that there had been a loss of confidence sufficient to justify a winding-up and/or alternative statutory relief.
The purpose of Section 4 of the FAAEL, as Kawaley J accepted, is “to give effect to 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.” In the present case, the Petitioner was unable to identify any authority which clearly supported the proposition that the mere fact that a litigant was seeking ultimate relief which could only be granted by a court rendered the underlying dispute non-arbitrable.