Key Facts
- •Sian Participation Corp (in liquidation) owed Halimeda International Ltd (a subsidiary of FESCO) USD 140 million under a loan agreement with a broad arbitration clause.
- •Halimeda applied for Sian's liquidation in the BVI based on non-payment of the debt.
- •Sian argued that the debt dispute should be arbitrated before liquidation.
- •The BVI courts rejected Sian's argument, finding the debt was not genuinely disputed on substantial grounds.
- •Sian appealed to the Privy Council.
Legal Principles
In insolvency proceedings, a debt must be genuinely disputed on substantial grounds to prevent a winding-up petition.
Mann v Goldstein [1968] 1 WLR 1091; Sparkasse Bregenz Bank AG v In the matter of Associated Capital Corporation BVIHCVAP2002/0010 (18 June 2003)
Arbitration agreements should be interpreted expansively and pro-arbitration.
FamilyMart China Holding Co Ltd v Ting Chuan [2023] UKPC 33; Enka Insaat ve Sanayi AS v OOO ‘Insurance Co Chubb’ [2020] UKSC 38
A creditor's winding-up petition is not an 'action' triggering mandatory stay provisions under arbitration legislation.
Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575
Exclusive jurisdiction clauses should be interpreted similarly to arbitration clauses; a stay should only be granted if the debt is genuinely disputed on substantial grounds.
Donohue v Armco Inc [2001] UKHL 64
Outcomes
The Privy Council dismissed Sian's appeal.
The Privy Council held that Salford Estates was wrongly decided. A creditor's winding-up petition does not trigger mandatory arbitration, and the court's discretion to wind up a company should not be fettered unless the debt is genuinely disputed on substantial grounds.
The Privy Council overturned the Salford Estates decision's application to winding-up petitions.
The Privy Council found that the policy behind arbitration legislation does not extend to prohibiting winding-up proceedings when the debt isn't genuinely disputed. Requiring arbitration adds unnecessary delay and expense.
The Privy Council found that Sian did not have an appeal as of right.
The winding-up order did not directly affect Sian's ownership of the debt; the debt remained unaffected by the liquidation process. The value of the affected right was not above the threshold for a right of appeal.