Arbitration v winding up — which prevails?

By Jeremy Walton

A creditor petitions to wind up a company for non-payment of a contractual debt. The company disputes the debt. Not only that, but the company denies the court’s jurisdiction to determine whether there is a genuine and substantial dispute over the existence of the debt — that being the usual test for dismissing the petition. Rather, the company says that the presence of an arbitration clause in the contract means that the court must simply refer the matter to arbitration, without enquiring any further, and meanwhile must dismiss or stay the petition.

The court is faced with a tension between upholding the primacy of the arbitration agreement and the court’s exclusive statutory jurisdiction to determine winding-up petitions. How does the court respond?

There have been conflicting decisions over the years, but the trend is towards the court retaining its power to decide whether there is actually a genuine and substantial dispute, even though the court would not go on to resolve any such dispute. This runs counter to the trend towards giving absolute primacy to arbitration agreements via the UNCITRAL Model Law that has been adopted (subject to certain variations) in many jurisdictions, including the Cayman Islands…

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