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Insolvency v Arbitration – Privy Council holds that Salford Estates was wrongly decided

In a judgment handed down today, the Privy Council (Lords Briggs and Hamblen giving a single judgment) held that BVI law is that where the debt on which the winding up application is based is subject to an arbitration agreement the court may make a winding up order unless the debt is disputed on genuine and substantial grounds. It therefore applied the test established by the BVI Court of Appeal in Sparkasse Bregenz Bank AG v In the matter of Associated Capital Corporation. The Board has therefore confirmed BVI law to be that, unlike in ordinary civil proceedings, it is not sufficient for the alleged debtor simply to “not admit” the debt and thereby raise a dispute requiring the matter to be referred to arbitration.

Whilst this is important clarification, the Board went further in three very significant respects.

First, it rejected the respondent’s argument that this result flowed from particular features of BVI law that are not to be found in English law. On the contrary, the Board held that the decision of the English CA in Salford Estates – which held that save in exceptional circumstances the court should stay or dismiss a winding up petition where the debt was subject to an arbitration agreement and was disputed – had been wrongly decided. It therefore, unusually, made a Willers v Joyce direction that Salford Estates should no longer be followed in England and Wales.

Second, it held that the same principle applied to debts which were the subject of exclusive jurisdiction clauses. In so doing, it resolved the controversy at first instance in England v Wales – compare Al Kuwari v Cantervale Ltd [2022] EWHC 3490 (Ch) with Hex Technologies Ltd v DCBX Ltd [2023] EWHC 537 (Ch) and City Gardens Ltd v Dok82 Ltd [2023] EWHC 1149 (Ch).

Third, it was not persuaded to reach a different conclusion as a result of the decisions of the Singapore CA (AnAn Group v VTB Bank), the Hong Kong FCA (Guy Kwok-Hung Lam v Tor Asia), the Hong Kong CA (In re Simplicity & Vogue; In re Shandong Chenming) or the Malaysia High Court (V Medical Services v Swissray), all of which had largely followed Salford Estates. It remains to be seen what effect the decision of the Privy Council will have in those jurisdictions, particularly in circumstances where the Board did not consider that those judgments contributed to the reasoning of Salford Estates and therefore did not address them in any detail.

The Board also clarified that a creditor’s winding up petition does not satisfy the criteria for an appeal as of right under the Virgin Islands (Appeals to Privy Council) Order 1967.

There are a number of other points arising from the judgment and the ramifications of this important decision on insolvency and arbitration practice will be felt across the Commonwealth for years to come.

As alluded to in paragraph 24 of the judgment, while this appeal to the Privy Council was pending, the underlying liquidation has continued. The debt relied on by the respondent continues to be disputed by reason of a cross-claim. Conspiracy claims have been commenced in the English High Court against the respondent and others. As the Board notes in paragraph 33 of its judgment, the process of seeking and obtaining an order for the appointment of a liquidator creates no res judicata between the company and the petitioner / applicant for the winding up order.

James Morgan KC, together with Paul Fradley of South Square, were instructed by Seladore Legal (Simon Bushell and Kevin Kilgour) and Harneys (Phillip Kite, André McKenzie and Jhneil Stewart) for the appellants.

Read the full judgment here.