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Case Reporter
Iqbal Mohammed of St Philips reports on a recent insolvency law case
FACTS
Salford Estates, the petitioner, let commercial premises to Altomart
under a lease, which required the payment by Altomart of service
charges, insurance and rent without deduction.
The lease contained an arbitration clause, which stated:
INTRODUCTION
BACKGROUND
HHJ Bird, sitting as a High Court judge, ordered that a winding up
petition presented by the appellant be stayed under s 9 of AA 1996.
On appeal, the issue was whether or not a petition to wind up a
company amounts to civil proceedings in the High Court.
Section 9 of AA 1996 states:
(1) A party to an arbitration agreement against whom
legal proceedings are brought (whether by way of claim or
counterclaim) in respect of a matter which under the agreement
is to be referred to arbitration may (upon notice to the other
parties to the proceedings) apply to the court in which the
proceedings have been brought to stay the proceedings so far as
they concern that matter
(4) On an application under this section the court shall grant a
stay unless satisfied that the arbitration agreement is null and
void, inoperative, or incapable of being performed.
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February 2015
DECISION
HHJ Bird heard the application and gave immediate judgement
staying the petition. The judge considered Rusant Limited v Traxys
Far East Limited [2013] EWHC 4083 (Ch), in which a petition was
restrained despite the absence of a bona fide dispute, on the grounds
that there was an arbitration clause. The judge also considered Halki
Shipping v Sopex Oils [1997] EWCA Civ 3062, in which it was held
that there is a dispute for the purposes of AA 1996 where a party
simply does not admit liability.
APPEAL
On appeal, the appellant argued that the judge was wrong to follow
Rusant and that Halki was wrongly decided. It was argued that unlike
an ordinary money claim where the proceedings are for payment of
what is due, a winding up petition is not a claim for payment.
It was argued that winding up is in the nature of a class action in
the public interest; it brings into operation the statutory regime for
realising and distributing the assets of the company for the benefit of
its body of creditors. It does not, in principle or in fact, result in the
payment of the sum owed. As an arbitrator has no power to wind up a
company, it was submitted that a winding up petition is, accordingly,
not arbitrable and not a claim within s 9 of AA 1996.
On this basis, it was contended that, in accordance with long
established jurisprudence, the court should only stay or dismiss a
petition based on an unpaid debt if the debt is subject to a bona fide
dispute on substantial grounds.
JUDGMENT
Sir Terence Etherton, the Chancellor of the High Court, giving
judgment for the Court of Appeal, held that proceedings to wind up
a company are legal proceedings within the meaning of
s 82. However, applying the provisions of IA 1986, specifically the
grounds on which a company may be wound up under s 122(1), it was
held that s 9 of AA 1996 does not apply to a petition brought on the
grounds that a company is unable to pay its debt.
The respondent did not dispute that a failure to pay an undisputed
debt is evidence of an inability to pay under s 122(1)(f) of IA 1986, or
that even if a debt is substantially disputed, so long as the undisputed
sum exceeds the statutory minimum of 750, a petition would not
be dismissed.
In essence, non-payment is evidence of a companys inability to pay
its debts, to invoke the courts jurisdiction under s 123(1)(e) , rather
than a claim or counterclaim. It was held that a petition to wind up is
not a claim for payment of a debt, but a petition to exercise the courts
power to wind up an insolvent company (see para 31-32). The granting
of such relief would not result in the sums sought being paid, rather,
winding up results in a class remedy and distribution to all creditors,
necessarily reducing the money available to the petitioner.
This was an important and significant distinction between winding
up petitions and claims within the meaning of AA 1996. Only claims
and counterclaims are subject to a mandatory stay.
Futhermore, on the interplay between arbitration clauses and the
statutory scheme, it was held that (emphasis added):
Case Reporter
CASE REPORTER
Biog box
Iqbal Mohammed is a barrister at St Philips. Email: imohammed@st-philips.com
CONCLUSION
This was the first time the Court of Appeal specifically grappled with
the inconsistency between the schemes operating in AA 1996 on the
one hand and IA 1986 on the other. Interpreting s 9 restrictively to
keep intact the judicial discretion afforded by s 122(1)(f) was perhaps
the only option available to allow for each scheme to be interpreted
consistently with the other. However, for practical purposes, the Court
of Appeal has confirmed that winding up petitions cannot be used to
thwart arbitration clauses and the statutory stay provided by s 9. n
February 2015
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