China Shanshui: The beginning of the end or the end of the beginning?

The Cayman Islands Court of Appeal has recently overturned the Order of Justice Mangatal dated 19 October 2018 by which she struck out a just and equitable winding up petition brought against China Shanshui by Tianrui (a shareholder). The Court of Appeal's decision dated 16 January 2019 has reaffirmed certain key principles applicable in circumstances where a winding up petition may be considered an abuse of process (or not).

The main grounds on which Tianrui's petition was struck out by Mangatal J were that:

(1) There were alternative remedies available to Tianrui which it unreasonably failed to pursue; and
(2) Tianrui's petition was brought for an improper collateral purpose.

Tianrui's appeal was allowed and the Court of Appeal determined that the petition should not have been struck out for an abuse of process for the following main reasons:

Alternative remedies available

Mangatal J held that the fact that Tianrui could have pursued alternative remedies for redress was "fatal" to a winding up petition brought on the just and equitable ground. The Court of Appeal considered that it was "well settled" law that a petition will not succeed if there exists an adequate alternative remedy which the petitioner has "unreasonably failed to pursue"; but only in circumstances where it is "clear at an early stage" that the petition be struck out as an abuse of process. The mere fact that an alternative remedy is available, and is not pursued, is not sufficient.

Petition brought for improper collateral purpose

Mangatal J held that the petition was "brought for the improper collateral purpose of obtaining a de facto injunction… without having to satisfy the guidelines for the grant of injunctive relief and without giving a cross-undertaking as to damages. The petition was brought to put pressure on the Company…" and was also struck out on this basis. The Court of Appeal also agreed that, in principle, a winding up petition will be struck out if it is brought for an improper collateral purpose. However, in the Court of Appeal's view, the allegations set out in the petition (if true) were clearly capable of establishing that it would be just and equitable to wind up the Company; and it was not obvious (without examination at trial) as to whether pursuing some other course of action (rather than winding up) was the more appropriate remedy.

Petition does not advance a class remedy

Mangatal J held that the petition "was not presented with the purpose of a class remedy on behalf of the shareholders" and was therefore an abuse. The Court of Appeal agreed that, in the context of creditor's petitions, the fact that a petitioner is not invoking a class remedy may mean that the petition is an abuse but doubted whether the same could be said in the context of a contributory's petition such as in the present circumstances. In such a case, the Court of Appeal considered, obiter, "…it is likely that the petitioner will complain of matters specific to him…" but that fact alone cannot be a reason for restraining the petition.