Courting Clarity: Grand Court confirms jurisdiction to determine winding up petitions notwithstanding requirement to refer disputes to foreign arbitration tribunal

On 20 November 2023, the Grand Court of the Cayman Islands (the "Grand Court") issued its ruling on a preliminary issue in In the matter of Re BPGIC Holdings Limited; namely whether a winding up petition should be stayed or dismissed pending resolution of a purported dispute relating to the subject debt by a foreign arbitral tribunal, without any examination by the Grand Court as to whether the subject debt is genuinely disputed on substantial grounds. 

Led by Barnaby Gowrie (Partner) and assisted by Siobhan Sheridan, Walkers (Cayman) LLP, together with Mr Anthony Beswetherick KC, as Leading Counsel, acted for the petitioning creditor (the "Petitioner") of BPGIC Holdings Limited (the "Company") and successfully argued that, where a creditor files a winding up petition, notwithstanding that the parties have agreed (pursuant to the relevant agreements) to refer any dispute to (foreign) arbitration proceedings, there must be a genuine and substantial dispute regarding the subject debt (rather than the mere assertion of a dispute) in order for the Grand Court to stay or dismiss the petition in order that the purported dispute be determined by a foreign arbitral tribunal. 

The Company sought to advance an argument that, as a matter of Cayman Islands law, the Grand Court should only consider whether: (i) there exists a dispute about the debt the subject of a winding up petition – i.e. that the debt is not admitted by the debtor – and; (ii) the dispute falls within the scope of the arbitration provisions in the relevant agreement, rather than undertaking any inquiry as to whether the debt is bona fide disputed on substantial grounds as that would be to pre-judge an issue which the Company was entitled to seek resolution by foreign arbitration proceedings (here, in London). 

However, the Grand Court, agreeing with the submissions put forward on behalf of the Petitioner, held that the approach of the Cayman Court is "to determine the threshold question of whether the dispute is genuine and substantial before dismissing a petition in favour of arbitration", such approach being entirely consistent with the legislative policy of the Cayman Islands Foreign Arbitral Awards Enforcement Act.  The Grand Court distinguished the English case law authorities relied on by the Company, including Salford Estates and Telnic, which had developed in line with the policy objectives of the English Arbitration Act 1996.

The case serves as useful clarification of the Grand Court's jurisdiction to hear a creditor's winding up petition where the subject finance documents require disputes to be resolved by way of foreign arbitration proceedings. Further, it provides reassurance of the Grand Court's ability and willingness to cut through an artificial "cloud of objections" raised by a debtor company seeking to avoid the consequences of a winding up petition.

A more detailed analysis of this decision will follow in due course.

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