The Saga on Winding Up vs Arbitration Continues - Recent UK Privy Council Decision: A Gamechanger?

This analysis considers the significance of the recent Privy Council decision in Sian Participation [2024] UKPC 16, and its wider impact, as it departs from a decade of settled English jurisprudence on winding-up in the context of an arbitration agreement. Read about the position in Hong Kong, Singapore and in Australia – using the links above – for a wider comparative understanding of the legal landscape on this topic.

Sian Participation: A different approach

The recent UK Privy Council decision, Sian Participation Corp (In Liquidation) v Halimeda International Ltd[1] (Sian Participation), rejected Salford Estates and departed from the approach of key Hong Kong and Singapore decisions on the subject.

Key Findings

Hearing an appeal from the BVI courts, the Privy Council concluded that Salford Estates was wrongly decided, and held that the correct test as a matter of BVI and English law is as follows:

'the correct test for the court to apply to the exercise of its discretion whether to make an order for the liquidation of a company where

(a)    the debt on which the application is based is subject to an arbitration agreement or an exclusive jurisdiction clause and

(b)    is said to be disputed

is whether the debt is disputed on genuine and substantial grounds.'[2] (emphasis added)

The Privy Council further reasoned that:

(a)    Where there is a debt genuinely disputed by a company on substantial grounds, liquidation should not be pursued or threatened. Instead, the creditor should first establish his claim either by a judgment in court or an arbitral award if there is an applicable arbitration agreement.[3]

(b)    On the other hand, where the debt is not genuinely disputed on substantial grounds, the general objectives of arbitration legislation (e.g.: efficiency, party autonomy, holding parties to their bargain and non-interference by courts) are not offended and it is not anti-arbitration to allow a winding up order. A creditor should not be required to go through the delay, trouble and expense of an arbitration in such circumstances.[4]

(c)    A winding up petition does not seek to resolve or determine anything about the Petitioner’s claim to be owed money by the Company, nor is the existence or amount of debt a matter or issue for resolution in those proceedings. This is contrasted with arbitration agreements which are concerned with resolving disputes.[5]

(d)    The test above does not offend party autonomy and holding parties to their bargain, because seeking liquidation 'is not something which the creditor has promised not to do'. By ordering liquidation, the court is not resolving anything about the debt, nor interfering with resolution of any dispute about it.[6]

(e)    As to the argument that the correct test above is akin to the court giving summary judgment, the Privy Council considered that the element of similarity is only limited to a 'summary process' (i.e which looks to see whether there is an issue to be tried). While a summary judgment results in a final resolution of the creditor’s claim by way of a judgment, the 'light touch' approach adopted by the Companies Court resolves nothing either way.[7]

(f)     As for the potential misuse of the insolvency regime by Petitioners (e.g., presenting a winding up petition to bypass the need for litigation / arbitration about disputed debts, or using winding up as an improper threat to recover debts), there are already well-established mechanisms to protect against it. The Companies Court will treat such conduct as abuse of process or order indemnity costs. Again, the Privy Council considers that this is not anti-arbitration.[8]

Privy Council’s Commentary on Hong Kong and Singapore Cases

Notably, the Privy Council considered the divergent decisions in Hong Kong: Lasmos, Re Guy Lam, Dayang, But Ka Chon, Re Simplicity, Re Shandong Chenming; and the Singapore cases which largely followed Salford Estates: AnAn, Founder Group.[9]

The Privy Council noted the reasoning of Kwan V-P in But Ka Chon, whereby the Hong Kong Court of Appeal had expressed doubts about the Salford Estates / Lasmos approach.[10] The Privy Council also stated that it broadly shared the concerns expressed by Deputy Judge William Wong SC in Dayang, that:[11]  

(a)    presenting a winding up petition is not a claim seeking determination of any dispute about the debt, such that it is not in breach of the parties’ agreement to have disputes determined by arbitration

(b)    the process by which the Companies Court decides whether the petitioner has standing to present the petition is not analogous to summary judgment proceedings in a claim to enforce a debt by action

(c)    the risk of an abusive petition (where there is a genuine dispute as to the debt) can be met by an order of indemnity costs, and

(d)    the Salford Estates approach imposes an unprecedented fetter upon the court’s discretion to wind up.

What Next? 

The question then is how will Sian Participation affect common law jurisprudence on winding up and arbitration? Sian Participation now represents the law of England & Wales, through making a Willers v Joyce direction, the Privy Council held that Salford Estates was wrongly decided and directed that Salford Estates should no longer be followed in England & Wales.[12] The Privy Council also commented that there was nothing in the decisions around the common law world which had followed Salford Estates which added significantly to the reasoning in Salford Estates.[13] Sian Participation will therefore have a ripple effect on such decisions, commercial parties may be encouraged to test them in due course.

The development in Sian Participation is significant as it departs from a decade of settled English law jurisprudence on winding-up in the context of an arbitration agreement. While the decision of the Privy Council is not binding on Hong Kong, Singapore, and Australia courts, as the highest court of appeal for a number of Commonwealth countries and overseas territories of the United Kingdom (including the BVI), its reasoning will be considered persuasive.

(a)    In Hong Kong, notwithstanding Sian Participation, the principles laid down in Guy Lam, Re Simplicity, and Re Shandong Chenming remain good law as a matter of precedence, as held by Recorder Richard Khaw SC in Re Mega Gold and the Court of Appeal in Re Inversion. It remains to be seen what the Hong Kong Court of Appeal and Court of Final Appeal may say about Sian Participation, if the opportunity arises.

(b)    Singapore law has developed its own jurisprudence based on the previous English law position in Salford Estates and the Singapore courts will continue to follow the Court of Appeal decisions of AnAn and BWG which endorse the position in Salford Estates. Recently in Re Sapura, the Singapore High Court confirmed that Singapore law is not disturbed by Sian Participation, which is not binding in Singapore. While the higher courts have yet to comment on Sian Participation, the law is unlikely to change. 

(c)    In Australia, there has been little consideration of this issue as part of the statutory test. It remains to be seen the impact of Sian Participation in Australia, but the approach taken by the Australian courts in the limited cases on this issue has been consistent with the approach adopted in Sian Participation.