Salford Estates (No.2) Ltd v Altomart Ltd

A winding-up petition based on an unpaid contractual debt is not subject to the mandatory stay imposed by section 9 of the Arbitration Act 1996. The petition seeks a class remedy in the public interest, rather than payment of the debt.

Nevertheless, where the debt falls within an arbitration agreement and is not admitted, the court should ordinarily exercise its winding-up discretion consistently with the legislative policy favouring arbitration. Save in wholly exceptional circumstances, it should dismiss or stay the petition and require the parties to arbitrate. It should not undertake the summary judgment-type inquiry normally used to decide whether a petition debt is disputed in good faith and on substantial grounds.

A landlord petitioned to wind up its commercial tenant for non-payment of sums said to be due under a lease. The lease contained a wide arbitration agreement. Although an earlier arbitral award had determined liability for previous accounting periods, the tenant disputed additional service charges and insurance rent claimed for a later period.

His Honour Judge Bird stayed the petition. He considered himself bound by Rusant Ltd v Traxys Far East Ltd and Halki Shipping v Sopex Oils to apply section 9 of the Arbitration Act 1996, despite concluding that the debt was not disputed in good faith and on substantial grounds. The landlord appealed.

The central issue was whether section 9 applied to an insolvency petition founded on a disputed debt arising under a contract containing an arbitration agreement and, if it did not, how the court should exercise its discretionary winding-up jurisdiction.

1. Appeal dismissed unanimously. A winding-up petition constituted legal proceedings, but section 9 of the Arbitration Act 1996 did not impose a mandatory stay in these circumstances. A petition alleging inability to pay debts was not a claim for payment of the petition debt. It invoked the court’s statutory jurisdiction to grant a class remedy for creditors and could engage the public interest in preventing an insolvent company from continuing to trade. An arbitrator could neither wind up the company nor administer the statutory scheme for proving and distributing its assets.

2. The court therefore disagreed with Rusant Ltd v Traxys Far East Ltd [2013] EWHC 4083 (Ch) insofar as it treated an issue essential to the foundation of a winding-up petition as a claim falling within section 9. The decision in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855 was distinguishable. An unfair-prejudice petition concerning a solvent company ordinarily involved an internal, private dispute, and the arbitrator there could grant the substantive relief sought. A creditor’s winding-up petition had different public and collective characteristics.

3. Although section 9 did not apply directly, the winding-up power under section 122(1) of the Insolvency Act 1986 was discretionary. Save in wholly exceptional circumstances, the discretion should be exercised consistently with the legislative policy of the Arbitration Act 1996. Halki Shipping v Sopex Oils [1997] EWCA Civ 3062 established that an unadmitted claim constituted a dispute for arbitration regardless of the substantive merits of the defence. The Companies Court should not conduct a summary judgment-type assessment of whether such a debt was disputed in good faith and on substantial grounds. Otherwise, creditors could bypass their arbitration agreements by using the threat of liquidation to obtain immediate payment.

   The disputed debt fell within the lease’s wide arbitration clause. The court therefore properly exercised its discretion by staying the petition and compelling resolution through arbitration. Dismissal would have been preferable because there was no evidence of another creditor willing to be substituted as petitioner, but that point was not raised on appeal.

1. Court of Appeal (Civil Division): By [2014] EWCA Civ 1575, unanimously dismissed the landlord’s appeal. Although the mandatory stay under section 9 of the Arbitration Act 1996 did not apply, the petition had properly been stayed in the exercise of the discretionary jurisdiction under the Insolvency Act 1986.
2. High Court, Chancery Division, Manchester District Registry: His Honour Judge Bird stayed the winding-up petition because he considered the mandatory provisions of section 9 applicable. No neutral citation is stated in the judgment.