FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corporation (Cayman Islands)

An arbitration agreement is generally given effect unless public policy or a rule of law makes the relevant dispute incapable of arbitration. For a stay under the Foreign Arbitral Awards Enforcement Act, the court first identifies the substantive matters raised or reasonably foreseeable in the proceedings, then asks whether each is within the arbitration agreement and capable of discrete determination. A substantial matter may be stayed pro tanto. In a just and equitable winding-up petition, disputes between shareholders about breaches of their agreement or breakdown of their relationship may be arbitrable, even though only the court may decide whether winding up is just and equitable, grant the statutory buy-out remedy, or make a winding-up order. Procedural complexity does not by itself defeat a stay, although the court may prevent abuse of process.

Two shareholders of a solvent Cayman Islands company were parties to a shareholders’ agreement containing a Beijing-seated ICC arbitration clause. One shareholder presented a petition seeking a winding-up order on the just and equitable ground and, alternatively, an order requiring the other shareholder to sell its shares. The petition alleged breaches of duties, misconduct, loss of trust and confidence, and an irretrievable breakdown of the parties’ relationship.

The Grand Court stayed the petition under section 4 of the Foreign Arbitral Awards Enforcement Act. The Cayman Islands Court of Appeal set that order aside, holding that the court alone had jurisdiction over the threshold question whether winding up was just and equitable and that the underlying disputes could not be separated. The central issue before the Board was whether the petition should be stayed wholly or in part to allow arbitrable shareholder disputes to be determined by arbitration.

1. Appeal allowed. The Board advised that the winding-up petition be stayed mandatorily under section 4 of the Foreign Arbitral Awards Enforcement Act (1997 Revision) in relation to matters (1) and (2), and that a discretionary stay be granted in relation to matters (3)–(5), including as against the Company.
2. Section 4 implements article II(3) of the New York Convention and must be interpreted in light of its international origin. The court must identify the substantive matters raised, or reasonably foreseeable, in the proceedings and then determine whether each falls within the arbitration agreement. A “matter” is a substantial issue legally relevant to a claim, defence or foreseeable defence, capable of determination by an arbitrator as a discrete dispute. It excludes issues that are peripheral or tangential. The inquiry is practical, common-sense and evaluative.
3. Section 4 permits a pro tanto stay. Fragmentation, inconvenience and procedural complexity do not ordinarily defeat the parties’ arbitration bargain. The court may, however, refuse an otherwise mandatory stay where the applicant has no real or proper purpose or seeks to abuse process.
4. The Board accepted that the court has exclusive jurisdiction under sections 92 and 95 of the Companies Act (2022 Revision) to decide whether it is just and equitable to wind up the Company, to grant the alternative share-purchase remedy, and to make a winding-up order. Those matters were non-arbitrable. An arbitral tribunal could not make an effective ruling on the just and equitable threshold, because the court must assess all relevant circumstances at the hearing date and must consider the interests of third parties.
5. By contrast, the alleged loss of trust and confidence, breaches or procurement of breaches by the majority shareholder, and the alleged breakdown of the shareholders’ relationship were substantive inter partes disputes within the arbitration clause. They could be determined by arbitration and would bind the parties. Their determination was an essential precursor to the court’s decision under section 92, so the arbitration agreement was not inoperative in relation to them.
6. The Board declined to treat delay, the operation of section 99, or the absence of free-standing unfair-prejudice remedies in Cayman company law as public-policy reasons to exclude arbitration. The clean hands doctrine applies to the equitable jurisdiction, and the court must have regard to contractual obligations to arbitrate. Section 95(2) was irrelevant because the arbitration clause did not contractually prohibit presenting a winding-up petition; it required specified disputes to be arbitrated.

• Privy Council: In [2023] UKPC 33, the appeal was allowed. The Board held that matters (1) and (2) required a mandatory pro tanto stay under section 4 of the Foreign Arbitral Awards Enforcement Act (1997 Revision), and that matters (3)–(5) required a discretionary stay.
• Grand Court of the Cayman Islands: Kawaley J granted a stay of the winding-up proceedings for arbitration by order dated 25 February 2019.
• Court of Appeal of the Cayman Islands: By order dated 27 July 2020, the Court of Appeal set aside the Grand Court’s stay and refused a stay.