Sian Participation Corporation ((in Liquidation)) v Halimeda International Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Briggs,Lord Hamblen |
| Judgment Date | 19 June 2024 |
| Neutral Citation | [2024] UKPC 16 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 55 of 2023 |
[2024] UKPC 16
Lord Reed
Lord Lloyd-Jones
Lord Briggs
Lord Hamblen
Lord Burrows
Privy Council Appeal No 55 of 2023
Privy Council
Trinity Term
From the Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands)
Appellant
James Morgan KC
Paul Fradley
Phillip Kite
André McKenzie
Jhneil Stewart
(Instructed by Harney Westwood & Riegels LLP (London))
Respondent
Paul Lowenstein KC
Andrew Willins
Rupert Hamilton
Michal Hain
(Instructed by Candey (London))
Heard on 19 March 2024
Lord Briggs AND
This appeal is about the dividing line between two areas of public policy in the British Virgin Islands (“the BVI”), namely insolvency and arbitration. Put in the broadest terms, it is in the public interest that there should be a relatively simple means whereby a company which is insolvent, because it is unable to pay its debts in full as they fall due, should (unless it can be reconstructed) be placed without undue delay into an insolvency process whereby its assets are divided fairly (mainly pari passu) between all its creditors. At the same time there is a public policy that those who agree together to resolve their disputes by arbitration should be held to that agreement without interference from the courts.
It is at first sight not easy to see how those two aspects of public policy could ever conflict. This is because the court does not generally allow a creditor to seek the winding up of a company on the basis of a disputed debt. The petitioning creditor must generally have an undisputed debt if its non-payment is to constitute the requisite evidence that the company is insolvent. If there is no dispute as to the debt, then there is no dispute to attract the policy that those who agree to resolve their disputes by arbitration should arbitrate.
The simplicity of this picture has unfortunately been obscured by disagreement between the courts of a number of countries, which apply the same two public policies, as to what really amounts to a dispute about a debt. Leaving aside arbitration for a moment, it is virtually common ground in all those countries that whether a debt is disputed, so as to remove it from the class of unpaid debts sufficient to ground a winding up petition, depends upon whether it is genuinely disputed by the company on substantial grounds. But where a dispute about a relevant debt is covered by an agreement to arbitrate then, generally speaking, if the creditor wishes to pursue a claim for payment he must arbitrate rather than make a claim in court, if the debt is denied or even not admitted, leaving any issue about the genuineness of grounds for dispute to the arbitrator, rather than to a judge.
Some countries have adopted that much wider definition of a disputed debt as the test for whether the creditor should be permitted to petition for the debtor company to be wound up. If the debt is merely not admitted by the company, without that non-admission having to be either genuine, or based upon any grounds at all, substantial or otherwise, the creditor will be likely to have its winding up petition dismissed, or at least stayed pending arbitration. Other countries have adopted a position somewhere in between those two alternatives.
Thus far, the courts of the BVI have set their face against the adoption of this wider definition of disputed debt as the test for whether the creditor should be permitted to apply for the appointment of a liquidator over the debtor company (which has the same effect as an order for winding up in England), preferring to adhere to the requirement for the debt to be genuinely disputed on substantial grounds before a creditor's application can be dismissed or stayed because of an agreement to arbitrate: see Jinpeng Group Ltd v Peak Hotels and Resorts Ltd BVIHCMAP2014/0025 (8 December 2015) (“ Jinpeng”). By contrast the courts of England and Wales have adopted the wider definition as the applicable test where a supposed dispute about the debt is raised between parties to an arbitration agreement. This is the practical result of the decision of the Court of Appeal in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575; [2015] Ch 589 (“ Salford Estates”).
This appeal is about a very large unpaid debt incurred by the appellant company which falls squarely into the gap between those two definitions. As a result of the decisions by the courts below it has been established beyond further challenge that the debt, although denied by the company, is not genuinely disputed on substantial grounds. The contract creating the debt included a widely drawn arbitration clause. Nonetheless the result thus far is that the debt was successfully relied upon in a petition for the compulsory winding up of the appellant, both at first instance and upon appeal.
The appellant says that the courts of the BVI should have followed Salford Estates and dismissed or stayed the application to appoint a liquidator, requiring the respondent first to establish its debt by an arbitration award. It is submitted that the BVI courts should have followed Salford Estates, because there is no difference between England and the BVI, either in the two public policies or in the legislation by which they are implemented, to justify taking a different approach to what is, in substance, a common problem. In response the respondent says that (i) the arbitration-based defence to the liquidation application was properly refused on case management grounds, (ii) even applying Salford Estates it would still have succeeded, (iii) the BVI is different from England and Wales, and entitled to pursue its own different approach, and (iv) that in any event Salford Estates was wrongly decided.
For reasons which follow, the Board has not been persuaded that any of the respondent's points (i) to (iii) offer a satisfactory solution to this appeal. The result is that although the Board is of course sitting as the final court of appeal of the BVI, not England and Wales, it is necessary to resolve the question of principle as to whether Salford Estates was wrongly decided. The Board has concluded that it was, and that it was therefore correct for the courts of the BVI not to follow it. Its reasons for that conclusion occupy most of the rest of this opinion.
The Board has also been invited to rule upon the question whether the appellant had an appeal to the Board as of right. That is, in the event, an academic question because, after the Court of Appeal refused leave to appeal as of right, the Board granted permission to appeal on the basis that it raised an arguable point of law of great general or public importance. Nonetheless the Board acceded to the invitation to rule upon the question, and has concluded that, for the reasons which follow, the appellant did not enjoy an appeal as of right.
The respondent is a wholly owned subsidiary of Far-Eastern Shipping Co PJSC (“FESCO”). FESCO is the parent company of a very substantial Russian transportation and logistics group with operations in ports, rail, logistics, and shipping.
The appellant forms part of the corporate structure through which 49.9997% of the shares in FESCO were held (“the SGS Investment Branch”). The ultimate beneficial owner of the majority shareholding in the SGS Investment Branch is Mr Ziyavudin Magomedov (“Mr Magomedov”).
Pursuant to a Facility Agreement dated 7 December 2012 (“the Facility Agreement”), the respondent advanced a term loan of USD 140m to the appellant.
The Facility Agreement includes at clause 14.1 an arbitration agreement which provides that “any claim, dispute or difference of whatever nature arising under, out of or in connection with this Agreement” shall be referred to arbitration at the London Court of International Arbitration or LCIA (“the Arbitration Agreement”).
The loan has not been repaid. On 12 February 2020, the respondent sent a letter to the appellant demanding payment of the debt (“the Debt”). As at 15 December 2020, the total sum claimed was USD 226,365,598.31.
The appellant disputes that the Debt is due and payable on the basis of a cross-claim and/or set-off. The appellant alleges that, beginning in late 2019 or early 2020, a “corporate raid” backed and instigated by the Russian State has been mounted against the SGS Investment Branch targeting its shareholding in FESCO. The SGS Investment Branch alleges that the respondent has been an active participant in the corporate raid. The respondent denies the existence of the corporate raid and its involvement in it.
On 29 September 2020, the respondent applied to have liquidators appointed in respect of the appellant on the basis that it was both cash flow and balance sheet insolvent (“the liquidation application”).
The liquidation application was heard by Wallbank J on 20–21 April and 13 May 2021. On 19 May 2021, Wallbank J delivered an oral judgment. He held that the appellant had failed to show that the Debt was disputed on genuine and substantial grounds or that there were other reasons why the liquidation application ought to be dismissed or stayed. By an order dated 19 May 2021, he appointed liquidators and ordered the appellant to be put into liquidation. The appellant appealed against that decision. That appeal was dismissed by the Court of Appeal (Pereira CJ, Webster and Henry JJA) in a judgment given on 11 November 2022.
The Court of Appeal dismissed the appeal against Wallbank J's finding that there was no prima facie case of a cross-claim. This is not the subject of any challenge on this appeal. The appellant did not argue before the Court of Appeal that the Debt itself (even taking into account the...
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