Arbitration agreement – winding-up petition – stay for arbitration – section 9(1) Arbitration Act 1996
The lessor of a commercial property presented a winding-up petition against the lessee for various sums said to be due under the lease. The lease contained an arbitration clause and so the lessee applied for a mandatory stay of the winding-up petition under section 9(1) of the Arbitration Act 1996.
At first instance, the judge held (following the decision of Warren J in Rusant Limited v Traxys [2013] EWHC 4083 (Ch)) that although he considered that the debt was not disputed on bona fide and substantial grounds, the petition fell within the scope of section 9(1) and so he was bound to stay the winding-up petition.
On appeal, the Court of Appeal held that a winding-up petition presented on the grounds that a company is insolvent does not fall within the scope of section 9(1) because the petition itself is not a claim or counterclaim within the meaning of that provision.
However, as the court has a discretionary power to wind up a company under section 122(1) of the Insolvency Act 1986, the court should, save in wholly exceptional circumstances, exercise its discretion so as to dismiss the petition where the debt upon which the petition is based is the subject of an arbitration agreement. The reason for this is that otherwise creditors would have an incentive to present winding-up petitions so as to apply tactical pressure to the company and this would be inconsistent with the legislative policy embodied in the Arbitration Act 1996.
Consequently, where a petition is based on a debt that arises under a contract containing an arbitration agreement, and that debt is not admitted, the court should exercise that discretion so as to refuse to wind up the company. This is so even where the court forms the view that the dispute raised by the company is not disputed on bona fide and substantial grounds.
The petition should therefore have been dismissed (rather than stayed) unless there was evidence that there was another creditor who was willing to be substituted as petitioner.
This case confirms that the courts will refuse to wind-up a company where the debt upon which the petition is based is subject to an arbitration agreement, provided that the debt is not admitted.
