On 20 September 2023, the Privy Council delivered the much-anticipated judgment in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corporation [2023] UKPC 33, on appeal from the Cayman Islands Court of Appeal. The Privy Council decision provides helpful guidance on the questions of: (i) whether an arbitration agreement may prevent a party from pursuing a petition to wind up the company on the just and equitable ground; and, if so (ii) in what circumstances?


China CVS (Cayman Islands) Holding Corp (the “Company”) operates a convenience store business in the People’s Republic of China under the “FamilyMart” brand. The appellant (“Ting Chuan”) owns 59.65% of the shares in the Company and the respondent (“FMCH”) owns the remaining 40.35%. The relationship between Ting Chuan and FMCH, so far as is relevant, is governed by a shareholders’ agreement (the “SHA”). The SHA is governed by the laws of the Cayman Islands, but contains an agreement that any disputes in connection with or arising out of the SHA shall be submitted to arbitration under the ICCA Rules in Beijing (the “arbitration agreement”).

In 2018, FMCH presented a petition in the Grand Court of the Cayman Islands to wind up the Company on the ground that it was just and equitable to do so. The different issues for determination may be summarised as follows:

  1. Whether FMCH has lost trust and confidence in Ting Chuan in connection with the conduct and management of the Company’s affairs;
  2. Whether the fundamental relationship between FMCH and Ting Chuan has irretrievably broken down;
  3. Whether it is just and equitable that the Company be wound up;
  4. Whether FMCH should be granted alternative relief, namely a buy-out order and, if so, what is the value of the shares; and
  5. Whether, if such alternative relief is not appropriate, an order winding up the Company should be made and whether the persons identified by FMCH should be appointed as joint official liquidators.

The Cayman Islands’ Foreign Arbitral Awards Enforcement Act (1997 Revision) (“FAAEA”) gives effect to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the “New York Convention”). In particular, section 4 of the FAAEA provides for the mandatory stay of legal proceedings in respect of matters which are subject to an operative arbitration agreement.

In the Grand Court, Kawaley J granted a mandatory stay of the winding up petition under section 4 of the FAAEA. He held that it was “clear beyond sensible argument” that the allegations in the petition related to the subject matter of the SHA. The Cayman Court of Appeal overturned Kawaley J’s decision, holding that the court had exclusive jurisdiction to determine whether a company should be wound up on the just and equitable ground and that, as a result, the underlying disputes were not susceptible to arbitration, notwithstanding that they fell within the scope of the arbitration agreement contained in the SHA.

Ting Chuan appealed to the Privy Council, which unanimously allowed the appeal. The Privy Council granted a mandatory stay of the winding up petition in relation to matters (1) and (2) above and a discretionary stay in relation to matters (3) to (5) above.

Issues before the Privy Council

The Privy Council considered five issues, namely:

  1. The approach to arbitration agreements (“Issue 1”);
  2. The interpretation of section 4 of the FAAEA, and in particular the meaning of “legal proceedings”, “matters” and “the arbitration agreement is…inoperative” (“Issue 2”);
  3. Whether there should be a partial stay under the FAAEA so that matters within the scope of the arbitration agreement can and should be hived off for arbitration (“Issue 3”);
  4. The application for a discretionary stay of the winding up petition (“Issue 4”); and
  5. Whether the arbitration agreement amounts to a contractual prohibition against the initiation of winding up proceedings (“Issue 5”).

Key Findings and Observations

The Privy Council’s judgment has helpfully clarified a great number of issues which frequently arise in shareholder disputes of this nature. We highlight some key findings and observations below:

Issue 1 – “arbitration agreements”

  • It is important in cases which arise out of domestic legislative provisions implementing the New York Convention to have regard to jurisprudence in other contracting states to promote legal certainty in the jurisprudence relating to international arbitration.
  • From a review of international authorities, the Privy Council consider that there is now a general consensus among leading arbitration jurisdictions in the common law world that the domestic courts of countries that are signatories of the New York Convention respect and give priority to the autonomy of the parties to arbitration agreements.
  • Effect should be given to the arbitration agreement unless the agreement is contrary to the public policy of the Cayman Islands or there is a rule of law or statutory provision which renders the matters within the scope of the arbitration agreement incapable of resolution by arbitration.

Issue 2 – “legal proceedings”

  • “Legal proceedings” in section 4 of the FAAEA can include a petition to wind up a company of which the parties to an arbitration agreement are members.

Issue 2 – “matter”

  • The Privy Council’s approach to the question of what is a “matter” and how the court ascertains what is a “matter” is consistent with the approach of the UK Supreme Court in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) [2023] UKSC 32, handed down on the same day as the Privy Council judgment. The court adopts a two-stage analysis. First, the court must determine what the matters are which the parties have raised or foreseeably will raise in the court proceedings. Secondly, the court must determine in relation to each such matter whether it falls within the scope of the arbitration agreement.
  • A “matter” is a substantial issue that is legally relevant not only to a claim, but also a defence, or foreseeable defence. The court must ascertain the substance of the disputes and will not be overly respectful to the formulations in the pleadings which may be aimed at avoiding a reference to arbitration. The other side of the coin is that the court will evaluate whether the issue is reasonably substantial and whether it is relevant to the outcome of the proceedings of which a party seeks a stay.
  • Section 4 of the FAAEA allows a pro tanto stay of legal proceedings (i.e. stay of the proceedings so far as they concern that matter).
  • The approach to the word “matter” may involve the fragmentation of the parties’ disputes with some matters being determined by an arbitral panel and other matters being resolved by the court. The disadvantages caused by such fragmentation can be mitigated by effective case management by both the court and the arbitral panel.

Issue 2 – “the arbitration agreement is…inoperative”

  • There are two broad circumstances in which an arbitration agreement may be inoperative: subject matter non-arbitrability and remedial non-arbitrability.
  • Subject matter non-arbitrability can arise where the state intervenes by statute to preserve a right of access to the courts, for example, in the field of employment and discrimination.
  • Remedial arbitrability is concerned with the circumstance in which the parties have the power to refer matters to arbitration but cannot confer on the arbitral tribunal the power to give certain remedies. In the common law world there appears to be a general consensus that an arbitration agreement cannot confer on an arbitral tribunal the power to make an order to wind up a registered company on the application of a creditor where the company is insolvent and there is strong authority in support of such an exclusion when the application is by a contributory where the company is solvent. An arbitration agreement that purported to confer such a power would be inoperative to that extent.
  • However, an arbitration agreement is not inoperative simply because the arbitral tribunal cannot make a winding up order. Matters such as whether one party has breached its obligations under a shareholders’ agreement or whether equitable rights arising out of the relationship between the parties have been flouted are arbitrable in the context of an application to wind up a company on the just and equitable ground.

Issue 3

  • Matters (1) and (2) are “matters” in terms of section 4 of the FAAEA for which a stay pro tanto of the winding up proceedings is mandated.
  • The parties accepted that matters (1) and (2) fall within the scope of the arbitration agreement. They are controversies relating to legal or equitable rights which are of substance. A finding by the arbitral tribunal on matters (1) and (2) will be binding on the parties and there is therefore no danger of duplication of effort or inconsistent findings in relation to matters (1) and (2).

Issue 4

  • As the winding up process is intended to be conducted with expedition, the court will, as a general rule, rarely wish to grant a stay of such proceedings.
  • But a stay for arbitration is a special case. Where the shareholders of a company are engaged in an inter partes dispute which is within the scope of a binding arbitration agreement and an essential precursor to the determination of a winding up petition on the just and equitable ground, there are strong grounds for granting such a stay.
  • The determination of matters (1) and (2) will be an essential precursor to the court’s formation of its opinion whether it is just and equitable to wind up the Company, which in turn was the threshold for giving a remedy under section 95 of the Cayman Companies Act (i.e. matters (3) to (5)). A discretionary stay of matters (3) to (5) is therefore appropriate.

Issue 5

  • The arbitration agreement in the SHA requires certain matters to be determined by arbitration but is silent as to the presentation of a winding up petition against the Company.
  • The contractual obligation on the parties to determine those matters by arbitration does not amount to a contractual prohibition against the initiation of winding up proceedings.

Key Takeaways

The FamilyMart case, heard in the Cayman Islands, is the first case that the Privy Council heard in an Overseas Territory of the United Kingdom. The Privy Council’s visit to the Cayman Islands symbolised the importance of this jurisdiction among the many commonwealth countries whose highest court of appeal is the Privy Council.

In the FamilyMart judgment, the Privy Council conducts an extensive review of relevant authorities from Australia, Canada, the Cayman Islands, Cyprus, England & Wales, Hong Kong, Jersey, Scotland, Singapore, the United States and Zambia. Their Lordships’ observations and treatment of those authorities will be relevant to cases across jurisdictions, especially given the comment that it is important in cases which arise out of domestic legislative provisions implementing the New York Convention to have regard to jurisprudence in other contracting states.

The Privy Council makes it clear that an arbitration agreement (without expressly providing so) does not amount to a contractual prohibition against the initiation of winding up proceedings. Notwithstanding the court’s readiness to grant a stay in favour of arbitration, there may still be benefits arising from and sensible reasons for presenting a winding up petition.

Lastly, the judgment was delivered in the context of a just and equitable winding up petition. Care should be taken, of course, when applying the same analysis to a creditor’s winding up petition and/or other statutory remedies.


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