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Friday 5 February 2016

Cayman Islands Court of Appeal confirms stay of liquidation proceedings in favour of onshore arbitration

In re the SPhinX Group of Companies, CICA No 6 of 2015

The Cayman Islands Court of Appeal has upheld a stay of applications in domestic liquidation proceedings in favour of onshore arbitration in New York.  The Court of Appeal confirmed an order of Sir Andrew Morritt sitting in the Grand Court staying an application by stakeholders of a collapsed group of Cayman funds for an interim payment of $50M.

The stay was granted because the interim payment application required the Court to consider the substantive merits of a legal dispute between the Liquidators and third parties that was governed by an arbitration agreement.  The third parties applied for a stay of the liquidation applications.  Graeme Halkerston successfully argued in favour of the arbitration stay before the Grand Court and the Court of Appeal.

The judgments are of importance to those involved in Cayman company and insolvency disputes as they apply English cases supporting a broad approach to arbitration, namely Fulham Football Club (1987) Ltd v Richards and Salford Estates (No.2) Ltd v Altomart Ltd.  The stay was granted pursuant to s.4 of the Foreign Arbitral Awards Enforcement Law (1997 Revision), which applies to arbitrations seated outside of the Cayman Islands.  At first instance the Court would have also been prepared to grant a discretionary stay had the statute not applied.

Applications to stay just and equitable winding up petitions of companies or limited partnerships in favour of foreign arbitration are more likely to succeed following SPhinX.  In Re Cybernaut Growth Fund LP [2014 (2) CILR 413] a s.4 arbitration stay application of a just and equitable winding up petition was refused by the Grand Court.  The Court of Appeal considered that the correctness of Cybernaut is “debatable”.  The interaction of Cybernaut and SPhinX will be an important issue for offshore practitioners going forward particularly given the significance of just and equitable winding up as a stakeholder remedy in Cayman fund and joint venture disputes.

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