In a landmark judgment handed down today, the Judicial Committee of the Privy Council has allowed the appeal in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corporation  UKPC 33. Charles Kimmins KC and Mark Tushingham acted for the successful appellant (Ting Chuan), instructed by Charles Russell Speechlys LLP, Maples and Calder (Cayman) LLP and Sidley Austin (Hong Kong).
In its judgment, the Privy Council (i) defined the boundaries of the doctrine of non-arbitrability; (ii) settled the long-debated relationship between arbitration agreements and company winding-up petitions; and (iii) established the applicable test to identify what is a ‘matter’ in respect of which legal proceedings are brought when a party seeks a mandatory stay of legal proceedings in favour of arbitration.
Ting Chuan’s appeal arose from a petition filed by the respondent (FMCH), the minority shareholder, to wind up a Cayman Islands company on just and equitable grounds. FMCH was a party to a shareholders’ agreement (SHA) with the majority shareholder of the company (Ting Chuan). The SHA contained an arbitration agreement which provided for all disputes to be resolved by ICC arbitration in Beijing. In reliance upon that arbitration agreement, Ting Chuan sought a stay of FMCH’s winding-up petition.
At first instance, Kawaley J in the Grand Court of the Cayman Islands agreed with Ting Chuan and granted a mandatory stay of the petition under s4 of the Foreign Arbitral Awards Enforcement Act. The Court of Appeal of the Cayman Islands subsequently overturned Kawaley J’s decision and held that all matters which were the subject matter of the petition were non-arbitrable, thereby rendering the parties’ arbitration agreement “inoperative”. The Court of Appeal’s decision provoked controversy, as it had departed from the obiter views of Patten LJ in Fulham Football Club (1987) Ltd v Richards  EWCA Civ 855,  Ch 333.
Ting Chuan’s appeal to the Privy Council was based on four propositions: (i) Ting Chuan and FMCH were parties to an arbitration agreement; (ii) FMCH had commenced legal proceedings against it; (iii) those legal proceedings were in respect of matters agreed to be referred to arbitration; and (iv) therefore it was entitled to a mandatory stay, unless the Privy Council was satisfied that the relevant matters were non-arbitrable such that the arbitration agreement was “inoperative” (at ).
The Board concluded that propositions (i) and (ii) were uncontroversial. As to proposition (iii), the Board conducted a detailed review of the “considerable jurisprudence” in England, Hong Kong, Singapore, Australia and the British Virgin Islands which had cast light on the meaning of the term “matter” in domestic legislation implementing article II of the New York Convention (at –).
Drawing on that jurisprudence, the Board held (at ) that:
“[…] a ‘matter’ is a substantial issue that is legally relevant to a claim or a defence, or foreseeable defence, in the legal proceedings, and is susceptible to be determined by an arbitrator as a discrete dispute. If the ‘matter’ is not an essential element of the claim or of a relevant defence, it is not a matter in respect of which the legal proceedings are brought.”
As to proposition (iv), Ting Chuan argued that the petition gave rise to five distinct matters (see ). Matters (1) and (2) were the two underlying grounds upon which FMCH’s petition was based. Matter (3) was whether it was just and equitable that the company should be wound up. Matter (4) was whether FMCH should be granted alternative relief (a share buy-out order). Matter (5) was whether, if such alternative relief was not appropriate, an order winding up the company should be made.
The Board considered whether any of these five matters was non-arbitrable such that the arbitration agreement was “inoperative”. The Board held that there were “two broad circumstances in which an arbitration agreement may be inoperative” (at ), namely:
Applying this test, the Board held that an arbitral tribunal had no power to make a ruling on matters (3)–(5) and that these matters were accordingly non-arbitrable (at ). By contrast, the Board was not persuaded that there was any reason of public policy to prevent an arbitral tribunal from determining matters (1) and (2). Matters (1) and (2) were “controversies relating to legal or equitable rights which are of substance”, they “lie at the heart of the legal proceedings”, and they were “matters” in respect of which a mandatory stay must be granted (at –).
Moreover, the Board held that matters (1) and (2) were 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 is the threshold for giving a remedy under section 95 of the Companies Act (ie matters (3)–(5))” (at ). The Board therefore granted (at ) a discretionary case management stay in respect of matters (3)–(5).