Salford Estates (No.2) Ltd v Altomart Ltd

Factual and Procedural Background

The appeal concerns whether the stay provisions in section 9 of the Arbitration Act 1996 apply to a winding up petition based on a debt arising from a contract containing an arbitration agreement. The Appellant, Company A, presented a winding up petition against the Appellee, Company B, on the ground of inability to pay debts. The petition was stayed by His Honour Judge Bird, acting as a High Court judge, on 4 February 2014. The underlying dispute arose from a commercial lease agreement between Company A as lessor and Company B as lessee for premises within a shopping centre owned by Company A. The lease included a comprehensive arbitration clause covering disputes arising from the lease.

In July 2012, the parties referred multiple disputes concerning service charges and insurance rent under the lease to arbitration. The arbitrator issued a final award in November 2013, finding partly for each party and determining that Company B owed Company A arrears totaling £64,431.79. Company B did not immediately pay the award sum, prompting Company A to threaten winding up proceedings unless payment, including further disputed sums for the subsequent year, was made. Company A presented the winding up petition before receiving payment of the award sum. Company B objected, arguing that the disputed sums must be referred to arbitration under the lease’s arbitration agreement. An application to stay or strike out the petition was made by Company B and granted by Judge Bird, who relied on precedent supporting a stay where an arbitration agreement exists.

Legal Issues Presented

1. Whether the mandatory stay provisions in section 9 of the Arbitration Act 1996 apply to winding up petitions based on debts arising from contracts containing arbitration agreements.
2. Whether a winding up petition constitutes "legal proceedings" or a "claim" within the meaning of section 9 of the Arbitration Act 1996.
3. The extent to which the court’s discretionary power under section 122(1)(f) of the Insolvency Act 1986 should be exercised consistently with the policy underlying the Arbitration Act 1996.
4. Whether the existence of a bona fide and substantial dispute on the debt underlying a winding up petition affects the applicability of an arbitration agreement and the stay provisions.

Arguments of the Parties

Appellant's Arguments

• A winding up petition based on an unpaid debt should not be stayed pursuant to an arbitration agreement unless the debt is bona fide disputed on substantial grounds.
• A winding up petition is not a claim for payment and is not "arbitrable" under section 9 of the Arbitration Act 1996.
• The petition functions as a class action in the public interest, involving the statutory regime for realising and distributing company assets to creditors, which an arbitrator cannot effect.
• The decision in Rusant Limited v Traxys Far East Limited, which held otherwise, is incorrect and should not be followed.

Appellee's Arguments

• The debt underlying the petition is disputed and subject to an arbitration agreement; thus, the mandatory stay provisions of section 9 apply.
• The presentation of a winding up petition in respect of a disputed debt should be stayed to respect the parties’ agreement to arbitrate disputes.
• Company B is solvent and disputes the additional sums claimed beyond the arbitration award.
• The court should exercise its discretion under the Insolvency Act 1986 consistent with the legislative policy of the Arbitration Act 1996 to avoid parties circumventing arbitration by presenting winding up petitions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rusant Limited v Traxys Far East Limited [2013] EWHC 4083 (Ch)	A winding up petition based on a debt arising from a contract containing an arbitration agreement is subject to mandatory stay under section 9 of the Arbitration Act 1996.	The court acknowledged Rusant but ultimately disagreed with its reasoning regarding mandatory stay application to winding up petitions.
Halki Shipping v Sopex Oils [1997] EWCA Civ 3062; [1998] 1 WLR 726	Where a debt is not admitted, a dispute exists for the purposes of section 9 of the Arbitration Act 1996, triggering a mandatory stay of legal proceedings.	The court accepted Halki Shipping’s principle that a dispute exists by non-admission of debt, but distinguished its application in the context of winding up petitions.
Fulham Football Club (1987) Limited v Richards [2011] EWCA Civ 855; [2012] Ch 333	Section 9 stay applies to unfair prejudice petitions where disputes fall within arbitration agreements, but such petitions differ from winding up petitions.	The court found this precedent not helpful to the present case given the fundamental differences between unfair prejudice petitions and winding up petitions.
Re Vocam Europe Ltd [1998] BCC 396	Stay of unfair prejudice petitions under section 9 of the Arbitration Act 1996 where arbitration agreement governs the dispute.	Preferred by the Court of Appeal over a contrary decision, highlighting the appropriateness of stay in arbitration-related disputes not involving winding up.

Court's Reasoning and Analysis

The court first considered the statutory framework, noting that winding up petitions are "legal proceedings" but are fundamentally different from claims for payment because they invoke the court’s discretionary power to wind up a company in the public interest under the Insolvency Act 1986. The petition is not a claim for payment of debt but a statutory remedy based on inability to pay debts.

The court rejected the application of the mandatory stay provisions in section 9 of the Arbitration Act 1996 to winding up petitions. It reasoned that the making of a winding up order activates a statutory scheme for proving debts that supersedes arbitration agreements. Furthermore, it would be contrary to parliamentary intent to allow section 9 to undermine the court’s jurisdiction to wind up companies unable to pay their debts.

Although the mandatory stay provisions do not apply, the court recognized that the court’s discretion under the Insolvency Act should be exercised consistently with the policy of the Arbitration Act. The court noted that allowing winding up petitions to proceed despite arbitration agreements would encourage parties to bypass arbitration through pressure tactics, undermining the agreed dispute resolution mechanism.

The court found that the debt was within the wide arbitration clause and was disputed, thus constituting a dispute under the Arbitration Act. Exercising its discretion, the court concluded it was appropriate to stay or dismiss the petition to compel resolution through arbitration rather than require the court to determine the bona fide nature of the dispute.

The court preferred dismissal over a stay in the absence of evidence of a substitute petitioner but noted this point was not pursued on appeal. The court also distinguished the present case from unfair prejudice petitions where arbitration agreements and section 9 stay provisions have been held applicable.

Holding and Implications

The court DISMISSED THE APPEAL, thereby upholding the order staying the winding up petition.

The holding clarifies that the mandatory stay provisions of section 9 of the Arbitration Act 1996 do not apply to winding up petitions based on unpaid debts, as such petitions are not claims for payment but statutory remedies invoking the court’s discretionary power. However, the court’s discretion under the Insolvency Act 1986 must be exercised in a manner consistent with the legislative policy favoring arbitration. This prevents parties from circumventing arbitration agreements by presenting winding up petitions and promotes resolution of disputes through agreed arbitration mechanisms.

No new legal principle was established beyond the application of existing statutory interpretation and discretion principles. The decision emphasizes the balance between the public interest in winding up insolvent companies and the parties’ contractual agreement to arbitrate disputes.