Petition does not bypass binding arbitration

The High Court confirmed that parties should not try to bypass an arbitration clause by presenting a winding-up petition.

Knipp Medien und Kommunikation GmbH (“Knipp”) provided services to Telnic Limited (“Telnic”) under an agreement formed in 2009 which contained an arbitration clause. In 2014, the parties entered a further agreement.

Knipp presented a petition based on unpaid service charges. The debt was agreed. At first instance, the petition was stayed pending arbitration and Knipp was ordered to pay money into an escrow account in respect of Telnic’s costs. Telnic appealed the stay; Knipp cross-appealed the stay and the order regarding costs.

In considering the appeal, the Chancellor of the High Court found that it was correct to stay the petition where the debt was not admitted and was subject to a binding arbitration clause. Further, a previous admission by Telnic that the debt was due, which may have been made without prejudice, did not amount to “wholly exceptional circumstances”, and the court was not required to consider whether the debt was disputed in good faith or on substantial grounds.

The appeal and cross appeal were dismissed. The judge at first instance was entitled to exercise his discretion as to whether to stay or dismiss the petition. In this instance, staying the petition was appropriate to encourage Telnic to engage with the arbitration process and to protect creditors from the disposition of assets. Likewise, payment of the costs into escrow was a matter of the court’s wide discretion.

In the matter of Telnic Ltd [2020] EWHC 2075 (Ch)

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