It is of note that arbitral proceedings are not incompatible with litigation before the courts. There has been a paradigm shift to the effect that arbitration and courts are deemed as complementary jurisdictions that assist parties in controversy to resolve disputes as sensibly and promptly as possible.

As has been the approach in Singapore, it is now openly acknowledged that arbitration, and other forms of alternative dispute resolution mechanisms such as mediation, help to effectively unclog the arteries of judicial administration and offer the parties realistic choices on how they want to resolve their disputes at a pace with which they are comfortable. In essence, a court ought to give effect to the parties' contractual choice as to the manner of dispute resolution, unless it offends the law.

As far as insolvency proceedings are concerned, how do we proceed if the agreement contains an arbitration clause for resolution of disputes?

Rubesh Doomun and Hemrani Guttoo, Registered Insolvency Practitioners in our Mauritius team, have delved into the subject.

There are two approaches to the question. First, the "prima facie standard" is where a disputed debt arising under a contract, which contains an arbitration clause, is generally dismissed in favour of arbitration, save in exceptional cases.

Secondly, the "triable issue standard" is the additional requirement for the debt to be disputed on genuine and substantial grounds for the insolvency proceedings to be stayed or dismissed in favour of arbitration. That said, if the dispute is a frivolous one, the insolvency proceedings are likely to proceed.

In some jurisdictions such as Singapore and Malaysia, when considering application for insolvency proceedings such as winding-up, the courts are likely to stay or dismiss the insolvency proceedings in favour of arbitration if the debtor can demonstrate that there is a prima facie dispute over the debt which is governed by an arbitration agreement. The position adopted is that a debtor's contractual right to arbitrate a disputed debt will prevail over a creditor's statutory right to seek the winding-up of an insolvent debtor. In other words, all that matters is to demonstrate that the debt is disputed irrespective of whether there are any (or even substantial) grounds. This is the case to mitigate the adverse consequences of insolvency proceedings such as liquidation, which may impact the reputation and business of a company, and to give effect to the parties' agreement to arbitrate. However, one should tread with caution since the prima facie standard is not tantamount to an automatic stay or dismissal but will be assessed on a case-by-case basis to prevent a debtor from resorting to any abuse of arbitration process when faced with insolvency proceedings.

In other jurisdictions, such as Australia and recently in England and Wales, the trial issue standard is likely to prevail. That said, the mere existence of an arbitration clause in an agreement between parties will not automatically preclude one of them from serving a statutory demand on the other given that the court retains its discretion about the importance to attach to such a contractual term in the circumstances of the case. A debt must be the subject of a genuine dispute on substantial grounds for the court to stay or dismiss a creditor's winding-up petition in favour of arbitration. It is not enough for a respondent to the winding-up petition to raise an insubstantial dispute and require the creditor to go through arbitration before resorting to a liquidation.

However, where a dispute cannot be resolved by a court which considers that the stand taken by one of the parties is transparently untenable for one party to invoke an arbitration clause, then the court will consider the preservation of the parties' autonomy and choice to arbitrate rather than any other form of litigious proceeding. The court is mindful of the commercial reasons for parties to agree to arbitration in accordance with the UNCITRAL Model Law on International Commercial Arbitration and will not lightly permit one party to ignore the clause and rush into legal proceedings.

As far as the practice under Mauritian laws is concerned, it is not settled as to which standard is likely to apply. However, Mauritian case law shows that Mauritian courts will take into account two types of regime: (i) where the petition is grounded on insolvency and where the courts are reluctant to stay the proceedings in favour of arbitration; and (ii) where the petition is not grounded under insolvency (for instance, on a dispute among the shareholders) and where the courts are more willing to stay the petition and allow the arbitrator to determine the disputes between the parties.

It has been held by the Mauritian courts that they will determine whether the applicant has shown that there is arguably a genuine and substantial dispute to the existence of the debt. The task for the courts is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient. This approach is likely to fall under the trial issue standard.

A company opposing a winding-up petition is required to have taken the requisite steps under the arbitration clause to commence the arbitration process. As such, an opposing debtor must demonstrate a genuine intention to arbitrate and cannot merely raise the arbitration clause as a tactical device. Therefore, if the arbitration clause is to be properly engaged, there must be shown to exist a dispute between the parties in relation to a matter properly the subject of that arbitration clause.