FamilyMart and Beyond: The Continuing Influence of the Privy Council’s Landmark Decision on Shareholder Litigation

Reasoning in FamilyMart

In FamilyMart, the Privy Council overturned the Cayman Islands Court of Appeal’s ruling and held that the underlying shareholder disputes are, in principle, arbitrable and must be referred to arbitration pursuant to section 4 of the Foreign Arbitral Awards Enforcement Act (which gives effect to the New York Convention). Only the ultimate discretionary question – whether it is just and equitable to wind up the company and, if so, what (if any) alternative remedy should be ordered – remains exclusively within the jurisdiction of the Grand Court. [1]

The Privy Council applied a two-stage test to determine which “matters” in a petition must be referred to arbitration: First, identify the matters that the parties have raised or may foreseeably raise in the proceedings; and, second, assess whether each such matter falls within the scope of the arbitration agreement. Key principles governing this analysis include: (1) the court must ascertain the substance of the dispute, including any raised and possible defences; (2) stays may be granted in relation to a part of the court proceedings; (3) a “matter” is a substantial issue that is legally relevant to a claim or a defence which is susceptible to determination by an arbitrator as a discrete dispute, rather than an issue which is peripheral or tangential; and (4) the test entails a matter of judgment and the application of common sense. The Privy Council accepted that this approach may fragment the dispute but observed that effective case management by the court and tribunal can mitigate any resulting inconvenience.

The Privy Council held that the issue of whether trust and confidence in the company’s management had broken down was arbitrable, whereas the question of whether it was just and equitable to wind up the company was not. The fact that the court, when deciding whether to grant a winding-up order on just and equitable grounds, would take into account the arbitrator’s findings on the loss of trust and confidence did not render the latter issue non-arbitrable. An arbitral tribunal could therefore validly determine the question of loss of trust and confidence and whether the fundamental relationship between the parties had irretrievably broken down,[2] and the court would then be bound by those findings as set out in the award. It was for the court to decide, in the exercise of its discretion, whether it was just and equitable for the company to be wound up, whether alternative relief should be granted and if not which liquidator should be appointed.

It should be noted that in FamilyMart while the seat of arbitration was to be in Beijing, China (thus the lex arbitri was Chinese law), the governing law of the shareholders’ agreement was Cayman Islands law. Although it is not uncommon that the lex arbitri and the governing law of the contract are different, given the arbitrable questions are frequently questions of mixed facts and law, the practical consequences of findings made in those circumstances in the context of a subsequent winding-up application are unclear. It follows that to avoid any difficulty in this regard, it might be worth ensuring that any claim in arbitration which concerns just and equitable winding-up or unfair prejudice be governed by the law of the country of incorporation.

Impact on J&E Winding Up

FamilyMart has been most transformative for just and equitable winding-up petitions in solvent (or quasi-partnership) companies.  In Cayman, the decision resolves prior uncertainty from the Court of Appeal’s overturned ruling, which had viewed such petitions as wholly non-arbitrable. Now, courts routinely cite the FamilyMart decision to stay proceedings for arbitration of precursor matters like loss of substratum, deadlock, or exclusion from management,[3] provided they fall within the arbitration clause. The petition resumes once the tribunal issues an award on those issues, which binds the court on facts (akin to an agreed statement of facts).

The influence of FamilyMart has extended well beyond the Cayman Islands. In Hong Kong, where J&E winding-up exists alongside a statutory unfair prejudice remedy, the Court of First Instance delivered the first substantive application of the Privy Council’s reasoning in PI 1 and PI 2 v MR [2025] HKCFI 1110. A minority shareholder in a Cayman company had commenced HKIAC arbitration alleging oppressive conduct, exclusion from management, dilution of its stake, and irretrievable loss of trust and confidence. The tribunal issued a partial award upholding its jurisdiction. The majority shareholders sought to set aside that award, contending that the claims were non-arbitrable because they were merely precursors to a possible Cayman J&E petition.

In Hong Kong, where just and equitable winding up is available alongside unfair prejudice remedies, FamilyMart has been applied to permit arbitration of underlying disputes even in winding-up petitions. PI 1 and PI 2 v MR [2025] HKCFI 1110 was the first substantive application of the Privy Council’s FamilyMart ruling in Hong Kong. In PI 1, an arbitration was commenced by a minority shareholder of a Cayman company following its acquisition of stake under subscription and shareholders’ agreements containing broad HKIAC arbitration clauses, alleging oppressive conduct, exclusion from management, dilution, and irretrievable loss of trust and confidence. In June 2024, the HKIAC tribunal issued a partial award upholding its jurisdiction. The majority shareholders then applied to the Hong Kong Court of First Instance under s.34 of the Arbitration Ordinance to set aside that award, contending that the claims were non-arbitrable because they were merely precursors to a potential Cayman just and equitable winding-up petition.

Mimmie Chan J held that the mere fact that factual findings on oppression, exclusion from management, dilution or irretrievable breakdown of trust might later be deployed as the foundation for a Cayman just and equitable winding-up petition did not render those issues non-arbitrable. The court reaffirmed the critical distinction between (a) the underlying substantive disputes between shareholders, which are generally capable of settlement by arbitration, and (b) the ultimate discretionary question whether it is just and equitable to wind up the company or grant alternative relief, which remains exclusively for the supervisory court of incorporation. Notably, Chan J expressly rejected reliance on the pre-FamilyMart Cayman Court of Appeal decision that had been overturned by the Privy Council, noting that the Board had “definitively resolved” the earlier uncertainty.

The arbitration clause was broadly drafted and plainly covered disputes relating to alleged breaches of the shareholders’ agreement and subscription agreements, including claims of unfairly prejudicial conduct and loss of the mutual trust essential to a quasi-partnership. Such claims possessed independent contractual force and did not lose their arbitrable character simply because they might also serve as precursors to statutory relief in the Cayman Islands.

Accordingly, the tribunal was competent to determine the factual and legal merits of the oppression and loss-of-confidence allegations, leaving any subsequent Cayman petitioning shareholder to rely on the binding award when inviting the Grand Court to exercise its residual discretion over remedies.

Impact on Unfair Prejudice Petitions

While the Cayman Islands do not have a standalone unfair prejudice regime, FamilyMart‘s reasoning has implications for unfair prejudice petitions under regimes with standalone remedies, such as the UK (sections 994–996 Companies Act 2006) and Hong Kong (sections 724–725 Companies Ordinance).

The leading English authority has been and remains Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, where the English Court of Appeal held that underlying disputes in an unfair prejudice petition are arbitrable, and the petition should be stayed under section 9 of the Arbitration Act 1996 (UK).  The ultimate remedy in this case (e.g., buy-out order affecting third parties who are not bound by the arbitration agreement) is non-arbitrable, but factual disputes over prejudicial conduct are “matters” for arbitration.  FamilyMart endorsed Fulham and extended its logic to just and equitable petitions in solvent company scenarios.

Post-FamilyMart, Hong Kong courts have reinforced this in unfair prejudice cases. For instance, in cases involving hybrid claims (unfair prejudice plus derivative actions), tribunals are competent to determine substantive shareholder disputes, with courts retaining oversight on remedies. In Re Sirnaomics Limited [2025] HKCFI 4284, DHCJ Gary CC Lam stayed an unfair prejudice petition under section 724 of the Companies Ordinance, with the respondents arguing that disputes over restrictive share legends fell within arbitration clauses in earlier agreements.

Conclusion

FamilyMart is an influential authority in the arbitration space across common law jurisdictions in distinguishing arbitrable substantive matters from winding up jurisdiction of the relevant courts.

Key takeaways for practitioners:

• Careful drafting of arbitration clauses is important to ensure they cover all potential disputes arising from the agreements, which will impact the jurisdiction of the arbitral tribunal should disputes arise.
• A fragmented process where arbitration handles the underlying disputes, and the court uses those findings to make its final decision on the winding-up order, is not an issue.  The decision on facts from the arbitration tribunals will bind the courts.
• If parties wish to avoid fragmented hearings then they may wish to consider excluding from the arbitration agreement those matters which would form the basis of a just and equitable winding up or an unfair prejudice petition.

[1] Unlike many other common law jurisdictions, there is no freestanding statutory regime to address claims for unfair prejudice in Cayman Islands law. In other jurisdictions where there is a standalone unfair prejudice remedy, in addition to the underlying disputes (of the unfair prejudice claim) over which the arbitral tribunal would have jurisdiction, the tribunal could also grant a remedy within the scope of the statute in question – unless such remedy concerns rights of third parties (directing the majority shareholders to conduct the affairs of the company in a particular way for instance), class rights and actions or in rem rights and disputes, since arbitration agreements do not bind third parties who do not submit voluntarily to the jurisdiction of the tribunal.

[2] The matters which the court found arbitrable are set out in [23] (1) and (2) of FamilyMart

[3] In the matter of TFKT True Holdings FSD 132/2024 (judgment delivered on 2 October 2024): the court assessed whether the J&E winding-up petition was vexatious or oppressive and whether parallel proceedings in Hong Kong constituted an abuse of court procedure.  A temporary stay was granted.