City Gardens Ltd v DOK82 Ltd
| Jurisdiction | England & Wales |
| Judge | Pearce |
| Judgment Date | 15 May 2023 |
| Neutral Citation | [2023] EWHC 1149 (Ch) |
| Docket Number | APPEAL NUMBER: CH-2022-MAN-000011 |
| Court | Chancery Division |
[2023] EWHC 1149 (Ch)
His Honour Judge Pearce
APPEAL NUMBER: CH-2022-MAN-000011
IN THE HIGH COURT APPEAL CENTRE MANCHESTER
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
On appeal from the Order of District Judge Matharu dated 25 July 2022
Case Number: CR-2022-MAN-000082
Manchester Civil Justice Centre
1 Bridge Street West
Manchester
M60 9DJ
Mr Bobby Friedman (instructed by Gunnercooke LLP) for the Appellant/Petitioner
Mr Asa Jack Tolson (instructed by Slater Heelis) for the Respondent
Hearing date: 2 March 2023
This judgment was handed down remotely at 10.00 am on 15 May 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
INTRODUCTION
This is an appeal from a decision of District Judge Matharu dated 25 July 2022 by which she dismissed the Appellant's petition to wind up the Respondent, recording that the court found the petition debt to be disputed on substantial grounds. She ordered the Appellant to pay the Respondent's costs and conducted a summary assessment thereof.
The Appellant appeals with permission of the Vice Chancellor, Fancourt J, such permission having been granted on 12 December 2022. The appeal was heard before me on 2 March 2023 following which I reserved judgment.
BACKGROUND
The Appellant is a company that invests in developments of property around Manchester. The investments were mostly in developments undertaken by De Trafford Estates Ltd, part of a group of companies that includes the Respondent. The Appellant contracted with the Respondent, a company wholly owned by Mr Kane Jackson, for the supply of furniture packs for the purpose of such developments, the payments being refundable if a development did not proceed.
The Appellant's case is that one such proposed development which did not proceed was the so-called Mary Street Development. The Appellant had paid a substantial sum for furniture packs. The failure to proceed with this development left the Respondent indebted to the Appellant in a significant sum.
By a document dated 17 March 2021, headed “Memorandum of Understanding” and signed on behalf of the Appellant and the Respondent, the parties acknowledged the history in respect of the Mary Street development referred to above, and recorded that:
5.1. The Appellant had paid the sum of £340,000 to the Respondent which was refundable to the Appellant;
5.2. The Respondent had repaid various sums but still owed “the Principal” (defined as £200,000, amended to £119,785 in accordance with clause 2.1 of the document as set out below); and
5.3. The Appellant owed £80,215 to Mr Jackson.
Various clauses of the document are of note:
6.1. By clause 2.1 the Respondent and Mr Jackson “ confirm irrevocably that [the Respondent] owes the Principal plus Interest to the Appellant. Upon executing this Agreement, the Parties confirm that the Principal shall immediately reduce to £119,785.”
6.2. By clause 2.2, the Appellant and Respondent “ agree that the Debt shall be repaid in accordance with the terms of this Agreement but, in any event, before the Longstop Date.” (The Longstop Date is defined in clause 1.1 as 31 December 2021.)
6.3. By clause 2.4, the Appellant “ shall prepare a statement on the last business day in Hong Kong of each calendar month setting out all movements on the Debt in respect of that month and confirming any balance outstanding.”
6.4. By clause 6.7, “ This Agreement is governed by and shall be construed in accordance with Hong Kong law and subject to the exclusive jurisdiction of the Hong Kong courts.”
The Appellants' petition was issued on 7 February 2022. It asserts that the Respondent was liable to pay the sum of £119,785 pursuant to the Memorandum of Understanding; that it had failed to do so by the Longstop Date; and that the debt remained outstanding. It contends that the failure to pay was by reason of the Respondent's inability to pay its debts and hence sought winding up of the company.
In response to the petition, the Respondent filed two statements from Mr Kane Jackson dated 28 March 2022 and 29 April 2022. Based upon those statements, it sought to defend the Petition on four grounds:
8.1. The “agreement” upon which the petition is based, the Memorandum of Understanding, was not intended to be a legally binding agreement between the parties;
8.2. The Memorandum of Understanding is governed by the laws of Hong Kong, as to the effect of which laws there was no evidence before the court;
8.3. As a matter of construction, the court could not determine what sums (if any) were due under the Memorandum of Understanding. By way of example, the court did not have before it evidence as to the meaning in Hong Kong law of clause 2.4 of the agreement, such that the court was unable to determine whether the Appellant had complied with the obligation to prepare statements setting out all movements on the debt, nor indeed did the court know what such a statement was said to amount to;
8.4. The Respondent has a cross claim against the Appellant for furniture packs that had been ordered, the effect of which, if allowed as a set off or cross claim, is significantly to reduce the balance allegedly due under the Memorandum of Understanding.
The Appellant filed a statement in reply from Mr Sydney Fulda, its solicitor, dated 31 May 2022.
THE JUDGMENT SUBJECT TO APPEAL
The judgment was handed down ex tempore on 25 July 2022. Having set out the background, the Judge found as follows:
10.1. That the petition was based on the Memorandum of Understanding rather than any pre-existing debt;
10.2. That it was not open to the court to adjudicate on the construction of the terms of the Memorandum of Understanding because of the exclusive jurisdiction clause in clause 6.7. As it is put at paragraph 17: “ this court cannot entertain the jurisdiction of this agreement, because the parties contracted to the exclusive jurisdiction of the Hong Kong courts.”
10.3. Further, that the court could not rule on matters of construction or set off because they were matters of Hong Kong law. For example, she said at paragraph 18 of the judgment: “The question put by [counsel for the Respondent] to the court was this: ‘Applying the laws of the jurisdiction of Hong Kong, is the debt properly due?’ That is the question for the court to deal with today and the only court to be able to deal with that is the court of Hong Kong.”
10.4. Equally, the court could not determine the Petitioner's argument that an estoppel by representation operated so as to prevent the Respondent denying its indebtedness because the existence and operation of the alleged estoppel is a matter of Hong Kong law.
10.5. That, accordingly, the Court could not judge whether the sums to which the petition related were due and owing and/or whether the Respondent had a set off. As it is put at paragraph 20 of the judgment:
“ a petition can be brought against a debtor company in the UK, but not when that purported debt is based on a debt that is the subject of an entirely separate jurisdiction and the petitioning creditor cannot show that the debt is one that is within the remit of this court.”
10.6. Finally, in so far as any argument might be raised that the petition was issued prematurely in light of the temporary insolvency measures during the COVID-19 measures, the adjournment of the petition meant that there was no prejudice to the Respondent. The Judge indicated that any failure to comply with the Corporate Insolvency and Governance Act 2020, specifically Schedule 10 thereof as in force at the time of presentation of the petition, would be waived.
It should be noted that, whilst the Judge did not expressly deal with the assertion at paragraph 5(a) of the skeleton argument of the Respondent that the Memorandum of Understanding was not intended to be legally binding between the parties, it is clear that she treated it as being binding, given the passage at paragraph 10 of the judgment cited above as to the exclusive jurisdiction and proper law clauses of the contract. During the hearing of the appeal, counsel for the Respondent conceded that, in those circumstances, it was not open to him to argue that the Memorandum of Understanding did not amount to a binding contract in English law in the absence of his client having filed a respondent's notice. That concession was undoubtedly correct and, given the absence of a Respondent's Notice, the finding of Judge Matharu must stand on this issue.
THE GROUNDS OF APPEAL
For the purpose of the appeal, two matters are not in dispute:
12.1. The Appellant accepted (for the purpose of the current appeal only) that the petition is based on the debt recorded in the Memorandum of Understanding, rather than any underlying indebtedness.
12.2. The Respondent acknowledged that, in so far as there may have been non-compliance with the temporary insolvency measures in force during the COVID-19 pandemic, it took no issue with the determination by the Judge that the failure to comply should be waived.
The Appellant relies on four identified grounds of appeal, though some are subdivided and the first ground has two parts.
Ground 1A: The Judge erred in law and/or fact in determining that the Petition should be dismissed because the petition debt arose from a contract that is the subject of an exclusive jurisdiction clause in favour of Hong Kong. The Judge should instead have asked herself whether the Petition Debt was disputed on genuine and substantial grounds.
Ground 1B: Further or alternatively the court wrongly took into account the exclusive jurisdiction clause, in determining whether there was a genuine dispute on substantial grounds.
Ground 2: The Judge was...
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