Re Bayoil SA
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE WARD,LORD JUSTICE MANTELL |
| Judgment Date | 31 July 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0731-24 |
| Docket Number | CHANF 98/0187/3 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 1998 |
In The Matter of Bayoil Sa
In The Matter Of The Insolvency Act 1986
[1998] EWCA Civ J0731-24
Lord Justice Nourse
Lord Justice Ward and
Lord Justice Mantell
CHANF 98/0187/3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(His Honour Judge Roger Cooke)
Royal Courts of Justice
Strand, London WC2
MR M TSELENTIS (MR M ASHCROFT 31.7.98) (instructed by Messrs Stockler Charity, London EC4) appeared on behalf of the Appellant Respondent.
MR J RUSSEN (instructed by Messrs Holman Fenwick & Willan, London EC3) appeared on behalf of the Respondent Petitioner.
Friday, 31st July 1998
This appeal raises a question on the practice of the Companies Court. How ought it to deal with a winding-up petition when the petitioner's debt is undisputed but the company has a genuine and serious cross claim, which it has been unable to litigate, in an amount exceeding the amount of the petitioner's debt? In order to answer that question it is necessary to give close consideration to the decisions of this court in Re Portman Provincial Cinemas, Ltd (1964) 108 Sol. Jo. 581 and Re L H F Wools Ltd [1970] Ch. 27.
Bayoil SA ("the company") is a Swiss company and as such an unregistered company within the meaning of section 220(1) of the Insolvency Act 1986. It has assets and a place of business in England. By section 221(1) it may be wound up under the Act. By a voyage charterparty dated 13th December 1996 the company chartered from Seawind Tankers Corporation ("Seawind"), a Liberian company, a tanker called the "LEONIDAS" for the purpose of carrying a cargo of light crude oil from Al-Bakr in Iraq to the United States Gulf with an ETA of 8th February 1997. The ship sailed from Al-Bakr on 19th December, but on 25th December its starboard engine failed and had to be shut down, with the result that it thereafter proceeded at a significantly reduced speed. The company was informed of this on 27th December, with a new ETA in the United States Gulf of 3rd March. Subsequently, pursuant to an agreed variation of the charterparty, the company gave directions for lightening and discharge in South Africa, where the ship was arrested at Saldanha Bay. By a letter dated 13th March 1997 Seawind's P&I club, in consideration for the ship's release, granted the company security for its claims in a sum not exceeding US $5,910,609 plus interest and costs.
Pursuant to a clause in the charterparty, the dispute was submitted to arbitration in London, Seawind claiming freight and diversion expenses and the company counterclaiming damages for breach of the charterparty, in particular for misrepresentations and breaches of warranty as to the condition of the ship, the absence of recent breakdowns and its maintainable speed. On 15th August 1997 an interim final award was made in Seawind's favour in respect of freight and the costs of obtaining the award. The award was made in accordance with the well established rule that freight must be paid free of all deductions of whatsoever nature; see The Aries [1977] 1 Lloyd's Rep. 334. No stay of the award was sought or granted. Conversely, the arbitrators declined to make an interim award in respect of diversion expenses, which are not governed by any such rule.
On 13th October 1997 Seawind served on the company a statutory demand in the prescribed form requiring payment, pursuant to the award, of the sums of US $1,198,721.02 and £6,078.16 in respect of freight and costs respectively together with interest. No part of either sum having been paid, on 4th November 1997 Seawind presented a petition to the Companies Court seeking an order that the company be wound up.
The petition came on for an effective hearing before His Honour Judge Roger Cooke, sitting as a judge of the Chancery Division, on 2nd February 1998. The company did not dispute the debt on which the petition was based, but contended that it ought to be stayed or dismissed on the ground that it had a genuine and serious counterclaim, which it had been unable to litigate, in an amount (US $5,931,524) exceeding the amount of the petitioner's debt. The judge, while accepting the company's contention as to the status of its counterclaim, held that he had a discretion which was at large and that it ought, in the circumstances of the case, to be exercised by granting the order sought. The company now appeals to this court.
The question is whether the judge was right to hold that his discretion was at large or whether its exercise was governed by authority which requires the petition, except in special circumstances, either to be dismissed outright or to be stayed until after the cross claim has been determined. In order to answer that question it is necessary to refer first to the practice of the Companies Court to dismiss a petition where the petition debt is disputed in good faith and on substantial grounds. That practice, it appears, has been established since the end of the last century. It was explained by Buckley LJ in Stonegate Securities Ltd v Gregory [1980] Ch. 576, 580, where, having adopted a passage in the judgment of Ungoed-Thomas J in Mann v Goldstein [1968] 1 WLR 1091, 1098, he said:
"In my opinion a petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224(1) at all, and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding-up proceedings."
So the dismissal of the petition in such a case is not, at any rate initially, a matter for the discretion of the court. It is founded on the petitioner's inability to establish the locus standi to present a petition under what is now section 124(1) of the Insolvency Act 1986. The case of an undisputed debt with a genuine and serious cross claim is different, in that the dismissal or staying of the petition can only be a matter for the discretion of the court, albeit that its exercise may have been narrowed by authority. By way of shorthand, I will refer to the two categories of case as disputed debt and cross claim cases respectively.
Against that background I come to Re Portman Provincial Cinemas, Ltd, which was a cross claim case. The report in the Solicitors Journal (1964) 108 Sol. Jo. 581 is very brief. We have, however, been able to obtain a transcript of the judgments from the Supreme Court Library. In that case the petition was based on an undisputed debt of £40,831 owing in respect of principal, interest and costs secured by a mortgage. In May 1963 the creditor ("Baldwins") demanded payment from the company of that sum. In July 1963 the company issued a writ against Baldwins claiming damages for breach of an oral agreement alleged to have been made in or about November 1955. After the pleadings in the action were closed, but before it could be tried, Baldwins presented its petition. Plowman J dismissed it. On Baldwins' appeal to this court, Lord Denning MR thought that the company's cross claim had no substance at all. He would have allowed the appeal. Harman and Russell LJJ, on the other hand, thought that it could not be said that there was no substance in the cross claim and accordingly dismissed the appeal.
The importance of the case lies in the observations of Lord Denning MR and Harman LJ as to the test to be applied. At the beginning of his judgment, the Master of the Rolls said:
"[The company says that] they have a cross claim which overtops the amount due to Baldwins. The question is whether the debt of Portmans is a 'disputed' debt. It would be, I think, if there was real substance in the cross claim."
Having stated the facts, he said:
"As I understand the law on the matter, it is this: If this is a genuine cross claim with substance in it, then let it be tried out in the Queen's Bench Division: this petition must be rejected. But if there is no substance in the cross claim, then let the Court do justice to the petitioners in this case and not give heed to so insubstantial a cross claim. We were referred to Re Welsh Brick Industries Ltd [1946] 2 All ER 197, where, even though the defendant company had put in affidavits and got leave to defend under Order 14 (thus showing there was a triable issue), nevertheless the Court looked into the matter even so; and held there was no substance in the defence; and therefore it was not a ground for refusing a winding-up order."
Harman LJ said:
"Now the fact that there is a cross claim of that sort, not being a realised claim, is no answer in law to the petitioner's claim under the Act and it quite clearly appears from the case cited by my Lord of Re Welsh Brick Industries Ltd in 1946 that it is not a bar to a claim, but of course it is a matter for the discretion of the Judge. The Judge here rejected the petition on the modern practice. You do not now, as you used to do, stand over the petition to see if the action will succeed or no. If you find the action making the cross claim is on foot and it is a serious action, you reject the petition. The question is whether the Judge rightly exercised his discretion."
He ended his judgment thus:
"I think the Judge was right to say that the matter ought to go to trial, and therefore according to the modern practice, the petition should be dismissed, and I would so hold."
Russell LJ agreed with Harman LJ that the appeal should be dismissed. He did not make an independent statement of the test to be applied and must be taken to have...
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