Re Wools (LHF) Ltd

JurisdictionEngland & Wales
Judgment Date18 April 1969
Judgment citation (vLex)[1969] EWCA Civ J0418-3
Date18 April 1969
CourtCourt of Appeal (Civil Division)

[1969] EWCA Civ J0418-3

In The Supreme Court of Judicature

Court of Appeal.

(From: Mr. Justice Plowman)

(Civil Division)


Lord Justice Harman

Lord Justice Danckwerts and

Lord Justice Edmund Davies

In the Matter of L.H.P. Wools Limited
In the Matter of the Companies Act 1948

Mr. NORMAN TAPP, Q.C. and Mr. L.J. BROMLEY (instructed by Messre. Jaques & Co., Agents for Messrs. Richardson & Sweeney, Bradford) appeared on behalf of the Appellant Company.

Mr. ALLAN HEYMAN, Q.C. (Instructed by Messrs. Simmons & Simmons) appeared on behalf of the Respondent Petitioning Creditor.


This is an appeal against a winding-up order made by Mr. Justice Plowman In the Companies Court In February of this year ordering the appellant company to be wound up. The petitioner is a foreign corporation, a large bank entitled Banque de Bruxelles, a Belgian corporation. The ground of the appeal, very broadly stated, is that the appellant company has a cross-claim in Belgium against the Bank which If it came to fruition and were successful, would overtop the petitioner's debt and wipe it out altogether.


This is the kind of case which is always troublesome and depends in the ultimate resort on the discretionary views of the Judge who tries it and therefore one as to find. If this Court is going to upset what he decided, that he exercised his judgment on some wrong prlnoiple — that is to say, either that he took too much account of something put to him or that he took no account of something else whioh he ought to have taken Into account.


The story is a comparatively long one. The appellant company (which has changed its name now but I do not think that matters) was a private company carrying on a wool merchants' business in Bradford and in that capacity had large dealings with a Belgian character in Courtrai, also in the wool business, whose name was Pauwels. They were large transactions. Pauwels, who was a dealer in a very large way, in 1963 went smash, and he is at present, as I understand it, serving sentence of imprisonment in Belgium for his frauds, which were on a very large scale. The Bank ware very large losers by Pauwels' dishonesty, and so was the company, which lost all and more than all its assets In the smash and so far has not recovered anything. Whether it will recover anything in the liquidation of Pauwels' affairs is as yet far from certain.


In 1964 the Bank, looking about to try to recover something out of the smash, came on a bill of exchange — drawn I suppose by Pauwels, anyway accepted by the company — and sued on the bill here, the company being In this country, and started anaction in the Commercial Court In 1964 for that purpose. A Defence was delivered of a technical kind but thorp really was never any substantial defence to that action, which was on a bill for about £26,000 and some interest.


In 1966 the company's Defence was emended by an elaborate plea that in Belgium It had a cross-claim against the Bank, which was pleaded I think only to the extent necessary to set off the claim on the bill. It was to the effect that the Bank, by lte support of Pauwels and its encouragement of Pauwels' activities and giving him credit and one way and another, had for one thing led to his keeping afloat for several years longer than he would and for another to encouraging this creditor to have dealings with him on credit also — not a cause of action which would lie in Snglish law at all, so far as I can see, because the company is not a customer of the Bank's and no duty on the face of it is owed, but other systems of law of course have other views. Anyway this was put on the file as a Defence and Counterclaim in the action.


Now the action, though an action In trio Commercial Court, could not cone on for four years because neither side could make proper discovery to the other owing to the fact that there were in Belgium very complicated combined criminal and civil proceedings against Pauwela and it was not until those drew towards their close that documento were released by the Belgian authorities. The action eventually came on before Mr. Justice Ponaldson in July of last year in the Commercial Court. Within two or three days of its coming on the company decided to abandon its defence and counterclaim. As I say, there never was any serious defence. What there might have been in the counteclaim remains uncertain. Anyway the company withdrew and submitted to judgment on claim and counterclaim in that action and applied for a stay of execution. The learned Judge refused a stay of execution, but on what to me is a very odd ground, namely, that the Companies winding-up Court would be in a better position than he was to decide whether a stay of execution should be granted ifand when the judgment creditor started winding-up proceedings in the Court: therefore one must soy the position is that a stay of execution was refused In that action. Whereupon in September of 1968 the petition was put on the file and a good deal of evidence was filed. It was opposed both by the company and by one of its directors or it may be two directors, but no other creditors either opposed or supported the petition and the reason for that was that for four years at least thia oomparty had been out of business: it had no assets: it had no business: it had sold its goodwill for a consideration — I know not that — to another company; and it is a mere shell. One nay think (and I think perhaps the judge had some view about this) that this wan a useless and encumbered personality which ought to be put out of its existence because it was really doing no good to anybody. Anyhow the judge in February made a winding-up order and it is against that that the company appeals. It appeals, as I say, on the ground that, according to modern practice, if there is a genuine cross-claim it is just as if there was a disputed debt and, as everybody knows, a disputed debt is never good subject-matter for a petition.


The main support for that proposition is a case in which I myself was one of the judges and the majority, consisting of lay-self and Lord Justice Russell, decided, against the view of the Master of the Rolls, that the petition should be rejected. The difference was on what was the right view of the facts about the cross-claim in that case. Everybody seems to have agreed on what the law was, and the Master of the Rolls stated it like thist "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 bo 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". I used much the same language myself, and so did Lord Justice Russell. The majority decided in that case that, shadowy as the cross-claim was andimprossble an the events said to support It seemed to be, there was just enough to make the principle work, namely, that it was right to hare the matter tried out before the axe fell. It must, however, be said of that case that there ware differences. For one thing the cross-claim was a cross-claim in England. For another thing the cross-claim was case before the petition was put on the file, and indeed in every case of this sort there are differences which make one such case no more than a sign-post, as Lord Justice Upjohn (as he then was) said in Re P. & J. Macrae Ltd. in a passage to which I referred in the case of Re. J.P. Swain, in 1965 1 Weekly Law Reports page 909, where this question was discussed. He said that other cases about discretion could be no more than guides or signposts along the road and that there wan no question of there being a governing authority or a rule which the court was bound to follow: every case depends on its own details.


Now here the learned judge concluded — without hearing witnesses cross-examined or going into the details of the matter -that he was for the purpose of his judgment proposing to assume that there was a good cross-claim in this case. What the judge said was this: "It seems to me that for the purposes of the present application before oc I oust assume, and I do assume, that the company ias a claim against the Bank in excess of the amount of the judgment debt, which does raipe serious isnues and which has prospects of success in Belgium. I must also, I think, assume, and I do assume, that at any rate in Belgium that claic is not res judicata as a result of the dismissal of the company's counterclaim in the Queen's Bench action. The question is how in those circumstances ought I to exercise my discretion in this case".


I think that it is conceded that In this Court we must make the like assumptions: we must assume that there is in Belgian law a crossclaim which not only will lie according to the Belgian Code but which has at least some chance of success and that if it succeeds it will overtop the Bank's claim in the petition. We must also, I think, assume that although in thiscountry the company would be abut out of any further defence to the action on the bill, having submitted to judgment as it has done, that is no bar to proceeding. In Belgium on a further part of its claim. which is for another £120,000 or so, and that slain Is still alive. It is never suggested in the evidence filed on behalf of the Bank that the submission to judgment in the English action is such a bar, and the judge assumed that it was not so far as Belgium was concerned: and I propose for my part to make the same assumption here.


How, then, does the matter stand? The Bank has a judgment debt: It is therefore entitled (as used to be said) ex debito justitiae to a winding-up order. This is not in the ordinary case, there being no other circumstances a discretionary matter, but of course where...

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