„(…) Lord Justice Lloyd:
1. This judgment is given on preliminary issues as to jurisdiction and
choice of law in a dispute concerning a motor vehicle referred to for
convenience as Vehicle 48. Vehicle 48 is a motor home, but not an
ordinary one. It is a Super Nova 1000S, whose retail price now, the
evidence indicates, would be measured in hundreds of thousands of
pounds. It is the subject of a contract by letter dated 21st March 2003
between the two respondents to these proceedings, the first of whom I
will refer to as U. and the second as B.. This contract, which I will call
the 2003 contract, appears to be a transfer of the vehicle from the first
to the second respondent by way of security. The applicant, Mr O., is the
supervisor of a company voluntary arrangement entered into by another
company, U. M. H. I. Limited (UM.), of which U. was at the material times
a wholly-owned subsidiary. UM. is now in compulsory liquidation, as is
U.. U. has taken no part in the proceedings. The liquidator of UM. is not a
party to the proceedings.
2. Vehicle 48 was in Wales on 21st March 2003 but has been taken to
Germany by B. since the commencement of these proceedings. Mr O.
claims that Vehicle 48 belongs to UM.. He seeks by these proceedings to
have it decided what, if any, rights B. has in relation to Vehicle 48 under
the 2003 contract. B., which is incorporated in Germany, disputes the
jurisdiction of the English court to decide any such question, and also
asserts that the 2003 contract is governed by German law. Mr O. claims
that the English court has jurisdiction under one or other of two European
regulations: that on insolvency proceedings, regulation 1346/2000/EC,
or that on jurisdiction and judgments, which has largely replaced the
Brussels and Lugano Conventions, regulation 44/2001/EC.
The facts
3. Vehicle 48 is a Super Nova 1000S Motor vehicle with chassis number
YV31MA7151A05286 and registration plate CX52WDE. It was made by
UM., and was complete by December 2002.
4. However, the story starts with another vehicle, known as Vehicle
47. This was the subject of a contract between UM. and B. dated 7th
February 2002, by which UM. was to construct it to an agreed and high
specification, and supply it to B., in consideration of a substantial price,
paid by instalments. The contract is in two parts and is in the German
language. It is expressly subject to German law and to the jurisdiction of
the German courts (at Duisburg). The price for the vehicle was /552,000,
to be paid by four instalments: 30% on the placing of the order, 25%
during Week 12, a further 25% during Week 20, and the last 20% on
delivery during Week 30. Later the price was varied upwards to just short
of /590,000.
5. The price for Vehicle 47 was paid in full, but B. says that the
construction was not complete and that further costs of up to /250,000
are anticipated as necessary to complete the work. The 2003 contract was
entered into at the same time as the prepayment of the last instalment
of the price for Vehicle 47. The terms of the contract, which was by letter
countersigned and exchanged, are as follows (as translated from the
original German):
"Dear Sirs
Re: Transfer of Ownership of a Vehicle as Security
SUPER NOVA 1000S
Chassis No.: YV31MA7151A052864
Commission No.: 482864.03
Official Licence Plate: CX52 WDE
The above-mentioned vehicle is extensively described in the related
documentation which is available to you.
We are hereby transferring ownership of this vehicle to you as security for
a prepayment for commission 47,0700.02 to the amount of /126.000.00
(one hundred and twenty-six thousand Euro).
We expressly confirm that this motor vehicle is our sole property and that
it is free of any and all entitlements whatsoever of third parties. This also
relates to all components of the vehicle.
This declaration of assignment will be valid irrevocably until the point in
time at which commission 47,0700.02 of B. Electronic GmbH has been
delivered properly to it.
B. Electronics GmbH commits itself to return the Vehicle Document U5W,
No. 1864710 as well as this pledge of security against the successful
handover of the new vehicle for B. Electronic GmbH.
We would be thankful to you if you could sign and return the enclosed
copy of this letter to us.
Yours sincerely,
U. V. D. Ltd.
[Signature]
Dr. G. H."
6. On behalf of B. it is said that, although the letter was silent as to
jurisdiction and choice of law, there was an oral agreement between Dr
H. and Mr B. expressly applying German law and German jurisdiction.
Dr H. says that, although not strictly speaking a director of either UM.
or U., in practice he ran both companies. In his witness statement he
says that, prior to entering into the 2003 contract, he and Mr B. had
numerous discussions about the terms of the agreement and on what
basis Mr B. would agree to provide an advanced payment of the final
instalment due under the February agreement, and that this would be
only under condition that a security for this payment, as well as for the
orderly completion of Vehicle 47, was provided to him. He says that as
part of these discussions and negotiations they also addressed the issue
of jurisdiction and applicable law:
"It was expressly agreed that the same regime was to apply to the March
2003 agreement as applied to the February 2002 agreement."
7. Mr B., who is the managing director of B., says correspondingly that
he and Dr H. intended the agreement to be supplemental to the February
2002 agreement and that they orally agreed expressly on German
jurisdiction and German law. He confirms what Dr H. says in that respect.
He also says that he did not realise that he was dealing with a company
different from the company with whom the February 2002 agreement had
been made.
8. The corporate history of the two relevant companies is as follows. UM.
was incorporated on 14th April 2000. It started trading in September
2000, but ran into financial difficulties. It entered into a company
voluntary arrangement approved by its creditors on the 11th December
2001. The arrangement was one which provided for the company to
continue trading and to make monthly payments for the benefit of
creditors out of the receipts of the trading. The monthly payments
were not maintained. Eventually a variation of the arrangement was
proposed, and it was agreed by creditors on 13th December 2002.
This provided for U. (up to then a dormant company) to be transferred
into the ownership of UM. and for the business of UM. to be sold to U..
Pursuant to the variation of the arrangement UM. and U. entered into a
sale agreement dated 20th December 2002. Unfortunately that variation
of the arrangements did not have any long term beneficial effect on the
trade and the payments still were not maintained. On 2nd July 2003 each
of UM. and UD. was put into compulsory liquidation.
9. I must refer to some of the terms of the CVA.
"Clause 6: Assets6.1 The Arrangement funds shall be the Assets but
subject as herein before provided such that Assets will only include the
proceeds of disposal of the business if the Company shall be in default of
its proposed Profit Contributions. In the event that the Company complies
with its obligations in respect of Profit Contributions, the Arrangement
shall comprise only such contributions together with the proceeds of the
Disposal Properties and the disposal of plant and machinery and the book
debt collections.
6.2 All other assets of the Company are, for the avoidance of doubt,
excluded assets.
6.3 In consideration of the Creditors' agreement to the Arrangement, the
Arrangement funds and all of the Company's legal and beneficial interest
in the Assets and all sums realised in respect of the Assets shall from
the Commencement Date be held by the Company in trust. The trustee
shall be the Supervisor. The beneficiaries shall be all of the Creditors.
The terms of the trust shall be all relevant terms of this Proposal. If
required to do so by the Supervisor the Company shall execute a written
declaration of trust on the above terms. In the event (as described in
6.1) that the Company complies with its obligations in respect of Profit
Contributions the balance of the assets shall revert to the Company at the
conclusion of the Arrangement."
10. The relevant definitions are set out in Appendix A. Assets are defined
as
"all of the property assets and undertaking of the Company subject to the
specific terms of this Proposal and in particular paragraphs 3.2, 3.5 and
6.1."
There is no definition of the phrase Disposal Properties. The Profit
Contributions are the monthly payments, which were to have been made
by the company to the supervisor, of the sum of £10,833.00 each month
for 36 months.
11. Paragraph 4.5 of the arrangement was as follows:
"In the event that the Company defaults for more than three consecutive
months in payment of the payment on account of Profit Contribution
under Paragraph 8.2 or shall be any time in arrears in aggregate
more than the amount of three months' contributions then unless the
Supervisor shall conclude that there is a reasonable prospect of the
Company bringing such payments up to date, the Supervisor will forthwith
take such steps as shall be necessary to sell the business of the Company
as a going concern or alternatively shall realise the Assets and the
Company will concur, and will procure that the directors will concur, in
such sale and the net proceeds of sale shall thereon comprise part of the
Arrangement funds for the purpose of the Arrangement."
12. Paragraph 20 deals with default and describes as events of default
for the purposes of the arrangement, first, any failure by the company to
comply with the terms of the arrangement which the supervisor in his sole
discretion considers to be material. The two other events of default do not
matter for present purposes.
13. Termination of the arrangement is dealt with by Clause 21.
"21.1 If an event of default under paragraph 20 occurs the Supervisor
shall terminate the Arrangement and present a petition for the
administration or the winding up of the Company or convene a meeting of
the Members to pass a resolution for its winding up. If a winding up order
is then made the Supervisor shall cooperate fully with the liquidator in the
performance of his functions.
21.2 Unless terminated as a result of any default this Arrangement shall
end either at the end of the Arrangement Period or when all Assets
subject to the Arrangement have been realised and all funds have been
distributed in accordance with the terms of the Arrangement.
21.3 The Arrangement shall terminate immediately if at any time all sums
due to Creditors and all costs and expenses of the Arrangement are fully
paid or satisfied."
14. Clause 18 deals with variations to the arrangement but I do not need
to quote its terms.
15. The other document from which I need to quote at this stage is the
agreement dated 20th December 2002 for the sale to U. of the assets of
UM.. The sale itself is provided for by Clause 2. By this Clause, subject
to the terms and conditions of the agreement, UM. shall sell and U. shall
purchase "whatever right title and interest (if any) [UM.] may have in
the following Assets of the Business." It then lists the Equipment, the
Stock, the Contracts, the Intellectual Property, the Goodwill, and the
Book Debts. Clause 2.2 goes on to say that certain items are not included
in the sale and in particular, in Clause 2.2.9, "any motor vehicles". I
need to refer to a number of definitions which in this case are contained
in Clause 1.1. The Assets are defined as "all the assets of [UM.], the
right title and interest in which are agreed to be sold and purchased
pursuant to Clause 2". The Business is defined as UM.'s "business of
designing manufacturing and selling motor homes". The Equipment is
"all plant, machinery, furniture, equipment, tools and other chattel assets
(but excluding motor vehicles) of [UM.] situated on the Premises at the
Transfer Date." The Stock is "all stock in trade, raw materials and work in
progress of [UM.] which are situated on the Premises or on the premises
of third parties at the Transfer Date". By Clause 3.1 the consideration
for the sale and purchase was stated to be (so far as relevant) the sum
of £303,324. It was to be paid in accordance with Clause 4, by monthly
instalments of £10,833 on 11 January 2003 and each 11th day of the
month until 11 December 2004, with an additional payment due on that
date. By Clause 5.1 property to any right title or interest in any of the
Assets was to pass to U. only upon payment in full being made for the
respective assets pursuant to Clause 4. As I said, payment was not made
in full.
16. On the basis of that agreement, questions may arise as to whether
Vehicle 48 was included in the sale at all: was it excluded as a "motor
vehicle" or included as Stock? If it was included, did title to it pass from
UM. to U., given that the full purchase price was not paid by U.?
17. The early paragraphs of the CVA disclose something about the history
of the business before its acquisition by UM.. It is said to have been a
business founded by Dr H. which was carried on between 1995 and April
2000 through a company called U. M. Limited. It is said that the assets
of that company were acquired by another company called Ha. Holdings
Limited. Dr H. had a 50% shareholding in a yet further company called
Hi. Limited. In November 2001 that company entered into an agreement
under which it had an option to buy the whole of the share capital of
UM. and also to purchase the assets essential to UM. and owned by Ha.
Holdings. This aspect of the history is not fully explored in the evidence
before the court at present though the agreement dated 9th November
2001 between Hi. and Ha. Holdings is in evidence as is a letter by which
the option seems to have been exercised.
The proceedings
18. These proceedings were begun by Mr O., who issued an originating
application under section 7(4)(a) of the Insolvency Act 1986 on 16th
January 2004. He joined as respondents U. and B. but not the liquidator
of UM.. By the application he seeks directions as to several issues, namely
whether UM. is legally or beneficially entitled to the ownership of Vehicle
48 and if so the extent of its ownership, and then whether the 2003
contract is governed by English law so that the court has jurisdiction to
decide certain other issues, namely whether B. is entitled to a security
interest over Vehicle 48 and if so its extent and enforceability.
19. On 12th February 2004, District Judge Saffman made an order for
the determination of two preliminary issues. The first issue is whether the
court has jurisdiction to determine the issue of ownership and the validity
or enforceability of security over Vehicle 48. The second issue is whether
the applicable law is English law or German law.
20. The case first came before me on 18 October 2004, but it was
adjourned, both because Mr Doyle, for the applicant, wished to deploy
an argument of which notice had only just been given, and in the hope
that the dispute might be resolved by discussion between the parties.
Unfortunately the latter objective was not realised.
21. Based on the historical material in the CVA to which I have referred,
Miss Muth, on behalf of B., has raised in argument a further question
namely whether UM. ever had any title to Vehicle 48. That is not a point
that is within the scope of the preliminary issues, it has not been fully
explored in the evidence and it is not a matter on which I can properly
make any findings.
22. The evidence before the court consists of two witness statements
from Mr O., a witness statement of Sandra Morrison, solicitor for B.,
witness statements of Dr H. and Mr B. to which I have already referred,
and a further witness statement from a Mr Glithero, who is a solicitor
for Mr O.. The matter came before me without cross-examination of any
witness. I heard the arguments in a course of a day in Liverpool on 17th
March 2005.
Jurisdiction
The Insolvency Proceedings Regulation
23. On behalf of Mr O., Mr Doyle relies first on the European Regulation
on Insolvency Proceedings to demonstrate that this court has jurisdiction
over the relevant issues and parties. That Regulation 1346/2000/EC,
came into force on 31st May 2002, so after the CVA but before the
liquidation of UM.. Article 43 of the Regulation says:
"The provisions of this Regulation shall apply only to insolvency
proceedings opened after its entry into force."
24. The Regulation seeks to establish rules common to all member states
in the European Union (other than Denmark) as regards jurisdiction in
insolvency proceedings and also as regards the recognition of judgments
on the basis of such proceedings. Insolvency proceedings to which the
Regulation applies under United Kingdom law include winding up by
or subject to the supervision of the court and voluntary arrangements
under the insolvency legislation. The time when proceedings are opened
means, by virtue of Article 2(f), the time at which the judgment opening
proceedings becomes effective. That means the making of a winding up
order or the approval of a CVA. Clearly the Regulation does not apply
to the CVA in the present case because it came into effect before the
effective date of the Regulation.
25. In considering the effect of the Regulation it is necessary to have
regard to the preamble as well as to the operative provisions. In
particular, in the present case, recitals 6, 12 and 13 are of relevance.
They are as follows:
"(6) In accordance with the principle of proportionality this Regulation
should be confined to provisions governing jurisdiction for opening
insolvency proceedings and judgments which are delivered directly on
the basis of the insolvency proceedings and are closely connected with
such proceedings. In addition this Regulation should contain provisions
regarding the recognition of those judgments and the applicable law
which also satisfies that principle."
"(12) This Regulation enables the main insolvency proceedings to
be opened in the Member State where a debtor has the centre of his
main interests. These proceedings have universal scope and aim at
encompassing all the debtor's assets. To protect the diversity of interests,
this Regulation permits secondary proceedings to be opened to run
in parallel with the main proceedings. Secondary proceedings may be
opened in the Member State where the debtor has an establishment. The
effects of secondary proceedings are limited to the assets located in that
State. Mandatory rules of coordination with the main proceedings satisfy
the need for unity in the Community.
(13) The centre of main interests should correspond to the place where
the debtor conducts the administration of his interests on a regular basis
and is therefore ascertainable by third parties."
26. So far as international jurisdiction is concerned the most relevant
article is Article 3.1, as follows:
"The Courts of the Member State within the territory of which the centre
of the debtor's main interests is situated shall have jurisdiction to open
insolvency proceedings. In the case of a company or legal person the
place of the registered office shall be presumed to be the centre of its
main interests in the absence of proof to the contrary."
27. I must also set out article 25.1, which deals with the recognition and
enforceability of judgments:
"1. Judgments handed down by a court whose judgment concerning the
opening of proceedings is recognised in accordance with Article 16 and
which concern the course and closure of insolvency proceedings, and
compositions approved by that court shall also be recognised with no
further formalities. Such judgments shall be enforced in accordance with
Articles 31 to 51, with the exception of Article 34(2), of the Brussels
Convention on Jurisdiction and the Enforcement of Judgments in Civil and
Commercial Matters, as amended by the Conventions of Accession to this
Convention.
The first subparagraph shall also apply to judgments deriving directly
from the insolvency proceedings and which are closely linked with them,
even if they were handed down by another court.
The first subparagraph shall also apply to judgments relating to
preservation measures taken after the request for the opening of
insolvency proceedings."
28. The centre of the main interests of UM., and for that matter of U., is
in the United Kingdom. The CVA does not come within the definition of
main proceedings because it was opened too early, before the Regulation
came into force. The compulsory winding up of each company is a main
proceeding because of the date of the order. Nevertheless, Mr Doyle
argues that the application before me is covered by the jurisdictional
provisions of the Regulation because it is brought in the context of the
liquidation.
29. From the point of view of B. this proceeding no doubt appears no
different from an ordinary claim by a third party to be entitled to an asset,
namely Vehicle 48, and asserting interests inconsistent with those that B.
claims to have. Nevertheless, in a situation in which one of the parties is
insolvent, it is common, convenient and sensible for issues of that kind,
affecting the question of what are the assets of the relevant debtor, to be
able to be brought in the context of the insolvency proceedings governing
the debtor's estate. It is for that reason that it is necessary to consider
the jurisdiction of the court under the Insolvency Proceedings Regulation.
30. If the liquidator of UM. had brought an application in similar terms to
the present one under the provisions of Section 168(3) of the Insolvency
Act 1986, as he clearly could have done, the issue would have been raised
in main proceedings to which the Regulation applies. In that case the
respondents would have been B. and the liquidator of U. and possibly also
Mr O.. Miss Muth did not argue that, even in that case, the Insolvency
Proceedings Regulation would not apply. She limited her argument to the
temporal point, that the application is not in the liquidation and the CVA is
not main proceedings under the Regulation.
31. Mr O. could have joined the liquidator of UM. as a respondent to his
own application under Section 7(4)(a) of the 1986 Act. He did not do so,
perhaps because at that time no divergence of interest was perceived
between the creditors under the CVA and the creditors in the liquidation.
I was told that the liquidator was given notice of the proceedings but had
not sought to take part. Mr Doyle submits that, if the Regulation does not
apply to the present application, there would be an anomalous distinction
between the present position on the one hand, and the position in which
an exactly similar application were to be brought before the court by
the liquidator joining the present parties as respondents. In the latter
case, he says, the Regulation would apply and this court would have
jurisdiction. Why, he submits, should it make any difference if Mr O. is the
applicant rather than the liquidator, and why in turn should it make any
difference according to whether the liquidator of UM. is or is not a party?
32. In the course of argument, some attention was given to the
relationship between a CVA and winding up proceedings in the context
of the Regulation. In terms of UK proceedings, those are two types of
insolvency proceedings, both within the ambit of the Regulation, which in
theory can co-exist at the same time. (Receiverships, which can also co-
exist with liquidations, are not within the scope of the Regulation.) Indeed
in the present case, subject to arguments which have not been raised,
and which would arise between the supervisor and the liquidator, as to
the effect of the termination provisions of the arrangement, it appears
to be the case that both the CVA and the liquidation are current and
subsisting proceedings. As I say the CVA is not main proceedings, but
only because it came into effect before the Regulation did. If the dates
had been different and the CVA had been approved after the 31st May
2002 and had in due course been followed by compulsory winding up
proceedings, there would apparently be two main proceedings at the
same time in the same jurisdiction.
33. I was shown some passages from the Virgos-Schmit Report on the
draft Convention of Insolvency Proceedings. That draft Convention did
not come into effect but it preceded the Regulation and is in substantially
the same terms. The status of the Report, which has not been published
officially, is unclear, but it has been said that it "may have some influence
on the interpretation of the Regulation in view of the virtually identical
character of the text of each instrument": Dicey & Morris, Conflict
of Laws, 4th supplement to the 13th edition, paragraph S30-138. At
paragraph 73 the report says this, commenting on Article 3:
"Article 3(1) enables main insolvency universal proceedings to be
opened in the Contracting State where the debtor has his centre of main
interests. Main insolvency proceedings have universal scope. They aim at
encompassing all the debtor's assets on a worldwide basis and at affecting
all creditors wherever located. Only one set of main proceedings may be
opened in the territory covered by the Convention."
34. As it seems to me, that proposition does not bear on the question
whether, within one jurisdiction in a Member State, there may at any
given time be two simultaneous proceedings which are both main
proceedings. Whether that is even theoretically possible in other
jurisdictions within the Community I know not. It is certainly possible
in the United Kingdom. It is for national law to decide what insolvency
proceedings can be brought in the particular territory and in what
circumstances. I do not need to decide any point concerning the
interrelationship of what might be two simultaneous main proceedings in
the same jurisdiction because the point does not arise on the facts.
35. Having referred to the Virgos-Schmit Report, I can conveniently
mention at this stage a later passage to which Counsel drew my attention
in relation to the issues arising. This is paragraph 77, which deals with the
relationship between the convention on insolvency proceedings and the
1968 Brussels Convention. It is sensible that I quote the whole paragraph.
"Article 3.1 gives the Courts in the State of the opening of proceedings
jurisdiction in relation to insolvency proceedings. However, the
Convention contains no rule defining the limits of this jurisdiction. This
is a fundamental question since it raises the issue of the relationship
between the Convention on insolvency proceedings and the 1968 Brussels
Convention and their respective scope.
Certain Contracting States recognise a "vis attractiva concursus" in their
national law, by virtue of which the Court which opens the insolvency
proceedings has within its jurisdiction not only the actual insolvency
proceedings but also the actions arising from the insolvency. Although the
projection of this principle in the international domain is controversial,
the 1982 Community Draft Convention contained a provision in Article
15 which, according to the Lemontey Report, was inspired by the vis
attractiva theory. This article conferred on the Courts of the State of
the opening of insolvency proceedings jurisdiction over a wide series of
actions resulting from the insolvency.
Neither this precept nor this philosophy has been adopted in the
Convention. There is no provision in Article 3 of the Convention
addressing this problem. However, the Convention's silence on the matter
is only partial. Article 25 thereof contains the delimitation criterion
between both the 1968 Brussels Convention and this Convention.
This criterion is directly taken from the Court of Justice of the European
Communities. It was outlined by the Court of Justice in the interpretation
of Article 1(2) of the 1968 Brussels Convention in its judgment of 22nd
February 1979 (Case 133/78 Gourdain v. Nadler [1979] ECR 733).
Article 1(2) of the 1968 Brussels Convention excludes "bankruptcy,
proceedings relating to the winding up of insolvent companies or other
legal persons, judicial arrangements, compositions and analogous
proceedings" from its scope. In that judgment the Court of Justice of
the European Communities used the nature of the action taken as the
criterion for determining whether or not the jurisdiction rules of the 1968
Brussels Convention applied. According to this criterion, actions directly
derived from insolvency and in close connection with the insolvency
proceedings are excluded from the 1968 Brussels Convention. Logically, to
avoid unjustifiable loopholes between the two Conventions, these actions
are now subject to the Convention on insolvency proceedings and to its
rules of jurisdiction."
36. The effect of a winding up on a subsisting voluntary arrangement,
and indeed that of a bankruptcy on an individual voluntary arrangement,
has been the subject of a number of judicial decisions. The position has
been reviewed authoritatively by the Court of Appeal in the case of Re NT
Gallagher & Sons Limited [2002] EWCA Civ 404, [2002] 1 WLR 2380, and
summarised as follows:
"54. It may be helpful if we were to summarise our conclusions on the
points raised in this appeal.
(1) Where a CVA or IVA provides for moneys or other assets to be paid
to or transferred or held for the benefit of CVA or IVA creditors, this will
create a trust of those moneys or assets for those creditors.
(2) The effect of the liquidation of the company or the bankruptcy of the
debtor on a trust created by the CVA or IVA will depend on the provisions
of the CVA or IVA relating thereto.
(3) If the CVA or IVA provides what is to happen on liquidation or
bankruptcy (or a failure of the CVA or IVA), effect must be given thereto.
(4) If the CVA or IVA does not so provide, the trust will continue
notwithstanding the liquidation, bankruptcy or failure and must take effect
according to its terms.
(5) The CVA or IVA creditors can prove in the liquidation or bankruptcy for
so much of their debt as remains after payment of what has been or will
be recovered under the trust."
37. In the present case there may be some uncertainty as to the effect
of the winding up on the voluntary arrangement under paragraph 21 of
the arrangement. Does the trust for creditors continue, so that only any
surplus after realisation and distribution to creditors within the scope
of the arrangement goes to the liquidator, or does the whole revert to
the liquidator at once, being held by the supervisor on trust for him? In
the absence of the liquidator it would be wrong to express a view as to
what the position is under the present voluntary arrangement. Clearly
the liquidator has an interest in the assets subject to the arrangement
on either basis. Equally, the supervisor remains a trustee even if the
arrangement did terminate on the making of the winding up order and the
assets were then held on trust for the liquidator. Either way the supervisor
is entitled to apply for directions under section 7(4)(a) of the Insolvency
Act.
38. I accept that it would, on the face of it, be surprising if the answer
to the question which court had jurisdiction were to differ according to
whether the applicant is the supervisor or the liquidator. However Miss
Muth, while not disputing that an application by the liquidator would be
within the main proceedings and that this court would have jurisdiction
over it, says that the same is not the case on the present facts where the
supervisor is the applicant and the liquidator is not a party. She submits
that one cannot simply jump over the gap between one proceeding which
is not a main proceeding affected by the Regulation to the other which is.
The supervisor, in her submission, is merely a trustee claiming an asset
from a third party.
39. Anomalous as it may seem that the application of the Regulation
should depend on who made the application and who are the
respondents, that does seem to be the case. Such anomalies may often
arise if there are overlapping procedures, treated differently according
to whether they were started before or after a given threshold date. This
seems to me all the more clearly so in the absence of the liquidator from
the present proceedings, so that the application is proceeding entirely
outside the scope of the winding-up proceedings. I therefore reject the
argument that the Insolvency Proceedings Regulation applies and that this
court has jurisdiction on that basis.
40. Although it is unnecessary to my decision, and goes beyond the
scope of the matters argued before me, I must add that, in the course
of considering the points raised while preparing this judgment, I have
come to the view that the Insolvency Proceedings Regulation would not
govern this claim in any event. Procedurally, of course, the application
is made within the insolvency proceedings constituted by the CVA and
governed by sections 1 to 7 of the Insolvency Act 1986. If the liquidator
of UM. had issued a similar application under Section 168(3) it would have
been within the winding-up proceedings which are main proceedings.
But the scope of the matters which are the subject of the Insolvency
Proceedings Regulation is to be understood from recital 6,article 25 and
the corresponding provision of the Judgments Regulation, article 1.2(b).
The text of that is the same as the equivalent provision of the Brussels
Convention, which is set out in paragraph 77 of the Virgos-Schmit Report,
quoted in paragraph 35 above. That passage casts some light on the point
generally.
41. As mentioned in that passage, the equivalent provision of the Brussels
Convention was interpreted in Gourdain v. Nadler, in which the European
Court of Justice said this at [1979] ECR 744:
"As far as concerns bankruptcy, proceedings relating to the winding-up
of insolvent companies or other legal persons, judicial arrangements,
compositions and analogous proceedings, according to the various laws of
the Contracting Parties relating to debtors who have declared themselves
unable to meet their liabilities, insolvency or the collapse of the debtor's
creditworthiness, which involve the intervention of the courts culminating
in the compulsory "liquidation des biens" in the interest of the general
body of creditors of the person, firm or company, or at least in supervision
by the courts, it is necessary, if decisions relating to bankruptcy and
winding-up are to be excluded from the scope of the Convention, that
they must derive directly from the bankruptcy or winding-up and be
closely connected with the proceedings for the "liquidation des biens" or
the "règlement judiciaire".
42. On this basis it has been held that a claim by a liquidator to recover
pre-liquidation debts, although made in the course of the winding-up
and so, in a sense, relating to it, does not derive directly from it and is
therefore not excluded from the Brussels Convention (and therefore now
not from the Regulation) by article 1.2(b): see Re Hayward deceased
[1997] Ch 45 and UBS AG v. Omni Holding AG [2000] 1 WLR 916. By
contrast, proceedings by a liquidator against a director or a third party to
set aside a transaction as having been effected at an undervalue or on the
basis of wrongful or fraudulent trading would be claims deriving directly
from the winding-up and therefore excluded from the Brussels Convention
and now from the Judgments Regulation.
43. Looked at in that light, this claim by Mr O., albeit in terms not overtly
confrontational in the originating application, asserts that Vehicle 48 is
vested in him as trustee, that it belonged to UM. rather than to U. at
the relevant moment and that B. has no interest in it. On that basis he
would claim the return of the vehicle by B. if he wins. That is a claim
which UM. could have asserted whether or not any insolvency proceedings
were under way. Accordingly, it seems to me that the assertion that
the Insolvency Proceedings Regulation applied was unjustified not only
because of the temporal point on which I have decided it but also because
it is not such a claim as would fall within the Regulation in any event. That
is not the ground of my decision but it appears to me to be correct.
The Judgments Regulation
44. Mr Doyle's alternative argument is based on rules as to jurisdiction
within the European Union based on the provisions of the Brussels
Convention. The relevant provisions are now contained in European
Regulation 44/2001/EC on jurisdiction and judgments which became
effective on 1st March 2002.
45. The starting position is set out in Article 2:
"Persons domiciled in a Member State shall be sued in the Courts of that
Member State."
46. That, however, is subject to the other provisions of the Regulation.
Each side relies on different such provisions. There is no doubt that
B. is domiciled in Germany. Miss Muth's argument is that, accordingly,
an action against B. must be brought in the courts of Germany. She
reinforces that argument by contending that there is an express choice of
jurisdiction agreement, whereas Mr Doyle argues that proceeding against
B. in England is justified under a provision in Article 6.
47. The relevant part of Article 6 is as follows:
"A person domiciled in a Member State may also be sued:
1. Where he is one of a number of defendants, in the Courts for the place
where any one of them is domiciled, provided the claims are so closely
connected that it is expedient to hear and determine them together
to avoid the risk of irreconcilable judgments resulting from separate
proceedings."
48. U. is of course a respondent to the application and is domiciled in the
United Kingdom. So, Mr Doyle submits, B. may be sued in the courts of
the United Kingdom as one of a number of defendants, the other being
domiciled in the United Kingdom.
49. Miss Muth seeks to trump that argument by reliance on Article 23,
which undoubtedly takes priority over other provisions if it applies. It is in
the following terms:
"If the parties, one or more of whom is domiciled in a Member State, have
agreed that a Court or Courts of a Member State are to have jurisdiction
to settle any disputes which have arisen or may arise in connection with a
legal relationship, that court or those courts shall have jurisdiction. Such
jurisdiction shall be exclusive unless the parties have agreed otherwise.
Such an agreement conferring jurisdiction shall be either (a) in writing or
evidenced in writing; or (b) in a form which accords with practices which
the parties have established between themselves; or (c) [which is not
relevant on the facts]".
50. Miss Muth relies upon the agreement between Dr H. and Mr B. that
the courts of Germany should have jurisdiction in relation to the 2003
contract. This, she accepts, was not in writing nor is it evidenced in
writing. She contends however that it was in a form which accords with
practices which the parties had established between themselves.
51. The European Court of Justice has on a number of occasions
emphasised that the requirements set out in what is now Article 23
(previously Article 17 of the Brussels Convention) must be strictly
construed, since the purpose of the article is to ensure that the parties
have actually consented to such a clause, which derogates from the
ordinary jurisdiction rules laid down in Article 2, 5 and 6, and that their
consent is clearly and precisely demonstrated: see, for example, The Tilly
Russ, or Partenreederei MS Tilly Russ v. Haven & Vervoebedrijf Nova NV,
Case 71/83, [1984] ECR 2417, [1985] QB 931, at paragraph 14 of the
judgment.
52. Miss Muth pointed out that, in The Tilly Russ, a bill of lading was held
to be capable of coming within the terms of the relevant article on three
possible bases (see paragraph 19 of the judgment):
"If the agreement of both parties to the conditions of the bill of lading
containing that clause has been expressed in writing; or if the jurisdiction
clause has been subject of a prior oral agreement between the parties
expressly relating to that clause, in which case the bill of lading, signed
by the carrier, must be regarded as confirmation in writing of the oral
agreement; or if the bill of lading comes within the framework of a
continuing business relationship between the parties, in so far as it
is thereby established that that relationship is governed by general
conditions containing the jurisdiction clause."
53. She submitted that there is a strong factual analogy between that
case and the present, and that therefore this passage provides support
for a conclusion favourable to her client's contention in favour of a binding
jurisdiction agreement. However, I note from the opinion of Advocate-
General Sir Gordon Slynn, at [1985] QB 934, B to D, that the relevant
article was in a different form at that time, and only referred to the
agreement being in, or evidenced in, writing. The bill of lading was
in writing, so the question was whether it was the agreement or was
evidence of the agreement. Nothing in the case bears on the second limb
of the article as it now stands, or casts any light on what is necessary for
that to be satisfied.
54. In the present case there is nothing relevant in writing. Moreover,
it seems to me that there is no factual basis on which it can be said
that the form in which the parties came to the jurisdiction agreement,
which it is said had been reached in this case, was one which "accorded
with practices previously established between the parties". So far as I
am aware there had been only one relevant dealing at all, namely the
contract relating to Vehicle 47. That contract was in writing. There may
have been many discussions and dealings between the parties in relation
to it once it had been entered into but it has not been suggested that
any contract was entered into between B. and either UM. or U. after the
contract in relation to Vehicle 47 until 21st March 2003. Accordingly,
quite apart from the fact that the 2003 contract was between U. and B.,
whereas the Vehicle 47 agreement was between UM. and B., it seems
to me that the evidential basis for Miss Muth's submission is entirely
absent. I therefore reject the submission that the German courts have
jurisdiction by virtue of Article 23. Even if the oral agreement referred
to in the witness statements of Dr H. and Mr B. was made, it would not
satisfy the requirements of Article 23 and it cannot therefore prevail over
the effects of the earlier articles.
55. Miss Muth's next submission is that Article 2 governs the case and
that the case cannot be brought within the terms of Article 6.1. She
cannot, however, dispute the fact that the proceedings have been brought
against U. which is domiciled in the United Kingdom. Nor does she take
issue with the proposition that the claims against U. and the claims
against B. are so closely connected that it is expedient to hear and to
determine them together to avoid the risk of irreconcilable judgments
resulting from separate proceedings. Those words did not appear in
Article 6.1 in the Brussels and Lugano Conventions but they reflect
the effect of the decision of the European Court of Justice in Kalfelis v
Schröder, Case 189/87 [1988] ECR 5565. Plainly if an issue arises as
to the ownership of Vehicle 48 and as to the existence or otherwise,
and if it exists the nature, of the interest in it claimed by B., and since
there appear to be issues arising in relation to that vehicle under the
sale agreement between UM. and U., those are all issues which must
be determined in the same proceedings. Miss Muth accepts that U. is a
necessary or at least a proper party to the proceedings but she submits
that it is a merely a formal party and points to the fact that it has taken
no active part in the proceedings to date. In those circumstances she
submits that the presence of U. in the proceedings should be ignored and
that Article 6.1 should be regarded as not applying.
56. It is true that U. has not yet taken any active part in the proceedings
and may not do so in future. However, it seems to me that the need
to avoid inconsistent and irreconcilable decisions relating to Vehicle
48, which is the subject matter of the proceedings, is an overriding
consideration and plainly U. is a necessary party to the proceedings. In
those circumstances it seems to me that Article 6.1 clearly does apply
to the case. On that basis I accept Mr Doyle's submission that the claim
is properly brought against B. in the courts of England and Wales as a
co-defendant to proceedings also properly brought against U. which is
domiciled in this jurisdiction.
Choice of Law
57. Lastly I come to the question posed by the second of the preliminary
issues. As formulated in the order, that is "whether the applicable law is
English law or German law." That is formulated in very general terms.
There may be a number of issues relevant to the question whether UM.
has any and if so what entitlement by way of legal or beneficial ownership
to Vehicle 48 and as to the existence and nature of the rights claimed
by B.. Among them would be the effect of the sale agreement between
UM. and U. in December 2002. Plainly that question is governed by
English law. There might be issues as to which the choice of law would
be governed or at least influenced by the location of the vehicle at the
relevant time -- in the present case in England and Wales until after the
proceedings were commenced. Given that Dr H. was not in fact a director
of U. there could possibly be an issue as to whether his acts bound U.;
such a question might be subject to a different law from that which
governs the contract if it was effective.
58. The preliminary issue needs to be understood in the context of
paragraph 1(c) of the originating application issued by Mr O., which is as
follows:
"Whether or not [the 2003 contract] purportedly creating security in
favour of the second respondent over the vehicle is governed by English
Law such that this Court has jurisdiction to determine those issues raised
in sub paragraph (d) below".
59. The reference to jurisdiction in that context is puzzling. In relation to
a defendant not domiciled in a state governed by the Brussels or Lugano
Conventions or the Judgments Regulation, the fact that the contract in
relation to which a claim is made is governed by English law may be
relevant: see Civil Procedure Rules Part 6 Rule 20(5)(c). In relation to a
defendant domiciled in Germany, however, the position is governed by
the Judgments Regulation, and the rule about jurisdiction in relation to
contract claims as such, in Article 5, has nothing to do with the applicable
law. It is therefore unnecessary and irrelevant to decide what law governs
the 2003 contract in order to hold that this court has jurisdiction.
60. It is likely to be necessary for this court to decide what law governs
the 2003 contract in order that the effect of that agreement can be
determined in relation to the issues arising. Other issues of choice of law
may well also arise. The letter setting out the agreement is silent on the
question of choice of law. Dr H. and Mr B., in their witness statements
from which I have quoted, both say that there was an oral agreement
between them at the time under which expressly German law was to
govern, just as it had by express written provision the contract relating to
Vehicle 47 between UM. and B.. There has been no cross-examination in
the course of the proceedings before me.
61. This court must apply English conflict of laws rules in order to decide
which of two or more possible systems of law governs the particular
contract. The relevant principles of English law are contained in the
Contracts (Applicable Law) Act 1990 which incorporates the Rome
Convention into English law. By Article 3 that expressly adopts the
principle of freedom of choice, which was already the basis of English law
on the point. It entitles parties to choose what law they wish to govern
their contract (subject to irrelevant exceptions), so long as the choice
is express or demonstrated with reasonable certainty by the terms of
the contract or the circumstances of the case. Unlike the Judgments
Regulation, Article 23, there is no requirement for writing nor any other
requirement as to the form or the nature of the agreement. So, Miss Muth
submits, there is uncontested evidence of an express oral agreement
as to the applicability of German law and there is no further formal
requirement which has to be satisfied in order for that agreement to be
effective.
62. Some interesting submissions were addressed to me, based on Article
4 of the Rome Convention, as regards the applicable law in the absence
of choice under Article 3. If Miss Muth is right, those questions do not
arise. If they do arise they pose some difficult issues of interpretation and
application.
63. Mr Doyle's skeleton argument for the hearing on 18 October 2004
suggested that the evidence of Dr H. and Mr B. about the oral agreement
was open to question, and that there was no reliable evidence of an
express agreement as to choice of law (see paragraphs 4.8 and 4.11).
B.'s solicitors arranged for the two men to attend court both on that
occasion and at the hearing before me. Before the hearing on 17 March
2005 Mr Doyle made it clear that he did not propose to cross-examine.
No order for cross-examination had been made either by DJ Saffman
when he directed the hearing of the preliminary issues, or since then.
On that basis, Miss Muth submits, the position is that the court has
unchallenged evidence that the two men did agree orally as to jurisdiction
(albeit ineffectively for reasons already given) and as to choice of law.
An oral agreement as to choice of law is effective as part of a contract. It
matters not whether the true view is that the letter of 21 March 2003 is a
complete agreement, with a collateral agreement as to choice of law, or
was part of a wider agreement, or evidence of part of it, the rest of which
was oral.
64. Mr Doyle submits, correctly, that insolvency proceedings do not
normally involve cross-examination, unless an order is made for it to
take place: see Insolvency Rules 1986 rule 7.7. Of course, when the
preliminary issues were ordered, it was not known whether there would
be any disputes of fact and therefore any need for cross-examination.
Such an order could, however, have been sought on 18 October 2004
when the case came before me and was adjourned. By then it was plain
that there were issues as to the factual evidence, as Mr Doyle's skeleton
argument showed. In the absence of an order for cross-examination Mr
Doyle submits that I should not accept the evidence of Dr H. and Mr B.
as uncontested or unchallenged, that on the contrary I should allow that
evidence to be tested by cross-examination at a future hearing, and that
therefore I should not answer the second preliminary issue now.
65. When preparing my judgment I was uncertain as to whether I ought
to decide the second issue. I have had further written submissions on the
point from Miss Muth and Mr Doyle. In the light of those submissions, I
am satisfied that I should proceed to decide the point.
66. It is true that cross-examination does not normally take place in
insolvency proceedings in the absence of an order that it should. Such
an order could have been sought on 18 October 2004, by which time it
was clear that Mr Doyle wished to question the evidence of B.'s factual
witnesses. Not having sought such an order then (and, for good measure,
having declined the opportunity, which was offered, of cross-examination
without an order in March 2005) it is not right that the supervisor should
seek a second opportunity now. Any relevant issue of fact which needed
to be decided in order that the court could answer the preliminary issues
fell for determination at the hearing of the preliminary issues as directed.
If any such issue of fact required cross-examination, an order for cross-
examination should have been sought in advance of the hearing on 17
March 2005. In all probability B. would have agreed to the application and
the court would have made the order. The supervisor not having taken the
opportunity to apply for such an order at a time when it was clear that he
did want to question the factual evidence, it seems to me that it is now
too late for him to seek to keep the question of fact, and therefore the
answer to the second preliminary issue, open and unresolved.
67. I accept Miss Muth's submissions on this point and on the substance
of the issue. It seems to me that I must regard the evidence as
unchallenged, and that the answer to the preliminary issue therefore
follows. Accordingly, I will answer the second of the preliminary issues by
declaring that the contract dated 21 March 2003 is governed by German
law, by virtue of an agreement to that effect between the parties to it.
Conclusion
68. Accordingly I rule on the first of the preliminary issues in favour of
the jurisdiction of this court on the basis of the Judgments Regulation, not
of the Insolvency Proceedings Regulation, and on the second preliminary
issue in favour of German law.
69. I will refer the matter back to a District Judge for directions as to the
future conduct and case management of the proceedings.(…)“