News | May 25, 2023

City Gardens Ltd v DOK82 Ltd

City Gardens Ltd v DOK82 Ltd [2023] EWHC 1149 (Ch) was a successful appeal against the decision of the district judge below to dismiss a winding up petition on several bases: first that the court had no jurisdiction to make an order because arrangements between the parties were subject to an exclusive jurisdiction clause, secondly because they provided for the application of Hong Kong law rather than English law, thirdly by reason of disputes regarding certain other contractual terms, and finally by reason of an issue as to whether the company had a viable cross claim.

The creditor had contracted with the company for the supply of furniture packs for use in property developments on terms that payments made would be refunded if a development did not proceed. On that basis, £340,000 had become refundable to the creditor. Although there was a dispute about the meaning of certain of the contractual terms, His Honour Judge Pearce found in the creditor’s favour on that issue; and althoughthe creditor conceded that the company had raised a genuine issue on substantial grounds by way of a prospective cross claim, it successfully argued that the value of the cross claim was insufficiently determined, so could not constitute a substantial ground of dispute so that the court could conclude that it should be brought into account.

Of greater interest are the jurisdictional/foreign law issues which the judge had to consider: although the principles are well known, it is unusual to see them applied so simply and starkly.

The contractual provisions governing the relationship between the parties contained an exclusive jurisdiction clause in favour of Hong Kong and provided that they were subject to the law of Hong Kong. The district judge had dismissed the petition for both of these reasons. She held first that “this court cannot entertain the jurisdiction of this agreement, because the parties contracted to the exclusive jurisdiction of the Hong Kong courts.”

The appellant creditor submitted that this was plainly wrong. The judge, on the appeal,  accepted as correct the statement of law in French on Applications to Wind Up Companies (4th edition,  paragraph 7.637):

“The fact that a creditor petitioner and the company sought to be wound up have agreed that a court outside England and Wales is to have exclusive jurisdiction to decide disputes about the debt on which the petition is based does not preclude the English court from deciding whether there is a dispute about the debt sufficient to prevent the winding-up petition proceeding.”

As the judge noted, that statement of law is based onBST Properties Ltd v Reorg-Apport Penzugyi RT [2001] EWCA Civ 1997 and Citigate Dewe Rogerson Ltd v Artaban Public Affairs Sprl [2009] EWHC 1689:

“[T]his court is bound by the decision in BST v Reorg-Apport Penzugyi to find not only that the exclusive jurisdiction clause in this contract did not prevent the court from determining the issue under Section 123 of the Insolvency Act 1986 but that it was irrelevant to that exercise.”

On the Hong Kong law (as opposed to jurisdiction) point he relied on the well known proposition that the court applies English law if the party seeking to rely on any applicable foreign law fails to do so explicitly. He cited Rule 2 of Dicey, Morris and Collins on the Conflict of Laws (16th edition, paragraph 3R-001):

“(1) Where a party relies on foreign law, that law must be pleaded and proved as a fact to the satisfaction of the court by evidence or sometimes by other means.

(2) In a case involving a foreign element in which foreign law is not pleaded, the court will apply English law.

(3) Where foreign law is recognised to be applicable, but there is no evidence, or sufficient evidence, of the content of the following, it will in general be presumed to be the same as English law.”

In this case there had been no material before the court that suggested that Hong Kong law differed from English law in any respect material to the existence of the alleged debt, whether by way of evidence or even submission. The company had simply argued that the English court could not know whether there were differences and, if so, what those differences were. That was not sufficient:

“It follows that, whether this is properly seen as a case where English law is applied because the [company] has failed to prove the application of different legal principles or as a case where the presumption of similarity is applied, the court must apply English law to the alleged dispute on the debt.”

The appeal was allowed and the company was wound up.