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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Stocznia Gdanska SA v Latreefers Inc [1998] EWHC 1203 (Comm) (21 December 1998) URL: http://www.bailii.org/ew/cases/EWHC/Comm/1998/1203.html Cite as: [1999] 1 BCLC 271, [1998] EWHC 1203 (Comm)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		21 December 1998

Mr. Justice Lloyd,

1. This winding-up petition is the latest stage in a long saga of litigation, mainly but not only in this jurisdiction, arising out of six contracts for the design, building, completion and delivery of refrigerated vessels (reefers) dated 11 September 1992. The Company, ("Latreefers") which was the buyer under the contracts, is a Liberian company which was incorporated only two days before it entered into the contracts. Its ultimate parent company is the Latvian Shipping Co. ("Latco"), a state trading corporation. The Petitioner, which was to design and construct the vessels, is Stocznia Gdanska S.A., a Polish shipbuilding yard ("the Yard").
2. The six contracts had an English choice of law clause. As a result it is in this jurisdiction that the main battles between the parties have been fought out, hitherto in proceedings in the Commercial Court which have occupied the time of many of the judges of that court as well as of judges of the Court of Appeal and the House of Lords.
3. The total price payable under the six contracts would have been more than $170 million. The price was payable by stages, with an initial 5% due shortly after the signing of the contracts. This amount was paid, but nothing else has been paid by Latreefers.
4. The present position as regards the parties' rights and obligations under the contracts can be seen from the speeches in the House of Lords in Stocznia Gdanska S.A. v. Latvian Shipping Co [1998] 1 WLR 574. For present purposes it can be summarised as follows.
5. Under contracts 1 and 2, the Yard is entitled to retain the 5% payment already made and is entitled to be paid the second instalment which became due after the laying of the keel for the vessels and the service of a keel-laying notice. The second instalments under the two contracts amounted to just over $11 million. Summary judgment was given under RSC Order 14 for this amount, with interest, in favour of the Yard. That amount, together with interest which brings in up to over $15.8 million now, is the petition debt. In addition the Yard claims damages for breach of contract. Whether it will obtain judgment for any such damages depends, among other things, on the effect of Article 5.05 of the contracts, in the events which have happened. These include the appropriation of the keels to two other new vessels, which were sold to another buyer in September 1994 for some $45 million, thus about $10 million short of the contract price. Latreefers claims, as I will explain later, that the Yard has to bring into account, in the calculations required under Article 5.05, a further $9 or 10 million which, it says, the Yard ought to have obtained, but did not, on the sale of these vessels, pursuant to the express contractual duty to mitigate loss in Article 5.05, and that this would result in a sum being due from the Yard to Latreefers.
6. Under contracts 3 to 6, Latreefers claims to recover the 5% initial payments made to the Yard, on the basis of total failure of consideration. In order to make good that claim, they must show that the Yard has not performed any part of the contractual duties in respect of which the payment is due: see Lord Goff of Chieveley at [1998] 1 W.L.R. 588 D. Lord Lloyd of Berwick put the point in different terms but to the same effect 589H to 600B. The Yard's claim to be entitled to the second instalment under each of these four contracts has been rejected. However the Yard also claims damages on the basis of an anticipatory repudiation of these contracts, an argument which Lord Goff described as substantial, though he also applied the same adjective to the contract contentions which are open to Latreefers, including whether such a claim is compatible with the presence of Article 5.05 in the contracts, even if the Yard cannot take advantage of that Article, not having (validly) rescinded in the contracts under Article 5.05(1).
7. The Commercial Court litigation has been consolidated and repleaded as a result of the House of Lords orders. It continues on its way. I am told that discovery has taken place but that Latreefers has not yet inspected the documents disclosed by the Yard. There are other defendants, including Latco, and other causes of action in that litigation, by way of an attempt on the part of the Yard to attach liability to someone worth suing.
8. I should mention that, although all six contracts were entered into on 11 September 1992, contracts 4 to 6 were conditional. On 11 January 1993 Latco decided that the option to continue with these contracts should be exercised. It was only after this that the initial 5% became due and was paid under these contracts. At about the same time there were certain agreed variations of these contracts which, among other things, led to an increase in the contract price.

Latreefers

9. Latreefers, as I say, was incorporated in Liberia. It has an issued share capital of 100 bearer shares with no par value. There is no indication of any money having been subscribed in respect of those shares. It has three directors, who are residents of the Isle of Man, solicitors, and employees of or otherwise connected with a Manx company called Capco Trust I.O.M. Ltd. ("Capco"), which provides services in the formation and administration of offshore companies. Latreefers' immediate parent is said to be another Liberian company called Latmar Holdings Corporation. Latreefers appointed a number of persons as its attorneys, from time to time and for different purposes. These included several persons based in Latvia, but also several based in London, including solicitors who were partners or employees of Watson Farley & Williams ("WFW"), persons who were officers or employees of Latmar Services Ltd. ("Latservices"), an English company with offices in London, and a Mr. Henriksen, a Norwegian ship broker operating through a Bermuda service company but with offices in England (as well as himself having a home here).
10. Latreefers' sole commercial activities were the entry into the six contracts and the dealings that have taken place since then in relation to those contracts, including the resulting litigation. It has a bank account with Hambros Bank in London which it opened in connection with the contracts. The authorised signatories on this account include one of the directors of Latreefers, together with three individuals associated with Latservices. There may be a small sum standing to the credit of that account. It appears that substantial sums passed through the account. Subject to that it does not seem that Latreefers has, or ever has had, any liquid assets. It is not in doubt that the initial 5% payments were provided by Latco or other group companies.
11. Attempts were made to secure funding for the buyers' obligations under the contracts, but these were unsuccessful, due no doubt at least in part to the decline in the reefer market. By December 1993 Latreefers' representative told the Yard that although Latreefers wanted the vessels there was no way that it could pay for them in accordance with the contracts. In fact Latreefers was totally dependent on Latco to arrange funding, and Latco depended on securing loan facilities for the purpose.

Latreefers - its incorporation and management

12. By 9 September 1992 the negotiation of the proposed six contracts was well advanced. It had been conducted by representatives of Latco, on the buyer's side, but it had been made clear that the actual buyer would be nominated in due course. Negotiation on technical aspects, in particular the specification, seems to have taken place both at Gdansk and at Riga. However it was also agreed that the contract would be governed by English law and that the final negotiation of the contract would take place in London.
13. On, or perhaps shortly before, 8 September WFW took steps to have Latreefers set up, using a U.S. based incorporation agency to see to the incorporation. Capco was used both to provide the directors and to see that the directors held a board meeting and passed a resolution authorising entry into the contracts and empowering any one of several named individuals to act on behalf of the company in executing the contracts. On 8 September WFW faxed to Ms Potts of Capco a letter asking her to see to the passing of board resolutions in terms sent to her, and the execution of a power of attorney also in terms supplied. All these things were done on 9 September, together with the other necessary preliminaries. It is clear from the documents in evidence (which include, with the leave of Mance J., documents obtained on discovery in the Commercial Court action) that the directors were accustomed to receive requests both from WFW and from Latservices for the execution of documents and the passing of board resolutions in terms which were often supplied by the person making the request, and they were accustomed to comply with these requests. The evidence includes a statement by Ms Potts, apparently prepared in connection with related proceedings in France, which explains in some detail how the company was set up and operated, demonstrating the care that was taken to ensure that decisions on the part of Latreefers were taken either by the board or by someone duly authorised by the board, so as to emphasise the independent corporate personality of Latreefers. Although the documents submitted to Capco will have been considered by one or more of the directors before being signed, I have no reason to doubt that it was a matter of course for the directors to do as they were requested.
14. In her statement Ms Potts explains that the money required by Latreefers for the shipbuilding contracts would have had to come from banks and that she anticipated that, in the normal way, finance would have been arranged through the group, though the final decision whether to accept the terms of the loan facilities would have been taken by the board of Latreefers. She says that negotiations were taking place with Hambros at the outset which would have involved security given by the group. She also says that it was due to a downturn in the reefer market that no facilities were finalised and Latreefers was unable to obtain funds to pay the instalments due after the first. Mr. Lax, of Latreefers' solicitors Lawrence Graham, says that it had been intended that the money needed to pay the instalments would come from a loan by a German bank, Hamburgischer Landesbank, and that in the meantime funds would be provided from elsewhere in the group. In fact, he says, hire earned by various Latvian vessels was paid into the Hambros account, opened in February 1993, and it was out of those sums that the initial 5% payments due on contracts 4 to 6 were paid in early March 1993. He however confirms that the negotiations with the German bank failed by September 1993, due to the decline in the reefer market. It was at that stage that Latco engaged Mr. Henriksen to seek to renegotiate the contracts on behalf of Latreefers, which he attempted to do, but the Yard would not agree.

The issues

15. There is no doubt that Latreefers is unable to pay its debts as they fall due, or that the Yard is a creditor. However issue is taken on the petition on two grounds. First, it is said, the court has no jurisdiction to wind up Latreefers, as a foreign corporation, or rather, the conditions which the courts have laid down for exercising the statutory jurisdiction are not satisfied. Secondly, it is contended that as a matter of discretion the court ought to adjourn the petition, either because Latreefers has a substantial cross-claim which would exceed the amount of the debt (cf. Re Bayoil S.A. unreported 31 July 1998) or because the petition is presented in order to stifle the defence of Latreefers' position in the litigation, and in particular the pursuit of the counterclaim. As an alternative, the Yard invites me to appoint provisional liquidators, if I am not willing to make an immediate winding-up order. If it comes to that, Latreefers would not oppose it in principle, if the court is satisfied that there is jurisdiction to make a winding-up order, but would take issue with the width of the powers proposed for the provisional liquidators.

Jurisdiction to wind up Latreefers as a foreign company

16. The court's power to wind up a foreign company is conferred by s.221 of the Insolvency Act 1986. This is in entirely general terms. The courts have, however, laid down constraints as regards the circumstances in which this jurisdiction will be exercised. In Banque des Marchands de Moscou (Koupetschesky) v. Kindersley [1951] Ch 112, Sir Raymond Evershed MR. spoke, at 126, of "the circumstances .. which .. would make the case appropriate for the exercise by our court of its winding-up jurisdiction". He also said this, at p.125:

"As a matter of general principle, our courts would not assume, and Parliament should not be taken to have intended to confer, jurisdiction over matters which naturally and properly lie within the competence of the courts of other countries. There must be assets here to administer and persons subject, or at least submitting, to the jurisdiction who are concerned or interested in the proper distribution of those assets."

17. The formulation of these principles has changed over time, and in particular the presence of assets in the jurisdiction is no longer regarded as essential. Mr. Pascoe for Latreefers reserves for argument in a higher court the question whether the principles as laid down in recent first instance authority are correct, but he does not invite me to depart from them.
18. As a result of the decisions of Megarry J in Re Compania Merabello San Nicolas S.A. [1973] Ch 75, Nourse J in Re Eloc Electro-Optiek and Communicatie B.V. [1982] Ch 43 and Peter Gibson J in Re a Company (No. 359 of 1987) [1988] Ch 210 (also know, less enigmatically, as International Westminster Bank plc v. Okeanos Maritime Corporation, and to which I will refer as the Okeanos case) the statement of the relevant principles has evolved to the point at which they were summarised, most recently, by Knox J in Re Real Estate Development Co [1991] BCLC 210, at 217, as consisting of three core requirements, as follows:

(1) There must be a sufficient connection with England and Wales which may, but does not necessarily have to, consist of assets within the jurisdiction.

(2) There must be a reasonable possibility, if a winding-up order is made, of benefit to those applying for the winding-up order.

(3) One or more persons interested in the distribution of assets of the company must be persons over whom the court can exercise a jurisdiction.

19. This statement of principle was referred to by Peter Gibson LJ in Re Titan International Inc. [1998] 1 BCLC 102 at 107, but the facts and the nature of the case were different, so that this citation does not add to the authority of Knox J's statement. Mr. Pascoe contends that none of these three requirements is satisfied on the facts of the present case.

Sufficient connection with England and Wales

Mr. Moss Q.C. for the Yard points to the following connections.

20. The contracts were executed in England. The whole purpose of Latreefers' incorporation was to enter into the contracts, which have constituted its sole business. They are governed by English law so that the parties to the contract including Latreefers, as well as those promoting it, must have anticipated that English courts would exercise jurisdiction over their dealings, as in fact they have, leading to an English judgment debt on which the petition is based. Latreefers' only known bank account is in England, and may contain a small credit balance. The attorneys appointed by the board to act on behalf of Latreefers included English based individuals, not only solicitors at WFW but also persons associated with Latservices and also Mr. Henriksen. Latservices itself, an English company member of the group, seems to have given the relevant directions as to the application of the money in the company's bank account, and Hambros were under instruction to send correspondence relating to the account to Latreefers at an address which was in fact that of Latservices.
21. Mr. Moss accepts that there are connections with other jurisdictions (though almost none with the jurisdiction of incorporation) but he says that this is not the question. It seems to me that it may be relevant to consider what connections there may be with other jurisdictions in order to answer the rather ill-defined question as to the sufficiency of the connection with this jurisdiction. If there is a clear and substantial connection with some other jurisdiction, it may be that more is needed by way of a connection with England and Wales for it to suffice as the foundation of the exercise of extra-territorial jurisdiction. Thus, in the Okeanos case [1988] Ch 210 at 226-7 Peter Gibson J considered, in this context, whether there was any more appropriate jurisdiction to wind up the company. However, in the present case, Mr. Moss submits that connections with other jurisdictions are no more substantial, and certainly the connection with the country of incorporation, Liberia, which on first principles might have the best claim to be the jurisdiction to govern insolvency, is almost non-existent. Nothing has happened there apart from the bare formalities.
22. Mr. Pascoe submits that there are no assets here. If there is a balance in the bank account, which is not clear, the company's deponents say it belongs to Latco or to another group company. I do not accept that. In the absence of evidence showing that there is no credit balance at all, in answer to the Yard's evidence suggesting a small credit balance, I proceed on the basis that there is one, albeit small. I accept that it is likely to have resulted from payment into the account by other group companies, but the correct legal analysis of that is just as likely, if not more so, to be a loan to Latreefers, leaving Latreefers the owner of the credit balance and Latco or some other group company a creditor for the amount lent. There is certainly no evidence of any other basis of payment.
23. He points out that the contracts are between a Liberian buyer and a Polish shipbuilder, that much or most of the negotiation took place in Poland and Latvia, that the obligations under the contract, both of the Yard to design, build and deliver, and of Latreefers to pay, were to be performed in Poland, and that the management of the company, in terms of the operations of the board, took place in the Isle of Man.
24. In my judgment, the connecting factors with England and Wales, while not so strong as in the case before Peter Gibson J, are sufficient as a basis for assuming jurisdiction over this foreign corporation, and no other jurisdiction is more appropriate to wind up the company.

Reasonable possibility of benefit if the company is wound up

25. Mr. Moss argues that, if there is even only $100 worth of assets in this country, that is sufficient to found the jurisdiction, even on the principles applied before the recent developments. But he goes further and relies principally on the contention that, in a liquidation, there is a reasonable prospect that the liquidator could successfully mount a claim based on fraudulent trading, under s.213, or wrongful trading, based on s.214, or on misfeasance, and that such a claim would lie against not only the nominal directors in the Isle of Man but also possibly against Latco or other companies in the Latco group as shadow directors, being a person or persons in accordance with whose directors or instructions the directors of the company are accustomed to act: see Insolvency Act 1986 s.251. Thereby there would or might come to be assets in the liquidation available for distribution to creditors.
26. Mr. Pascoe submitted that such a claim does not, in law, satisfy this second requirements for jurisdiction. I disagree. Both in principle and as a matter of precedent, it seems to me to suffice. Such a claim was the basis for the exercise of the jurisdiction by Peter Gibson J. in the Okeanos case. In Re Compania Merabello the benefit that would accrue was that of entitling the petitioning creditor to claim against the company's insurers under the Third Parties (Rights against Insurers) Act 1930. In that case, therefore, the benefit was derived from an asset of the company, albeit that it would be diverted in favour of a particular creditor. In Re Eloc the benefit was not to be derived from the company's assets at all. It was that the making of a winding-up order would entitle the petitioning creditors, former employees in England of the Dutch company, to claim redundancy compensation from public funds which they could not do if the company were not wound up. It seems to me that Mr. Pascoe was taking issue with the formulation of the test itself in this submission. I do not accept it. I note also that, in Bell Group Finance (Pty) Ltd. v. Bell Group Holdings Ltd [1996] 1 BCLC 304, admittedly a case concerning an English company, but one where it was argued that there was no point in making an order since there were no available assets and no other reasonable possibility of benefit for the petitioning creditors, because any assets would be swallowed up by the secured creditors, Chadwick J used cases such as Re Compania Merabello, Re Eloc and the Okeanos case by way of analogy to justify making a winding-up order in order to allow an investigation of whether there were grounds for attacking the bank's security.
27. Next Mr. Pascoe submitted that the prospect of a successful claim on any of these bases against any Defendant was purely speculative. He pointed out that the contracts were dated 11 September, only 2 days after the incorporation of the company, and invited me to regard as fanciful the suggestion that the directors might be found to be trading fraudulently as early as that in the history of the company's affairs, even accepting that fraudulently includes a degree of recklessness which can be characterised as dishonest. He said the same about the wrongful trading claim, that is, that the directors knew or ought to have concluded, as early as that date, that there was no reasonable likelihood that the company would avoid going into an insolvent liquidation.
28. Mr. Moss pointed out that the directors entered into these six contracts at a date when they had no funds, no credit facilities, not even an offer, still less an assurance of receiving the necessary funding in any way. He says they were reckless as to whether creditors would ever be paid. He suggests that it was a purely speculative operation, which could be characterised as a one way bet: if the reefer market improved the contracts would be worthwhile and it would be possible to secure funding to pay for the work and take delivery of the ships, whereas if it did not, all that was at risk was a shell of a Liberian company, with no residual risks for the rest of the group. He submitted that, if this was the attitude, it was an abuse of the principle of limited liability, of just the kind that sections 213 and 214 are designed to catch. He also submitted that, even if neither of these statutory liabilities could be made out, the directors might equally be liable for misfeasance, for landing the company in a position in which it has vast liabilities and no means of satisfying them. He pointed out that, even though the contracts were dated 11 September, so that this is the first date at which the state of mind of the directors has to be considered, a second date is also relevant to contracts 4 to 6, namely the date, apparently in January 1993, when Latreefers decided to make these contracts unconditional. The directors' state of mind would need to be considered at that date as well.
29. It seems to me that there is at the very least a possible claim which merits investigation in these respects. At first sight, those liable would be limited to the three Isle of Man de jure directors. I do not know whether they would be worth suing. There may be some insurance backing on the part of Capco, or for themselves, which would allow a useful degree of recovery. However Mr. Moss' main contention is that Latco or others would be liable as well as shadow directors. I say no more, at this stage, than that there seems to me to be an adequate basis for supposing that there may be claims worth investigating against Latco and others, as well as against the de jure directors.
30. Mr. Moss' fall-back position was that, if I had any doubt as to whether this requirement was satisfied, I should at least appoint a provisional liquidator who could investigate the position. I will come to that matter later, and will then revert to this point in that context.

Persons interested in the distribution of assets subject to the court's jurisdiction

31. The third requirement is in some ways puzzling, not as regards the principle, but in practice. The petitioning creditor will always have invoked the jurisdiction and therefore be subject to it in some sense. The fact that the petitioning creditor is foreign, and non-resident, is not a sufficient bar, but the fact that he has presented a petition cannot be a sufficient qualification in itself. It seems to me, in the present case, that the petitioning creditor, albeit foreign and having no business presence in England, should be regarded as having submitted to the court's jurisdiction and thus as being a person over whom the court can exercise jurisdiction. The creditor has the benefit of an English judgment debt, which involved submission to the jurisdiction, and it is still the Plaintiff in the ongoing Commercial Court proceedings, so the submission to the jurisdiction is continuing.

Discretionary factors - Re Bayoil S.A.

32. Mr. Pascoe also says that the petition should be adjourned while Latreefers' counterclaim in the Commercial Court action is fought out. He relies on the recent, and so far unreported, decision of the Court of Appeal in Re Bayoil S.A. on 31 July 1998. This time it was for Mr. Moss to reserve the possibility of arguing in a higher court that the decision was wrong. He also suggested that, by reference to Re Claybridge Shipping Co SA [1997] 1 BCLC 572, the practice stated in Re Bayoil should not be regarded as applying to a case of this kind. Re Bayoil was a case in which the petitioner had a clear debt, in the form of an interim award, for freight, and a cross-claim which substantially exceeded the debt, and which it was pursuing in the continuing arbitration. Nourse LJ held that, where the debt was admitted or established, but there was a cross-claim, the petition should be dismissed, or possibly adjourned, so long as, first, the cross-claim is genuine and serious, or in other words, is one of substance, secondly it must be one which the company has been unable to litigate, and thirdly it must be in an amount exceeding the petitioner's debt. That debt is of a principal sum of just over $11 million, and is now over $15.8 million with accrued interest.
33. In my judgment those conditions are not all satisfied. In order to explain why I must summarise the cross-claims which Latreefers asserts in the Commercial Court. There are two, or perhaps three, aspects. The first is the attempt to recover the 5% payments under contracts 3 to 6 for total failure of consideration (Defence and Counterclaim paragraph 26). This relates to some $5.7 million, with interest which is said to bring it up to about $8 million. The second is the claim that the Yard failed in its duty to mitigate, by selling the vessels which it actually constructed for too little (Defence and Counterclaim paragraphs 27 and 28). In the pleading this is put variously as $13.5 million, in paragraph 27(5), $13 million, in paragraph (3) of the prayer for relief, and at least $10 million, in paragraph 28. The highest Mr. Pascoe put it was $9 million. The third cross claim also relates to the accounting process under Article 5.05. I have no reliable indication of its amount.
34. The claim to recover the 5% payment depends on showing that the Yard has not performed any part of the contractual duties in respect of which the payment is due. The initial instalment is due under clause 5.02(a) upon notice that the Yard has established a Bank guarantee in agreed terms assuring Latreefers of repayment of sums which might fall to be repaid. The guarantee had been established. That in itself might be regarded as the Yard embarking on performance of the contract, since the guarantee will undoubtedly have cost it money to establish. However the evidence refers also to other things done under the contracts, in particular the ordering of the engines for each contract. Article 2.06 of the contract specifies the engine and its maker. Mr. Pascoe submitted that merely ordering the engine was not performing the contract but no more than preparing to perform it. That seems to me to be the same fallacy as underlay the arguments rejected by the House of Lords on the same point. I note references by Lord Goff to ordering machinery (see [1998] 1 W.L.R. at 588H). This reinforces me in the view that it would be a sufficient answer for the Yard to show that it had ordered the engines required under contracts 3 to 6. That is deposed to, and while of course it could be contested as a matter of fact, it seems to me that Latreefers would need to show some evidential basis on which it could be disputed in order to establish, for the purposes of the proceedings before me, that this cross-claim is one of substance. That they have not attempted.
35. The second claim is based on the Yard having sold the new vessels for too low a price. The calculation of the claim in paragraph 27(5) is in part false, since it proceeds on the assumption, contrary to the fact, that the Yard has received the second instalment of the price. If that point is ignored, the paragraph is left with an assertion that there should be a credit, under Article 5.05, of at least $10 million. Paragraph 28 is to the same effect, as regards amount. There is no real evidence before me as to the basis for this claim. Mr. Pascoe did however show me an affidavit of Mr. Fox on behalf of the Yard, sworn on 29 March 1994 in support of an application for leave to serve the proceedings out of the jurisdiction. At paragraph 11.11 Mr. Fox says:

"I should add that the Plaintiff does not accept the valuation of each vessel at US$20 million which Latco obtained from RS Platou. The Plaintiff considers that they are worth a minimum of US$27 million second hand."

On that basis Mr. Pascoe submitted that the Yard's own figure suggested a value of $54 million, whereas they were sold for $45 million. That he said showed a basis for a claim of $9 million.

36. As to that, a first comment is that, given that the reefer market had been declining, it would not be surprising if a valuation in March was no longer correct in September. The second is that, even on these figures, the cross-claim is not shown to be worth more than $9 million. At that figure it does not exceed the debt, and the other cross-claim cannot be used to cover the difference since I have held that it is not sufficiently established itself.
37. Mr. Pascoe suggested that there was also a further cross-claim, for the repayment of sums following the application of the accounting process required by Article 5.05, in which he submitted that it would be shown that the Yard had been overpaid already (or rather, it would have been overpaid if it had received the keel-laying instalments). All I need say about this further claim is that there was no evidence to back it up. I therefore disregard it.
38. Mr. Pascoe pointed out that these cross-claims are asserted in the Counterclaim and have not been the subject of an application to strike them out. That is bedside the point. To bring the Bayoil practice into play he has to show, on at least a prima facie basis, the substance of the cross-claims, which involves more than just pleading them. In my judgment he has failed in this respect. His argument suffers also from a forensic difficulty, in that while the pleading says that further details cannot be given until after discovery of the amount which ought to be allowed in favour of Latreefers, Mr. Moss tells me that the discovery was given by the Yard in October and its documents have not yet been inspected on behalf of Latreefers.
39. Accordingly, I reject the argument that I ought to adjourn the petition because of the existence and pendency of the cross-claims in the Commercial Court proceedings. I am not, of course, deciding that the cross-claim for the recovery of the first instalments under contracts 3 to 6 is unarguable, nor that the cross-claim for failure to mitigate is invalid or, if valid, is necessarily limited to a maximum of $9 million. Those issues remain outstanding in the Commercial Court litigation. My decision is only that these cross-claims have not been shown before me to have enough in substance and quantum to justify adjournment of the petition on the basis of Re Bayoil S.A.
40. I need not therefore say anything about the further factor Mr. Moss relied on, namely the Yard's remaining claim for damages, on which a figure of some $33 million has already been placed, which he submitted would have to be brought into the account to see whether there was a sufficient prospect that the cross-claim would result in extinguishing the petition debt. Nor need I deal with his argument that, by analogy with Re Claybridge Shipping, an exception should be recognised to the practice enunciated in Re Bayoil S.A., where winding-up in this jurisdiction is the only practicable remedy.

Discretionary factors - stifling the counterclaim

41. Next, Mr. Pascoe submitted that I ought to adjourn the petition, in the exercise of my undoubted discretion, since otherwise Latreefers' defence to the Commercial Court litigation, and its pursuit of its counterclaim, would be stifled because the liquidator would be appointed by the Yard, as the largest, even if not the only, creditor and would be likely to pay undue respect to its views. Even though the cross-claim has not been shown in these proceedings arguably to exceed the debt, he submitted that it will still be in the interests of Latreefers to resist the Yard's action in order that the ultimate liability as between the parties is resolved at as low a figure in favour of the Yard as possible. He pointed out that Latreefers is not carrying on any business, and that, for what it may be worth, the commencement date of any eventual winding-up will not be deferred because s.127 will apply as from the presentation of the petition.
42. Mr. Moss submitted that, where a company is clearly insolvent (as I must assume Latreefers is, on the evidence before me) the persons whose interests ought to be considered are its creditors, rather than its shareholders, and that the proposition that the proceedings should continue to be defended (as they are now) at the expense of, and no doubt at the behest of, Latco wrongly puts the interests of the shareholder above that of creditors. Latco is of course itself a party to the proceedings. Although for the purposes of the English courts the argument that Latco was a party to the contracts has been decided against the Yard, and has not been appealed, nevertheless liability is sought to be established against Latco, and others including Latservices and Mr. Henriksen, on the basis of unlawful inducement of breach of contract or interference with contractual relations. Latco therefore has its own reasons for seeking to reduce the liability of Latreefers even though it may be unlikely to receive anything from Latreefers as a member.
43. If a liquidator were appointed, he would have two particular tasks. One would be to form a view as to whether and if so how Latreefers should continue to resist the Commercial Court proceedings. In that respect Latco would wish to encourage him to resist, and might well offer the continuance of the funding which it is now providing for the conduct of the proceedings on behalf of Latreefers. The second would be to investigate whether there is some worthwhile prospect of a claim against Latco or others such as Mr. Moss submits would be available, whether under s.213 or s.214 or by way of misfeasance. In that respect the liquidator would no doubt look for funding to the Yard. In each case, however, the task would be undertaken by an independent insolvency practitioner, as an officer of the court, able to apply what may be a greater degree of objectivity to the task then can either of the warring parties in the present litigation. Odd as it may be to have to undertake two investigations, with opposite targets, so to speak, and having to look for each to the other party for funding, it seems to me that this is something which would not be foreign to an experienced insolvency practitioner, and would not pose insuperable problems.
44. I therefore do not consider that the position of Latreefers in the Commercial Court proceedings is a sufficient reason for adjourning the petition and declining to make a winding-up order immediately in respect of a company which, on the evidence before me, has to be seen as plainly insolvent.

Provisional liquidator

45. In the Okeanos case [1988] Ch 210 the application which Peter Gibson J heard and acceded to was for the appointment of a provisional liquidator, with a view to the investigation of possible claims under section 213 or 214. That was a case where the company did have an asset, a ship, which it might have tried to sell, and the appointment would control that exercise as well. That element does not exist here, but a provisional liquidator would be able, funded by the Yard, to investigate possible claims under sections 213 and 214 or otherwise as well as the merits of the company's position in the Commercial Court for proceedings, for which funding would no doubt be sought from Latco.
46. Mr. Pascoe would not object to such an appointment if the provisional liquidator's powers were limited to the investigation, leaving the Commercial Court proceedings to be dealt with by the directors. I would not be prepared to make an appointment on terms such as those. There might have to be special terms about the appointment having regard to the two operations, involving conflicting opposed interests, which would have to be examined and undertaken. But that is something which insolvency practitioners can and do cope with. I can see no basis for making an appointment in respect of only part of the company's operations.
47. If it is not right to make an immediate winding-up order, then I can see every reason to appoint a provisional liquidator. The only problem I have identified as regards a winding-up order is whether there is enough of a possibility of benefit to the creditors from the making of the order. A provisional liquidator would be able to investigate the position and report to the court, so that the decision whether or not to wind the company up would be made on a more fully informed basis.

Conclusion

48. Accordingly the question whether to make a winding-up order turns on whether it is shown that there is sufficient prospect of a possibility of benefit for creditors. I am satisfied that there is a sufficient connection with England and Wales and that the petitioning creditor should be regarded as someone who has submitted itself to the jurisdiction, for the purposes of the third core requirement. I am also satisfied that neither the practice stated in Re Bayoil S.A. nor the other discretionary factors relied on by Mr. Pascoe should lead me not to make a winding up order in relation to this plainly insolvency company if I am otherwise disposed to do so.
49. It seems to me that the evidence may already show enough to allow me to conclude that there is a reasonable possibility of benefit to the petitioning creditor if a winding-up order is made. However the position is not clear and it seems to me better to regard it as a case which falls for investigation and therefore justifies the appointment of provisional liquidators, following the example of Peter Gibson J in the Okeanos case. I will hear any submissions as to the details of the appointment, including the directions to be given to, and powers conferred on, the provisional liquidators, but that appointment will not be limited so as to exclude the conduct of the Commercial Court litigation.