Montgomery v Wanda Modes Ltd: ChD 2003

Park J said: ‘The requirement that the debtor must not have been able to litigate his . . cross-claim was not part of the ratio decidendi of Bayoil: in that case there was no dispute that, because (I infer) the whole dispute between the two parties was governed by an arbitration clause, the debtor had not been able to litigate its cross-claim. Therefore there was no issue on this particular point. So where does the proposition stated by Nourse LJ come from? I respectfully agree with Rimer J that there is no other case which establishes it. The wider principle enunciated in Bayoil was that a cross-claim could be a ground for dismissing a winding-up petition based on an undisputed debt. The court derived that principle largely from the decision of the same court in [Portman] . . [Portman] certainly did not decide that a debtor company could not rely on a cross-claim after all if it could have litigated it earlier but had not done so. If that had been the view of the court it would almost certainly have acceded to the winding up petition instead of dismissing it:
There has been only one other directly relevant Court of Appeal case after Portman and before Bayoil. It is [LHF Wools]. A winding up petition against the company was dismissed on the ground that it had a cross-claim which, if it succeeded, would exceed the debt. As in Bayoil there was no issue about the company having been able to litigate its cross-claim but not having done so. The cross-claim would have to be litigated in Belgium and under Belgian law could not yet have been commenced. The headnote does however contain these words
‘. . the modern practice that where a company had a genuine and serious cross-claim against the petitioner which it had not reasonably been able to litigate, the petition should usually be stayed or dismissed’.
I think that, as Rimer J suggested, the words which I have emphasised are likely to have been the origin of the words in Nourse LJ’s judgment which I am considering here. However, the problem is that there is nothing to support them in the judgment in the LHF Wools case. Although it was true that the company could not have litigated its cross-claim, none of the three members of the court says anything to suggest that that was important, or that the result would or might have been otherwise if the company could already have litigated its cross-claim. Indeed, Harman LJ said that the company appealed on the ground that ‘according to modern practice if there is a genuine cross-claim, it is just as good as if there was a disputed debt’, making no reference to whether or not the cross-claim could reasonably have been litigated already. I can only conclude that the headnote writer went beyond what the court had decided, and that his expansion may have found its way into the judgment of Nourse LJ in Bayoil.
In the circumstances I do not consider that I am bound by what Nourse LJ said to reject [the company’s] argument on the ground that it could have litigated its cross-claim against [the petitioner] but had not done so. As a matter of principle I would not myself think it right to decide against [the company] on that ground. I do not think that there is anything objectionable in a company which believes that it has a claim against another party holding back from pursuing it, but then, if the other party starts to threaten it with winding-up proceedings if it does not pay a debt owed in the other direction, deciding that it must pursue its cross-claim after all. A decision in favour of [the petitioner] on this issue would have the undesirable effect of penalising a company for refraining from litigating an issue when it first could have done, and encouraging parties to litigate their possible claims sooner rather than later.’


Park J


[2003] BPIR 457


England and Wales

Cited by:

CitedDennis Rye Ltd v Bolsover District Council CA 6-May-2009
Right to raise claim against rates insolvency
The ratepayer company sought leave to appeal and to challenge the use of insolvency proceedings to recover council tax. It said that it had a valid counterclaim.
Held: Leave was refused. ‘A company is not prevented from raising a cross-claim . .
Lists of cited by and citing cases may be incomplete.


Updated: 18 May 2022; Ref: scu.342122