Oakley v Ultra Vehicle Design Ltd. & Anor

Vehicle 48 was in Wales on 21^st March 2003 but has been taken to Germany by Behlke since the commencement of these proceedings. Mr Oakley claims that Vehicle 48 belongs to UMIL. He seeks by these proceedings to have it decided what, if any, rights Behlke has in relation to Vehicle 48 under the 2003 contract. Behlke, 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 Oakley 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.

Vehicle 48 is a Super Nova 1000S Motor vehicle with chassis number YV31MA7151A05286 and registration plate CX52WDE. It was made by UMIL, and was complete by December 2002.

However, the story starts with another vehicle, known as Vehicle 47. This was the subject of a contract between UMIL and Behlke dated 7^th February 2002, by which UMIL was to construct it to an agreed and high specification, and supply it to Behlke, 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.

The price for Vehicle 47 was paid in full, but Behlke 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):

On behalf of Behlke it is said that, although the letter was silent as to jurisdiction and choice of law, there was an oral agreement between Dr Helmers and Mr Behlke expressly applying German law and German jurisdiction. Dr Helmers says that, although not strictly speaking a director of either UMIL or UVDL, in practice he ran both companies. In his witness statement he says that, prior to entering into the 2003 contract, he and Mr Behlke had numerous discussions about the terms of the agreement and on what basis Mr Behlke 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:

Mr Behlke, who is the managing director of Behlke, says correspondingly that he and Dr Helmers 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 Helmers 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.

The corporate history of the two relevant companies is as follows. UMIL was incorporated on 14^th 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 11^th 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 13^th December 2002. This provided for UVDL (up to then a dormant company) to be transferred into the ownership of UMIL and for the business of UMIL to be sold to UVDL. Pursuant to the variation of the arrangement UMIL and UVDL entered into a sale agreement dated 20^th 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 2^nd July 2003 each of UMIL and UDVL was put into compulsory liquidation.

I must refer to some of the terms of the CVA.

The relevant definitions are set out in Appendix A. Assets are defined as

Paragraph 4.5 of the arrangement was as follows:

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.

Termination of the arrangement is dealt with by Clause 21.

Clause 18 deals with variations to the arrangement but I do not need to quote its terms.

The other document from which I need to quote at this stage is the agreement dated 20^th December 2002 for the sale to UVDL of the assets of UMIL. The sale itself is provided for by Clause 2. By this Clause, subject to the terms and conditions of the agreement, UMIL shall sell and UVDL shall purchase “whatever right title and interest (if any) [UMIL] 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 [UMIL], the right title and interest in which are agreed to be sold and purchased pursuant to Clause 2”. The Business is defined as UMIL’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 [UMIL] situated on the Premises at the Transfer Date.” The Stock is “all stock in trade, raw materials and work in progress of [UMIL] 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 11^th 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 UVDL only upon payment in full being made for the respective assets pursuant to Clause 4. As I said, payment was not made in full.

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 UMIL to UVDL, given that the full purchase price was not paid by UVDL?

The early paragraphs of the CVA disclose something about the history of the business before its acquisition by UMIL. It is said to have been a business founded by Dr Helmers which was carried on between 1995 and April 2000 through a company called Ultra Mobile Limited. It is said that the assets of that company were acquired by another company called Haywood Holdings Limited. Dr Helmers had a 50% shareholding in a yet further company called Highlift 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 UMIL and also to purchase the assets essential to UMIL and owned by Haywood Holdings. This aspect of the history is not fully explored in the evidence before the court at present though the agreement dated 9^th November 2001 between Highlift and Haywood Holdings is in evidence as is a letter by which the option seems to have been exercised.

These proceedings were begun by Mr Oakley, who issued an originating application under section 7(4)(a) of the Insolvency Act 1986 on 16^th January 2004. He joined as respondents UVDL and Behlke but not the liquidator of UMIL. By the application he seeks directions as to several issues, namely whether UMIL 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 Behlke is entitled to a security interest over Vehicle 48 and if so its extent and enforceability.

On 12^th 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.

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.

Based on the historical material in the CVA to which I have referred, Miss Muth, on behalf of Behlke, has raised in argument a further question namely whether UMIL 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.

The evidence before the court consists of two witness statements from Mr Oakley, a witness statement of Sandra Morrison, solicitor for Behlke, witness statements of Dr Helmers and Mr Behlke to which I have already referred, and a further witness statement from a Mr Glithero, who is a solicitor for Mr Oakley. 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.

On behalf of Mr Oakley, 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 31^st May 2002, so after the CVA but before the liquidation of UMIL. Article 43 of the Regulation says:

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.

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:

So far as international jurisdiction is concerned the most relevant article is Article 3.1, as follows:

I must also set out article 25.1, which deals with the recognition and enforceability of judgments:

The centre of the main interests of UMIL, and for that matter of UVDL, 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.

From the point of view of Behlke 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 Behlke 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.

If the liquidator of UMIL 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 Behlke and the liquidator of UVDL and possibly also Mr Oakley. 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.

Mr Oakley could have joined the liquidator of UMIL 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 Oakley is the applicant rather than the liquidator, and why in turn should it make any difference according to whether the liquidator of UMIL is or is not a party?

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 31^st 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.

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, 4^th supplement to the 13^th edition, paragraph S30-138. At paragraph 73 the report says this, commenting on Article 3:

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.

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.

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:

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.

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.

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.

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 UMIL 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.

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:

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.

Looked at in that light, this claim by Mr Oakley, albeit in terms not overtly confrontational in the originating application, asserts that Vehicle 48 is vested in him as trustee, that it belonged to UMIL rather than to UVDL at the relevant moment and that Behlke has no interest in it. On that basis he would claim the return of the vehicle by Behlke if he wins. That is a claim which UMIL 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.

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 1^st March 2002.

The starting position is set out in Article 2:

That, however, is subject to the other provisions of the Regulation. Each side relies on different such provisions. There is no doubt that Behlke is domiciled in Germany. Miss Muth’s argument is that, accordingly, an action against Behlke 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 Behlke in England is justified under a provision in Article 6.

The relevant part of Article 6 is as follows:

UVDL is of course a respondent to the application and is domiciled in the United Kingdom. So, Mr Doyle submits, Behlke 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.

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:

Miss Muth relies upon the agreement between Dr Helmers and Mr Behlke 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.

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.

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):

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.

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 Behlke and either UMIL or UVDL after the contract in relation to Vehicle 47 until 21^st March 2003. Accordingly, quite apart from the fact that the 2003 contract was between UVDL and Behlke, whereas the Vehicle 47 agreement was between UMIL and Behlke, 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 Helmers and Mr Behlke was made, it would not satisfy the requirements of Article 23 and it cannot therefore prevail over the effects of the earlier articles.

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 UVDL which is domiciled in the United Kingdom. Nor does she take issue with the proposition that the claims against UVDL and the claims against Behlke 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 Behlke, and since there appear to be issues arising in relation to that vehicle under the sale agreement between UMIL and UVDL, those are all issues which must be determined in the same proceedings. Miss Muth accepts that UVDL 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 UVDL in the proceedings should be ignored and that Article 6.1 should be regarded as not applying.

It is true that UVDL 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 UVDL 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 Behlke in the courts of England and Wales as a co-defendant to proceedings also properly brought against UVDL which is domiciled in this jurisdiction.

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 UMIL 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 Behlke. Among them would be the effect of the sale agreement between UMIL and UVDL 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 Helmers was not in fact a director of UVDL there could possibly be an issue as to whether his acts bound UVDL; such a question might be subject to a different law from that which governs the contract if it was effective.

The preliminary issue needs to be understood in the context of paragraph 1(c) of the originating application issued by Mr Oakley, which is as follows:

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.

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 Helmers and Mr Behlke, 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 UMIL and Behlke. There has been no cross-examination in the course of the proceedings before me.

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.

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.

Mr Doyle’s skeleton argument for the hearing on 18 October 2004 suggested that the evidence of Dr Helmers and Mr Behlke 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). Behlke’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.

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 Helmers and Mr Behlke 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.

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.

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 Behlke’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 Behlke 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.

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.

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.

I will refer the matter back to a District Judge for directions as to the future conduct and case management of the proceedings.