All Assets Charge

Index

Cases

Response Engineering Ltd -v- Caherconlish Treatment Plant Ltd

[2011] IEHC 345

Hogan J

“Does the sum owed by the Council constitute a “book debt” for the purposes of s. 99(2)(e)?

8. There is no doubt but that the phrase “book debts” has, to the modern ear, something of a musty feel to it. The phrase conjures up images of Victorian bookkeeping and ledger entries, the tales in relation to which form many a sub-plot of the great novels of Dickens and Trollope. Yet the term refers to no more than future income which will accrue to the company by reason of the provision of goods and services to third parties by that company in the course of its trade or business.

9. In Farrell v. Equity Bank Ltd. [1990] 2 I.R. 549, 553-554, Lynch J. quoted with approval the following definition of “book debts” contained in Halsbury’s Laws of England (4th Ed.), Vol. 3 at para. 525:-

“’Book debts’ mean all such debts accruing in the ordinary course of a man’s trade as are usually entered in trade books, but to constitute a book debt it is not necessary that the debt should be entered in a book.”

10. In Farrell Lynch J. held that the return of insurance premia to a bank pursuant to a letter of undertaking did not involve the creation of a book debt, since, as he put it ([1990] 2 I.R. 549 at 554):-

“The mere possibility that future refunds of premiums might become payable in amounts which were wholly unascertained and might never arise at the date of the creation of the charge does not make that transaction a book debt which must be registered pursuant to s. 99 of the Act of 1963.”

11. This conclusion was scarcely surprising since it would hard ever to contend that the (essentially fortuitous) refund of insurance premia constituted a book debt in the sense which I have indicated, not least since such a payment would not have constituted part of the trading income of the company.

12. A similar view was taken by McWilliam J. in Byrne v. Allied Irish Banks Ltd. [1978] I.R. 446, a case where a restaurant company with trading difficulties contracted to sell its business premises. In consideration of the provision by the defendant bank of extra credit facilities to enable it continue trading pending the completion of the sale, the company’s solicitors agreed to hold the documents of title in trust for the bank and to redeem the loan out of the proceeds of sale. McWilliam J. first held that the letter created an equitable charge and proceeded to find (admittedly somewhat tersely) that the proceeds of sale did not constitute book debts of the company. Again, given that the proceeds of sale involved the sale of a capital asset as distinct from, for example, a charge over the future receipt of trading income from the restaurant, this conclusion is again an unsurprising one.

13. The position here is a very different one. Here Caherconlish had provided goods and services to a third party – Limerick County Council – by constructing a water treatment plant and it was awaiting payment by the Council at some future date. Such a payment classically amounts to a book debt within the meaning of this sub-section.

Did the undertaking create a security interest in the book debt?

14. In the present case, the fundamental question is whether, adopting the very language of the sub-section, the undertaking creates a security interest in the company’s property or undertaking or whether in reality it amounts to an assignment of debt. That, in reality, is what emerges from a consideration of the case-law, starting with the well known decision of Wynn Parry J. in Re Kent and Sussex Sawmills [1947] Ch. 177.

15. In that case the company gave a direction to its creditor, the UK Ministry of Fuel and Power, that all payments in respect of the supply of logs were to be paid by the Ministry to its bank. The instructions were held to be irrevocable “unless the said bank should consent to their cancellation.” Wynn Parry J. held that on its true construction the letter of instructions was in the nature of a security. He posed the following question ([1947] Ch. 177 at 182):-

“…if the company’s account had come into credit the company would then have been entitled, in the true view of this letter, to require the bank to give the necessary instructions to the Ministry. The Ministry is in no way concerned with the position as between the bank and the company and as between those two parties I can see no ground either at law or in equity, on which the bank could have resisted a request or a requirement by the company to cancel the instructions. That at once shows that there is discoverable in this latter paragraph a true equity of redemption.”

16. The judge ultimately held that the letters in question amounted to assignments of the books debts by way of security for the overdraft and, in the absence of registration, such security assignments were void as against the liquidator. At the risk of stating the obvious, as a judgment of the English High Court, this decision of course in no way binds me. It is nevertheless a decision of a highly respected Chancery judge and it is a decision which has been applied with approval in this jurisdiction: see, e.g., Re Interview Ltd. [1975] I.R. 382 at 396, per Kenny J.

17. In other cases the courts have held that the instruments in question involved an assignment of the debt. This was the conclusion of Slade J. in Re Siebe Gorman Ltd. [1979] 2 Lloyd’s Reports 142 at 161-163 (a decision to which I shall shortly revert) where a creditor of the company had assigned to that bills of exchange as “security” for the debt. The company then also sent a letter to the company’s bankers directing it to pay the proceeds of the bills of exchange directly to Siebe Gorman and this letter was expressed to be an irrevocable instruction. Slade J. held that, in view of the terms of relevant deed it constituted an effective assignment of the debt and was not a security interest.

18. This was also the view taken by His Honour Judge Paul Baker QC in Re Marwalt Ltd. [1992] BCC 32. In that case another company, BSC, had agreed to supply tinplate to a Chilean company. This, however, was a high risk market and BSC needed to sell the tinplate through a third party which had export credit guarantee insurance. Marwalt was such a company and BSC engaged it to sell on the tinplate to the Chilean company, Corpora, on a commission basis. Any funds payable by the Chilean company were to be paid directly to BSC. BSC was effectively an undisclosed principal so far as these transactions were concerned.

19. Judge Baker held that these arrangements involved an assignment of debt to BSC. Unlike the situation in Kent and Sussex Sawmills – “where there was no correlation between the amount to be paid by the debtor to the creditor…and the amount to due to the bank which took the form of a fluctuating overdraft” – in the present case there was:-

“an exact correlation between the moneys which are to come in from Corpora and the moneys which are due to go out to BSC. Those moneys are not to secure an indebtedness as between Marwalt and BSC; they go out as part of BSC’s own moneys and not as moneys belonging to Marwalt.”

20. Marwalt may, of course, be explained on the basis that there was an exact co-relation between the moneys which came in from the purchaser of the tinplate and the sums which were due to the supplier, BSC. But there is, I think, another explanation for this decision which serves to put the entire matter in context, namely, that Marwalt were acting purely as commission agents for BSC. They never intended to make any profit (commission aside) on these dealings vis-à-vis the moneys received or receivable from Corpora. Those moneys were effectively held by Marwalt as bare trustees and, applying the test of Wynn Parry J., it could never have been said that Marwalt had any equity of redemption in those moneys. It is thus scarcely surprising that Judge Baker held that the moneys had been assigned by way of charge and not by way of debt security.

21. In these cases, of course, the context is highly material. Here the context is that of a banking relationship. Unlike the situation which prevailed in Re Marwalt, here one would normally expect the customer to enjoy an equity of redemption in respect of the debt unless the debt itself had been sold or otherwise assigned, a point recognised by Slade J. in Re Siebe Gorman [1979] 2 Lloyds’ Law Reports 142 at 161. In that case Slade J. held, following a very careful examination of the relevant deed as between Siebe Gorman and its creditor, RH McDonald Ltd., that it effected “an outright assignment of the benefit of the relevant bills” in favour of Siebe Gorman in consideration for an extension of the appropriate credit facilities by the latter company to its trade creditor.

22. It is true that in the present case the undertaking was given in consideration of the provision of additional credit facilities and to that extent the present case roughly parallels the decision in Siebe Gorman, albeit that – and this is not an unimportant consideration in view of a working presumption which I will shortly mention – the assignment in the latter case was to a trading company and not to a bank. The real question, however, is whether the Council’s debt had been effectively sold to AIB by way of assignment via the solicitor’s undertaking or, alternatively, whether Caherconlish retained an equity of redemption in these moneys in (admittedly unlikely) event that the AIB debt were to be discharged, in whole or in part. I use the term “effectively sold” advisedly, because in deference to the views expressed by Slade J. in Siebe Gorman ([1979] 2 Lloyds’s Law Reports 142 at 161), I would regard an assignment of debt for consideration (i.e., the provision of credit facilities by either a trade creditor or a bank) as being tantamount to a sale, even if no formal purchase price is stipulated.

23. Given the presumption which must obtain in the ordinary banker/client relationship that the client enjoys the equity of redemption, absent a clear indication to the contrary, in my view, unlike the situation which was found to prevail on the facts in Siebe Gorman, that working presumption has not been displaced in the present case. It is true that Mr. Potter’s undertaking stated that he had “irrevocable instructions to lodge the said cheques to Caherconlish Treatment Plant’s account with AIB”. But this is in itself is not inconsistent with an equity of redemption. Nor do these words in themselves imply that the debt has actually been effectively sold by way of assignment in consideration of the extension of the overdraft facilities.

24. Again, if we test this proposition in the same manner as in Kent Sawmills and we must then ask ourselves what the situation would have been, if – mirabile dictu – the Caherconclish account had otherwise come into surplus. That question effectively answers itself Even if Mr. Potter’s undertaking still applied in those unlikely but happy circumstances, all it meant was that the payment cheque from the Council had to be lodged in the company’s account. It did not mean that these monies had thereby somehow become the property of the bank by way of windfall since there had, in fact, been no effective sale or assignment or the Council’s payment to bank in return for the credit facilities. Putting this another way, the evidence coerces me to the view that the bank wanted security for its debt and it was not, in this instance at least, in the business of effectively purchasing the debt by providing additional overdraft facilities to Caherconlish.

25. For these reasons, I am of the view that the solicitor’s undertaking was by way of security and not assignment. I will accordingly declare that the undertaking is void as against any creditor of the company for want of the registration of the security over the book debts of the company in the manner required by s. 99(2)(e) of the 1963 Act.”

In re Tullow Engineering (Holdings) Ltd. (In Receivership)

[1990] 1 I.R. 458

Blayney J.

“The nature of a floating charge is very well settled. It is only necessary to cite one passage describing it. In Evans v. Rival Granite Quarries Limited [1910] 2 K.B. 979, Buckley L.J. said in his judgment at p. 999:

“A floating security is not a future security; it is a present security, which presently affects all the assets of the company expressed to be included in it . . . A floating security is not a specific mortgage of the assets, plus a licence to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some event occurs . . . which causes it to crystallise into a fixed security.”

The debentureholders had a present security on the shares and in my opinion the granting by Holdings of an option to purchase the shares in no way altered that security. The granting of the option did not constitute a disposal of the shares. They remained the property of Holdings, and being the property of Holdings, they continued to be subject to the floating charge. The only difference effected by the grant of the option, in so far as Holdings was concerned, was that Holdings could not until the 31st May, 1988, withdraw its offer to sell the shares to Investments at par. Subject to that restriction, Holdings remained the owner of the shares and the shares remained subject to the floating charge.

On the appointment of the receiver, the charge crystallised. What takes place on crystallisation was described as follows by Kenny J. in his judgment in In Re Interview Ltd. [1975] I.R. 382 at p. 395:

“The next contention by the applicant was that the effect of the appointment of the receiver under the debenture was a crystallisation of the floating charge and that this operated as an equitable assignment of the goods in the possession of Interview to the Ulster Bank Limited. The applicant relied strongly on the judgment of Russell L.J. in Rother Iron Works Ltd. v. Canterbury Precision Engineers Ltd. [1974] Q.B. 1. In the passage quoted Russell L.J. was summarising the argument for the plaintiff but I think that the appointment of a receiver under a debenture which creates a floating charge on the assets of the company operates as an equitable assignment of the property and goods owned by the company to the debentureholder. A debenture creating a floating charge is, as Lord Macnaghten said in Illingworth v. Houldsworth [1904] A.C. 355, 358, ambulatory and shifting in its nature. The charge floats over the assets of the company until some act is done which causes it to fasten onto the property and goods of the company. The appointment of a receiver has this effect.”

At the date of the appointment of the receiver, Holdings still owned the shares. The effect of the crystallisation of the floating charge which occurred was that there was an immediate equitable assignment of the shares to the debentureholders so that, in equity, they became the owners of the shares. Holdings was divested of its ownership in favour of the debentureholders. Accordingly, it no longer had the capacity to enter into a contract to sell the shares in pursuance of the option which it had granted. Its ownership had been terminated and so its irrevocable offer to sell became a dead letter. No longer having the ownership of the shares, it could not contract to sell them. The only person who could do that was the receiver acting under the powers given to him in the debentures. The purported exercise of the option did not alter the position. The acceptance by Investments of an offer to sell by a party who was not the owner of the shares could not bring into being any contract in respect of the shares. Holdings no longer had the title necessary to enable it to do what it had contracted to do in granting the option.

The following passage from the judgment of Romer J. in Robson v. Smith [1895] 2 Ch. 118 at p. 124 seems to me to support the conclusion at which I have arrived:

“So long as the debentures remain a mere floating security, or, in other words, the licence to the company to carry on its business has not been terminated, the property of the company may be dealt with in the ordinary course of business as if the debentures had not been given, and any such dealing with a particular property will be binding on the debenture-holders, provided that the dealing be completed before the debentures cease to be merely a floating security.”

In the present case the proviso at the end of the quotation was not complied with; the dealing was not completed before the debentures ceased to be merely a floating charge because the option had not been exercised. When it was exercised, it was too late and the debentureholders could not be bound.

Mr. Shanley submitted that Investments were entitled to specific performance of the contract which he said came into existence on the exercise of the option and he relied on Freevale Ltd. v. Metrostore (Holdings) Ltd. [1984] Ch. 199 where it was held by the High Court in England that an order for the specific performance of a contract for the sale of land could be obtained against a receiver. But that case is clearly distinguishable from the present. The contract for the sale of the land had been entered into by the company before the appointment of the receiver. In the present case, at the date of the appointment of the receiver, no contract had been entered into for the sale of the shares. All that had happened was that an option to purchase had been granted in respect of the shares. Before any question of specific performance could arise, Mr. Shanley would have to show that the debentureholders were bound by the purported exercise of the option and, in my opinion, for the reasons I have already given, he could not do that. When the option was exercised, the shares were no longer the subject of a floating charge but of a fixed charge so that Holdings no longer had power to sell them.”

In the matter of J.D. Brian Ltd (in Liquidation)

[2015] IESC 62

Supreme Court Laffoy J.

“Authorities

37. The issue in Keenan Bros. arose on an application under s. 280 of the Act of 1963 by the liquidator of that company, which was being wound up by the Court. At a time when it was in serious financial difficulties, the company had executed a charge in favour of Allied Irish Banks Limited and created a debenture in favour of Allied Irish Investment Bank Limited. On each of those securities the company had given the chargee what was described as a first fixed charge on its book debts, present and future. Each contained restrictions on the manner in which the company could deal with book debts. For example, as is quoted in the report (at p. 404), the charge contained the following provisions:

“(ii) The company shall pay into an account with the bank designated for that purpose all moneys which it may receive in respect of the book debts and other debts hereby charged and shall not without the prior consent of the bank in writing make any withdrawals or direct any payment from the said account.

(iii) The company shall, if called upon to do so by the bank –

(a) execute a legal assignment of its book debts and other debts to the bank;

(b) deliver an account to the bank of the particulars of and amounts due in respect of its book debts and other debts at that date.

(iv) The company shall not without the prior consent in writing of the bank purport to charge, waive, assign or otherwise deal with its book debts or other debts in favour of any other person.”

The issues on which the liquidator had sought directions was whether the charge and the debenture from the outset created fixed or floating charges. It was held by this Court that fixed charges were created on the company’s book debts, both present and future from the outset.

38. In his judgment, before analysing the provisions of the charge and the debenture which are quoted above, Henchy J. made the following observations, which I consider to be of particular significance to the issue as to the effect of the service of the Crystallisation Notice, in that he outlined the legal effect in Irish law of a floating charge and a fixed charge and the legal effect of the crystallisation of a floating charge (at p. 418):

“One of the essential differences between a fixed charge and a floating charge given by a company is that a fixed charge takes effect, upon its creation, on the assets that are expressed to be subject to it, so that those assets, as they then exist, or, when the charge applies to future assets, as soon as they come into existence, will stand encumbered by the charge, and the company will be able to deal with those assets only to the extent permitted by the terms of the charge. On the other hand, in the case of a floating charge, while such charge is effective in law from the date of its creation, because it is of its nature, dormant and hovering, it does not attach to the assets expressed to be subject to it so as to prevent the company from continuing to deal with those assets in the ordinary course of business, until the happening of some event, such as the appointment of a liquidator, which shows that the company is no longer in business, or until the chargee intervenes. At that point, the floating charge is said to crystallise and the rights of the chargee become the same as if he had got a fixed charge; thereafter the company cannot deal with the assets in question except subject to the charge. A floating charge, so long as it remains floating, avoids the restricting (and in some cases, paralysing) effect on the use of the assets of the company resulting from a fixed charge. While a charge remains a floating one, the company may, unless there is agreement to the contrary, deal with its assets in the ordinary course of business just as if there were no floating charge.”

39. As regards the provisions contained in the charge, which I have outlined above, Henchy J. stated (at p. 419):

“Since the assets stated to be charged as a fixed charge were ‘the book and other debts present and future’, and since, under the provisions I have quoted, those assets were to be segregated in a special account and there to be virtually frozen and rendered unusable by the company save with the prior consent in writing of the Bank, I consider that the charge, far from being floating or dormant or hovering over those assets, had fixed on them to such an extent that they were unusable in the ordinary course of business save at the discretion of the Bank. The charge therefore was, as it was expressed to be, a fixed charge.”

Henchy J. came to a similar conclusion having considered the charging clause and the restrictions imposed on the company in the debenture, which he considered created such a degree of sequestration of the book debts when collected as made those monies incapable of being used in the ordinary course of business and meant that they were put, specifically and expressly, at the disposal of the bank.

40. McCarthy J. in his judgment came to the same conclusion. However, he made a number of observations which are worth recording. First, he referred to the decision of the High Court of England in Siebe Gorman v Barclays Bank [1979] 2 Lloyds Rep. 142 (Siebe Gorman), stating that there Slade J. “had given a judicial blessing in England to a claim by way of fixed charge on book debts, where this was purported to be created by an instrument with marked similarities to those the subject of this appeal.”. McCarthy J. stated that during the course of the hearing, the Court was informed that the securities were, in fact, modelled on those in Siebe Gorman, although it was emphasised that the monies received in respect of the book debts in the case being considered “were paid into a special account and not, as in Siebe Gorman, into the ordinary account of the mortgagor.” The purpose of adverting to those observations is because they may elucidate later references to Keenan Bros. in the context of subsequent consideration of Siebe Gorman by the United Kingdom courts.

41. In relation to the approach to construction of the security, McCarthy J. stated (at p. 421):

“It is not suggested that mere terminology itself, such as using the expression ‘fixed charge’, achieves the purpose; one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements?”

That passage, in my view, bears out the statement of the trial judge that this Court in Keenan Bros. adopted a similar approach to that subsequently adopted by the Privy Council in Agnew.

42. In Re Holidair Limited [1994] 1 IR 416 (Holidair), this Court had to consider, in the context of an examinership, whether a charge, which was expressed to be “by way of first fixed charge” on “all book debts and other debts present now and from time to time due and owing to such company together with all rights and powers of recovery in respect thereof” at the outset created a fixed charge or a floating charge. Blayney J., having stated that the only provision in the debenture which might be relied upon as possibly preventing the companies from carrying on their business in the normal way using their book debts was Clause 3.08, which he had quoted, and which, in his opinion, did not have that effect. He set out his conclusion as follows (at p. 447):

“I am satisfied, accordingly, that the correct construction of the clause is that the trustee had a discretion to determine into what company account, with what bank, the proceeds of book debts should be paid from time to time. But there is no restriction in the clause on the companies drawing the monies out of these accounts. Accordingly, there is nothing in it to prevent the companies from using the proceeds of the book debts in the normal way for the purpose of carrying on their business. By reason of this the charge has also the third characteristic referred to by Romer L.J. in his judgment in In re Yorkshire Woolcombers’ Association Ltd. [1903] 2 Ch. 284 and is accordingly a floating charge and not a fixed charge.”

By way of explanation, the trustee referred to in that passage represented the interest of the debenture-holder banks. The third characteristic of a floating charge identified by Romer L.J. referred to in that passage was formulated as follows (at p. 295):

“. . . if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.”

43. About a quarter of a century after it was decided, the decision of the English High Court in Siebe Gorman was overruled by the House of Lords in Spectrum Plus. In Spectrum Plus the Law Lords considered the decisions of this Court in both Keenan Bros. and Holidair.

…

48. As noted above, both this Court in Keenan Bros. and the House of Lords in Spectrum Plus were concerned with the proper characterisation and effect of a charge over book debts when created, by reference to the charging clause and the other provisions of the Debenture. The United Kingdom authority in which issues most analogous to the issues on this appeal were considered was the decision of the Chancery Division of the High Court in Re Brightlife Limited [1987] Ch. 200 (Brightlife). There the company (Brightlife) was being wound up in a creditors’ voluntary liquidation. Brightlife owed over £200,000 to an American company, to which I will refer as the lender, and the debt was secured by a debenture. It also owed over £70,000 to the Commissioners of Customs and Excise for Value Added Tax. The issue was whether the lender’s debenture conferred only a floating charge so that the claim for Value Added Tax, being preferential, took priority under the provision in force in the U.K. at the relevant time corresponding to s. 285(7). That provision (s. 614(2)(b) of the Companies Act 1985) was in precisely the same terms as s. 285(7)(b).

56. In embarking on the analysis of the judgment of Hoffman J. in Brightlife, I observed that it is the United Kingdom authority in which issues most analogous to the issues on this appeal were considered. That is because it necessitated a determination as to the effect of Clause 3B of the debenture in issue there, which provided that the debenture holder might by notice to Brightlife convert the floating charge into a specific charge. There is one Irish authority in which a somewhat similar clause was obliquely referred to. That is the decision of this Court in Re Wogan’s (Drogheda) Limited [1993] 1 I.R. 157. In that case, in the context of an examinership, this Court was considering the effect of a debenture given by the company in examinership to a lender and specifically whether a fixed charge or a floating charge was created over the book debts of the company. In the judgment of Finlay C.J., the relevant clauses of the debenture were outlined and these included, in addition to the charging clauses, Clause 8(a) which was quoted as being in the following terms:

“If the lender shall by notice in writing make a demand on the company as provided for in clause 8(a) hereof then the floating charge created by clause 4(e) hereof shall immediately on service of such notice on the company become crystallised and be a specific fixed charge on . . . all book debts and other debts and securities then due to the company . . ..”

Assuming that there is a typographical error in the report, in that the clause quoted is obviously not Clause 8(a) referred to in the body of the report, nonetheless, it is clear that the debenture provided that the lender could by notice effect the crystallisation of the floating charge into a specific fixed charge. The finding of this Court (at p. 170) was that the combined effect of the charging clauses in the debenture and Clause 8, to which express reference was made, was to confer upon the charge created by the debenture the precise characteristics of a fixed charge as set out by McCarthy J. in Keenan Bros. The commentary on that finding in Courtney on The Law of Companies (3rd Ed.) at para. 18.104 to the following effect is very persuasive:

“While the Supreme Court did not specifically comment upon the validity of this clause, Finlay C.J. referred to Clause 8 in the reasoning for his conclusion. It seems inconceivable that the Supreme Court could base its decision, albeit in part, on a clause which the law did not consider to be effective. Moreover, there is no sound policy reason why the giving of notice to that effect ought not effect crystallisation.”

Further, I agree with the views expressed by the trial judge in the First Judgment (at para. 44) that it is preferable to refer to a crystallisation of the type provided for in a clause such as Clause 10 under consideration here as “express crystallisation”, rather than “automatic” crystallisation.

Effect, if any, of Crystallisation Notice: conclusion

70. It will be recalled that in the First Judgment the trial judge concluded that there is no rule of law which precludes parties to a debenture creating a floating charge agreeing, as a matter of contract, that the floating charge will crystallise upon the happening of an event or a particular step taken by the chargee. I agree with that conclusion. However, she stated that whether the parties actually achieve their intention is a separate issue by reason, inter alia, of the Supreme Court decision in Keenan Bros. The line of authority starting with Keenan Bros. in this jurisdiction and ending with the decision of the House of Lords in Spectrum Plus has been examined in considerable detail earlier with a view to identifying the task which the Court had to consider in each of those cases and to comparing it with the task of the Court in this case. As I have stated in addressing the submissions made on behalf of the Revenue Commissioners, they are different tasks. The task in this case is to determine whether, on a once off basis, the service of the Crystallisation Notice under Clause 10 converted the floating charge into a fixed charge. I am satisfied that in applying the principles enunciated in Keenan Bros. in carrying out that task, the proper conclusion is that, as a matter of construction of Clause 10, the intention of the parties was that, on the service of the Crystallisation Notice, the Company would thereafter be restricted in the use of the property and assets and rights which had been the subject of the floating charge and, contrary to the view expressed by the trial judge at para. 19 of the Second Judgment, that the Company would cease to be entitled to use such property in carrying on its business without the consent of the Bank. That conclusion, in my view, is fully in accordance with the principles outlined in the judgments of Henchy J. and McCarthy J. in Keenan Bros.

71. On the plain wording of Clause 10 of the Debenture, the intention of parties is absolutely clear. The situation is identified in which the Bank has the right to serve a notice under Clause 10. That situation is that the Bank, in its sole judgment, considers the property, assets and rights the subject of the floating charge to be in jeopardy. It is assumed that the Bank considered that to be the position on 28th October, 2009. The purpose of the notice which the Bank acquired the right to serve in that situation is also clearly stated in Clause 10. It was to convert the floating charge in the Debenture into a first fixed charge. Accordingly, the clear intention of the parties was that, on the service of the notice, the floating charge would become a fixed charge and the consequences of that occurring, including the obligations flowing from the consequences, would be borne by the Company as chargor. It is true that those consequences were not spelt out in Clause 10, nor were they spelt out in relation to the conversion of a floating charge into a fixed charge by reason of the happening of an event specified in Clause 11. The consequences ensue as a matter of law on the service of the notice under Clause 10. In legal parlance the conversion of the floating charge into a fixed charge is known as crystallisation since the late nineteenth century. As the passage from the judgment of Henchy J. in Keenan Bros., which is quoted at para. 38 above, clearly demonstrates, the consequence of the intervention of a chargee which results in crystallisation, for example express crystallisation, is that –

“. . . the rights of the chargee become the same as if he got a fixed charge; thereafter the company cannot deal with the assets in question except subject to the charge.”

That was what was intended to happen under Clause 10 of the Debenture and it is what actually happened on the service of the Crystallisation Notice on 28th October, 2009.

72. In my view, there is nothing either in the Debenture or in the Crystallisation Notice which precludes that consequence. Once the floating charge crystallises, on whatever basis, the obligation of the Company under Clause 8(a) to carry on and conduct the business in a proper and efficient manner ceases, irrespective of the wording which suggests that the Company’s obligation will continue “at all time during the continuance of this security”. Clause 8(k) has no bearing on the crystallisation of the floating charge. It merely relates to and restricts dealing with property which was the subject of the specific charge provided for in Clause 5 of the Debenture from the outset.

73. In summary, Clause 10 is absolutely clear as to the intention of the parties in conferring the right on the Bank to serve notice on the Company, the intention being to convert the floating charge into a fixed charge. Such conversion, in other words, crystallisation of the floating charge, was intended to have and did have well established consequential effects on the respective obligations and rights of the chargor and the chargee. The effects flowed from the action of service of the notice. This is not a case of putting the cart before the horse.

Construction of s. 285(7): conclusion

95. For the reasons set out above and, in particular at paras. 75 to 78, I conclude that on the application of para. (b) of s. 285(7) of the Act of 1963, which occurs in the winding up of a company, the reference to “the claims of holders of debentures under any floating charge created by the company” means a floating charge which exists at the commencement of the winding up. It does not mean a floating charge which has been converted into a fixed charge by virtue of express crystallisation in accordance with the terms of the debenture prior to the commencement of the winding up. Accordingly, as, in this case, the floating charge of each Company in favour of the Bank had crystallised by service of the Crystallisation Notice on 28th October, 2009 prior to the presentation of the petition to wind up each company, the priority debts of the preferential creditors identified in subs. (1) to (6) of s. 285 do not have priority over the claims of the Bank under each of the Debentures and those priority debts may not be paid out of the property comprised in and subject to the property which was the subject of the floating charge before crystallisation.

96. That conclusion deals only with the specific facts of this case, where there was an express crystallisation under the terms of the contract between each Company and the Bank. No view needs to be, or is, expressed as to whether there would be a similar outcome on what is called an automatic crystallisation. Unfortunately, it does appear that the replacement of s. 285(7), s. 621(7) of the Act of 2014, requires to be amended to reverse the undoubtedly unsatisfactory outcome of this decision, which gives rise to a number of concerns.

97. One concern is the possibility that, absent amending legislation, a form of false crystallisation might be contrived in circumstances where the form of the documentation undoubtedly creates a crystallisation, but where, in substance, the debenture holder allows the business to continue as if the floating charge was still in existence. It is important to reiterate, as stated at para. 10 above, that there is no evidence before this Court as to what happened between the service of the Crystallisation Notice and the presentation of the petition to wind up in this case and there is no suggestion of any lack of genuineness in the crystallisation process. Accordingly, what follows is obiter. In the hypothetical situation envisaged an issue might well arise as to the effectiveness of the creation of a fixed charge by crystallisation on the service of the notice if there was evidence to suggest that, either with the knowledge or at least tacit approval of the debenture holder, things continued on after the service of the notice in a way which was inconsistent with the fact that a crystallisation had taken place. Acknowledging that what happened subsequent to an event cannot normally be used to interpret the legal consequences of the event itself, which must be assessed in the light of the facts at the time when it occurred and the language used in the documents giving effect to it, nonetheless, in such a hypothetical situation an affected preferential creditor could argue that the debenture holder had waived the crystallisation event or, alternatively, that it was estopped from relying on it, if it was clear that the debenture holder permitted the situation to continue more or less as if it were a floating charge after the crystallisation event. Given the current unsatisfactory legislative position on the basis of the finding as to the proper construction of s. 285(7), it is not unreasonable to postulate that a court faced with a hypothetical situation would be reluctant to accept what was in substance a purely nominal crystallisation which the debenture holder did not seek in substance to rely on in any way between the crystallisation event and the winding up.

98. Another concern brings me back to s. 99 of the Act of 1963, which is referred to in outlining the statutory provisions above, where it is noted that under that provision there was no requirement for the registration of the conversion of a floating charge to a fixed charge. The trial judge, as noted earlier, stated that there is no rule of law which precludes parties to a debenture creating a floating charge agreeing, as a matter of contract, that the floating charge will crystallise upon the happening of an event or a particular step taken by the chargee. That proposition, with which I agree, is a fundamental plank in the determination of the effect of the Crystallisation Notice in this case. However, in this connection, one is conscious of the concerns expressed in Lynch-Fannon and Murphy on Corporate Insolvency and Rescue at para. 9.36 on the current state of the law arising from that proposition. There it is stated that it may be necessary to re-visit the questions raised by certain forms of crystallisation in the short term and, in particular, against the backdrop of a consideration of fundamental insolvency law principles, which include the necessity of transparency as between creditors and debtor companies, it being suggested that the occurrence of less than public events is contrary to the principles which underpin the system of registration of company charges and other encumbrances.”

Farrell v. Equity Bank Ltd.

[1990] 2IR 553

Lynch J. 553

H.C.

Submissions

Counsel for the plaintiff submitted that when the advance had been paid over to the insurers as premiums the policies of insurance became the property of the company. If the business had continued there would have been no refunds: because the business terminated there are refunds and the company property in the policies has been converted to monetary refunds. The prohibition of assignment in the conditions of the application for credit emphasises that the policies are the property of the company. Counsel submitted that there was no charge on the policies of insurance themselves and there therefore could be no charge on the pecuniary refunds representing such policies.

Counsel further submitted that if a charge did arise it was a charge on book debts and was void because it had not been registered as required by s. 99, sub-s.2 (e) of the Companies Act, 1963. Counsel pointed out that there was no question of the documents constituting an absolute assignment of the refunds of premiums which would be outside the terms of s. 99 because the defendant had to account with the company for the refunds in case that there should be any surplus over and above the amount outstanding on their advance to the company. The termination or cancellation of the policies of insurance creates debts due by the insurers to the company and these are now payable to the plaintiff for disbursement in accordance with section 275.

Counsel for the defendant submitted that the terms of para. 4 of the application for credit incorporated the irrevocable letter of authority to the insurance brokers and furthermore that condition 3 of the application for credit conferred a preferential status on Equity. Counsel further submitted that the letter of authority to the brokers by para. 3 creates a trust in favour of the defendant for any refunded premiums or part premiums and acknowledges the defendant’s priority. Counsel submitted that the wording “to hold to the order of Equity”amounted to the same thing as “on trust for Equity”.

If the documents create a charge rather than a trust then counsel submitted such a charge is not registrable because the refunds of part premiums are not book debts. At the time when the charge was created in June, 1986, it could not be anticipated that refunds of part premiums would ever become payable. That being so they could not be a book debt at the date of the advance or at any time such as either were required to be or could be registered within 21 days as required by sub-s. 1 of s. 99 of the Companies Act, 1963.

Conclusions

First it is quite clear that it was the intention of the parties in June, 1986, when they executed the application for credit and the irrevocable letter of authority to the broker that the defendant should have priority over the company to receive refunds of premiums in the event of policies being cancelled until such time as the defendant’s advance of the monies to pay such premiums should have been fully discharged. I have come to the conclusion that the terms of the application for credit and especially condition 3 thereof are such as to create a charge on the refunds if and when they might become payable. The question then arises as to whether such a charge is void on the basis that it is a book debt and was not registered as required by s. 99, sub-s. 2 (e) of the Act of 1963.

There is no definition of the term “book debt” in the Act of 1963 or so far as I could find in any other Act either. The term is however defined for bankruptcy purposes in Halsbury’s Laws of England, (4th edition), Vol. 3 at para. 525 footnote 4, as follows:

“”Book debts” mean all such debts accruing in the ordinary course of a man’s trade as are usually entered in trade books but to constitute a book debt it is not necessary that the debt should be entered in a book.”

See also Palmer’s Company Law (1987) Vol. I, p. 739, para. 46-06.

A number of authorities are referred to in the foregoing paragraphs of Halsbury and I was referred to a number of them in the course of argument. I think the most helpful is the decision in Paul & Frank Limited v. Discount Bank (Overseas) Limited [1967] Ch. 348 and in particular the passage commencing at the bottom of p. 362 to the following effect in the judgment of Pennycuick J:

“Section 95” (of the Companies Act, 1948; which corresponds to section 99 of our Companies Act, 1963) “requires registration of a charge on book-debts within 21 days of creation. It seems to me that, in order to ascertain whether any particular charge is a charge on book-debts within the meaning of the section, one must look at the items of property which form the subject-matter of the charge at the date of its creation and consider whether any of those items is a book-debt. In the case of an existing item of property, this question can only be answered by reference to its character at the date of creation. Where the item of property is the benefit of a contract and at the date of the charge the benefit of the contract does not comprehend any book-debt, I do not see how that contract can be brought within the section as being a book-debt merely by reason that the contract may ultimately result in a book-debt. Here the E.C.G. policy admittedly did not comprehend any book-debt at the date of the letter of authority, and that seems to me to be an end of the matter.”

I agree with the foregoing reasoning and it seems to me to be applicable to the circumstances of this case. The mere possibility that future refunds of premiums might become payable in amounts that were wholly unascertained and might never arise at the date of the creation of the charge does not make that transaction a book debt which must be registered pursuant to s. 99 of the Act of 1963.

In addition to the foregoing conclusion, however, it seems to me that the terms of condition 3 of the application for credit and para. 3 of the irrevocable letter of authority to the insurance brokers makes the brokers trustees for the defendant of the refunds of premiums received by them until such time as the whole of the defendant’s advance for the payment of such premiums has been repaid.

For the foregoing reasons therefore I find that the refunds from the company’s insurance policies presently held by the insurance brokers in the sum of £14,167.37 are payable to the defendant in priority to the plaintiff until such time as the whole of the advance by the defendant to the company for the payment of the premiums has been discharged.

Michael Hanley v. ICC Finance Ltd;

No. D8233

Court: High Court

Kinlen J

Date: 24 February 1995

Sale of Goods—Passing of title—Car subject to lease agreement sold by dealer to purchaser who was unaware of lease—Car repossessed by lessor—Whether purchaser had acquired a good title—Factors Act 1889 (No. 52 & 53 Vic., c.45) , s. 2(1) —Sale of Goods Act 1893 (No. 56 & 57 Vic., c.71) , s. 25(1)

Facts

S. 25(1) of the Sale of Goods Act 1893 states that if a person sells goods but remains in possession only to dispose of them to another person who receives the same in good faith and without notice of the previous sale, the subsequent disposition shall have the same effect as if the true owner of the goods has authorised the disposition. In May 1992 the plaintiff purchased a motor vehicle from Huet Motors (Dublin) Ltd (‘Huet’ ). On the morning of 27 August 1993 the plaintiff received a telephone call from a garda in Donnybrook Garda Station informing him that the defendant intended to repossess the car. On checking the plaintiff found that the car had already been removed. During the fifteen months when the car was in the plaintiff’s possession nobody had either claimed ownership or contacted the plaintiff in relation to it. The Circuit Court granted an interim injunction restraining the defendant from disposing of the car. In a letter dated 27 August 1993 the defendant asserted that the car in question was the subject of a lease agreement and that in accordance with the terms thereof the title was vested in the defendant. It transpired that the defendant bought the car from Huet in May 1991 and then leased it for a fixed three month term to Tipperary Rent-a-Car Ltd. It was agreed that Huet would then repurchase it at a fixed price. At the end of the three month period the vehicle was not in fact repurchased. Instead, a new lease agreement was entered into between the defendant and Fleetlink Ltd, a company which was wholly owned by Huet. The agreement was for twelve months from January 1992 after which time Huet would repurchase the car at a fixed price. Although the tax book for the car was initially retained by the defendant, it was given to a Mr McCarthy, who was a director of both Huet and Fleetlink, for the purpose of taxing the car. The defendant did not consent to Fleetlink parting with possession of the car, especially not for the purpose of selling it.

On 29 July 1992 a receiver was appointed to Huet and this was followed by the appointment of a liquidator on 17 August 1992. The liquidator advised the defendant of the names and addresses of persons whom he believed to be in possession of vehicles which were the property of the defendant. It was on this basis that the defendant repossessed the car. The plaintiff instituted proceedings in the Circuit Court seeking the return of the car and damages. The Circuit Court held that the plaintiff had obtained a good title to the car and ordered its return. The defendant appealed.

by Kinlen J in dismissing the appeal:

(1) The vehicle was openly for sale at Huet’s premises, but the defendant made no effort to assert its ownership of the vehicle or to prohibit its sale.

(2) Both parties acted in good faith and were innocent of any wrongdoing, although the defendant might be regarded as having acted in a fairly cavalier manner.

(3) A series of cheques to the defendant drawn on the account of Huet Motors (Dublin) Ltd and not on the account of Fleetlink Ltd meant that it was reasonable to assume that the defendant knew that the vehicle was in the possession of or leased to Huet which was a mercantile agent.

(4) Although Huet did not have legal title, by virtue of s. 25 of the Sale of Goods Act 1893 and s. 2(1) of the Factors Act 1889 , it could and did give a good title to the car.

(5) The civil bill should have set out clearly the basis upon which damages were claimed. Given that it was alleged that the defendant had converted the car to its own use the case should be treated as a claim for conversion and not a claim in detinue, which would entitle the plaintiff to return of the car and damages, and not a claim in negligence. Here it was unnecessary to consider the matter further as the claim for damages had been settled.

Cases referred to in judgment

Astley Industrial Trust Ltd v. Miller [1968] 2 All ER 36

C.V. Stacks v. Mikloo [1948] 2 KB 23

Rosenthal v. Alderton & Sons Ltd [1946] 1 KB 274

Staffs Motor Guarantee Ltd v. British Wagon Co. Ltd [1934] 2 KB 305 ; [1934] All ER 322

Worcester Works Finance Ltd v. Cooden Engineering Co. Ltd [1972] 1 QB 210 ; [1971] 3 WLR 661 ; [1971] 3 All ER 708

Representation

KINLEN J delivered his judgment on 24 February 1995 saying: This matter had been dealt with by His Honour Judge Lynch on 12 November 1993.

The plaintiff is a senior agricultural specialist and is working at the premises of the American Embassy at Ballsbridge, Dublin. In May 1992 he purchased a Volvo 440 motor vehicle, registration number 91 D 20565, from Huet Motors (Dublin) Ltd for the price of £10,250. He arranged his own financing and as far as Huet Motors (Dublin) Ltd were concerned it was in fact a cash transaction.

A receiver was appointed to Huet Motors (Dublin) Ltd on 29 July 1992 and a liquidator was appointed to that company on 17 August 1992.

The plaintiff, on the date of purchase was the only person in possession of the vehicle, registered it in his name and comprehensively insured it in his own name with the New PMPA Insurance Co. On purchasing the car, he registered his address at that time on the registration book. However, on retaxing the car in July/August 1992, he was in the process of moving house and in the circumstances he requested that the book be returned to him c/o the American Embassy, as he feared it might be lost. The embassy address was entered on the registration book.

Early on the morning of Friday, 27 August 1993, he received a telephone call at the embassy of the United States of America, from a Garda Andy Keegan, of Donnybrook Garda Station, who advised him that he, the guard, had been informed by the defendant that it was its intention to repossess the said vehicle from where it was parked, on the corner of Eglington Road and Clyde Road, adjacent to the embassy. The plaintiff looked out the window and found that the car had already been removed. He had no knowledge whatsoever that the defendant claimed ownership of the vehicle and during the 15 months when the vehicle was in his possession at no time did the defendant, its servants or agents or the receiver, or liquidator of Huet Motors (Dublin) Ltd contact him in relation to the motor vehicle.

The Circuit Court granted an interim injunction in the particular circumstances of this case to restrain the defendant from disposing of the vehicle. The plaintiff says that the repossession from adjacent to his place of work, was in a manner which brought it to the attention of his superiors, and that he was anxious to be in a position to show his workmates and his superiors that he had the same car. The defendant made no effort to contact the plaintiff. Prior to his purchasing it, it was openly for sale at the premises of Huet Motors (Dublin) Ltd. That company was registered as the previous owners but the defendant made no effort at that time to assert its ownership of the vehicle or to prohibit the sale of same by the said Huet Motors (Dublin) Ltd. The registration book and the certificate of motor insurance were produced to the court. The defendant, by a letter of 27 August 1993, states:

The car in question is subject to a lease agreement in favour of ICC Finance Ltd and in accordance with the terms thereof the title vests in ICC Finance Ltd. Accordingly your client is not entitled to the return of the vehicle. The vendor to him, Huet Motors (Dublin) Ltd, had no authority or title to sell.

There is also a receipt dated 22 May 1992 stating that the sum of £10,250 was received from Mr Michael Hanley by Huet Motors. The plaintiff’s case is based on two affidavits by the plaintiff, with exhibits and the defendant’s case is dependant on two affidavits sworn by its credit control manager, Edward Kingston, together with exhibits.

It would appear that ICC Finance Ltd purchased the Volvo 440 motor vehicle from Huet Motors (Dublin) Ltd for the sum of £12,260, inclusive of VAT on 23 May 1991. It was then leased for a fixed three month period from 24 May 1991 to Tipperary Rent-a-Car Ltd. That purchase and lease were entered into with a further agreement between ICC Finance and Huet Motors (Dublin) Ltd that at the end of the aforesaid three month lease period, Huet Motors (Dublin) Ltd would repurchase the vehicle at an agreed price of £9,305.78 exclusive of VAT. This arrangement was one of 17 similar company arrangements in respect of other vehicles which ICC Finance Ltd and Huet Motors (Dublin) Ltd entered into in or about the month of May 1991. These lease/rental agreements were registered with the Irish Credit Bureau.

At the end of the three month leasing period with Tipperary Rent-a-Car Ltd, the vehicle was not bought back as agreed by Huet Motors (Dublin) Ltd. Instead a new contract was entered into between ICC Finance Ltd and another company by the name of Fleetlink Ltd, which was an associate company of, and wholly owned by, Huet Motors (Dublin) Ltd. The agreement with Fleetlink Ltd was for a lease of the aforesaid vehicle for a fixed period of twelve months from 28 January 1992 and again there was an agreement with Huet Motors (Dublin) Ltd that it would buy back the aforesaid vehicle at a fixed price of £6,665.20 exclusive of VAT at the end of the lease period.

The tax book of the vehicle was initially retained by ICC Finance. However, a Mr McCarthy, who was both a director of Huet Motors (Dublin) Ltd and Fleetlink Ltd, requested the tax book so as to tax the vehicle. The tax book was given to him for the purpose of having the vehicle taxed. Fleetlink Ltd is a company which leased vehicles and hired vehicles for short periods to third parties. It was not in the business of retailing cars to the public. Huet Motors (Dublin) Ltd went into liquidation and the liquidator advised the defendant company of the names and addresses of the persons whom he believed were in possession of the various vehicles, the property of the defendant company. Appropriate enquiries were made and it was discovered that the persons whose names were furnished either were not in possession of the vehicle or were not resident at the address given and supplied by the liquidator. It has been the experience of the defendant company that where a person is notified that the defendant company wants the vehicle in question returned because of failure to pay the rentals, or for some other breach of the agreement between the defendant company and a lessee, invariably the vehicle is not returned and it becomes very difficult for the defendant company to obtain possession of the vehicle. Because of this experience the defendant company has adopted the practice of repossessing the vehicles which it owns and at the same time advising the local gardaí, where the vehicle is repossessed, of such repossession. That was the practice adopted in this case. The defendant company did not consent to Fleetlink Ltd parting with possession of the said vehicles to anyone, not alone Huet Motors (Dublin) Ltd, for the purpose of selling same to an innocent third party. The defendant says it did not intend to cause any embarrassment to the plaintiff and if in fact it did, it is prepared to write to his employers or superiors advising them of the circumstances surrounding the matter and the reason for the defendant company repossessing the vehicle. It is accepted by the defendant company totally, that the plaintiff herein was, and is, an unfortunate and innocent party, and a party who acted in good faith in the purchase of the vehicle in question from Huet Motors (Dublin) Ltd.

It seems clear that both parties here acted in good faith and were innocent of any wrongdoing, although the defendant with its experience, might be regarded as acting in a fairly cavalier manner. As a result of discovery it would appear that there was a series of post-dated cheques paid to the defendant that were drawn on the account of Huet Motors (Dublin) Ltd, and not on the account of Fleetlink Ltd, during the time when the alleged lease to it was in existence. It is reasonable to assume that the defendant knew that the vehicle was in the possession of Huet Motors (Dublin) Ltd or leased to them. When I said that the behaviour of the defendant was a little cavalier, I do think that it might have checked the corporation file. The court is satisfied that the vehicle was at all relevant times in the possession of Huet Motors (Dublin) Ltd, who was a mercantile agent. It would appear that it was indulging in leasing, at least on one occasion, to a wholly owned subsidiary to provide a system of cash flow. Huet Motors (Dublin) Ltd was in possession of the vehicle and in possession of the tax book. Although in fact it did not have a legal title by virtue of the provisions of s. 25 of the Sale of Goods Act 1893 and of the Factors Acts (and particularly s. 2(1) of the Factors Act 1889 ), it could and did give a good title to the vehicle.

S. 25(1) of the Sale of Goods Act 1893 provides:

Where a person having sold continues or is in possession of the goods … the delivery or transfer by that person … of the goods … under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.

I am impressed by the reasoning of the English Court of Appeal in Worcester Works Finance Ltd v. Cooden Engineering Co. Ltd [1971] 3 All ER 708 .

In the circumstances I am satisfied that the learned Circuit Court judge was correct in the decision he reached. It does seem to me that the defendant here could have retained the tax book and indeed been registered. I assume that it was not registered, because, it does not like to admit to an ultimate purchaser that there have been several registered owners.

I was referred to Staffs Motor Guarantee Ltd v. British Wagon Co. Ltd [1934] 2 KB 305 and Astley Industrial Trusts Ltd v. Miller [1968] 2 All ER 36 and Chalmers, Sale of Goods , 18th ed., p. 295. While clearly the ICC Finance was not involved in any fraudulent transaction, it was, as I have found, cavalier in its approach and it, I have no doubt, has caused much strain and distress to the plaintiff.

While Staffs Motor Guarantee Ltd v. British Wagon Co. Ltd would seem to support some of the defendant’s submissions, I would prefer the reasoning in the Worcester Works Finance Ltd v. Cooden Engineering Co. Ltd [1971] 3 All ER 708 .

The civil bill claims, inter alia , a mandatory injunction directing the defendant to deliver up possession of the said motor vehicle to the plaintiff.

The plaintiff makes a bald claim for damages but does not indicate whether this should be negligence, conversion or detinue. Each of these would be a separate head of damage and should be specifically pleaded. What is one to make of the bald claim for ‘damages’ ? The only plea in the endorsement of claim which would help to answer this question is in paragraph 5. It sets out that the defendant has converted the said motor vehicle to its own use. Therefore, this case should be decided on the basis of a claim for conversion, not a claim in detinue (which entitles one to the return of the vehicle and damages) or a claim in negligence.

I would wish to be addressed on what losses, if any, should be awarded as damages in a claim based on the tort of conversion. I would refer to McGregor on Damages , 14th ed., paras. 1087–1089 and particularly to the quotation from Denning LJ (as he then was) where he says:

It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution rather than an action of tort. But it is unnecessary to place it in any formal category.

The author goes on to say that:

Looked at from this angle the plaintiff could always recover beyond his proved loss to the extent of the benefit conferred on the defendant by his use of the goods and it would seem that for Denning LJ this same result could have been arrived at in an action of conversion as much as in one of detinue.

In England detinue is gone by statute.

Detinue can include damages from the moment of detention to return of the chattel and special damages (Bullen and Leake, 10th ed., p. 317). Damages must be assessed at the date of judgment, not at the date of refusal which is a normal proof of detinue (see Rosenthal v. Alderton & Sons Ltd [1946] 1 KB 274 ; C.V. Stacks v. Mikloo [1948] 2 KB 23 and McMahon and Binchy, Irish Law of Torts , 2nd ed. p. 531).

I find the proposition by Denning LJ of subsuming these two distinct torts into a claim for restitution very attractive. It seems to me that the trial judge should look at all aspects of the case and decide the relevant periods and the nature of damage having regard to all the particular circumstances of each individual case. The matter should be clarified by statute.

Proceedings had been instituted by the plaintiff against the defendant for defamation. I was asked to postpone making any order until that matter had been determined. I had indicated that I would not make any order until I had been fully addressed on the nature of the claim mentioned in the civil bill and what were the appropriate parameters of such a claim which I believed to be based on conversion. I was open, of course, to argument because in fact detinue constitutes negligence. When the defamation action came to court it was settled. And that included damages arising in the present case. The plaintiff is in fact in possession of the vehicle. In the circumstances and by consent I am dismissing the appeal and awarding the plaintiff costs in both courts, with a certificate for senior counsel for the appeal.

(e) a charge on book debts of the company.”

Does the sum owed by the Council constitute a “book debt” for the purposes of s. 99(2)(e)?

Did the undertaking create a security interest in the book debt?

14. In the present case, the fundamental question is whether, adopting the very language of the sub-section, the undertaking creates a security interest in the company’s property or undertaking or whether in reality it amounts to an assignment of debt. That, in reality, is what emerges from a consideration of the case-law, starting with the well known decision of Wynn Parry J. in Re Kent and Sussex Sawmills [1947] Ch. 177.

15. In that case the company gave a direction to its creditor, the UK Ministry of Fuel and Power, that all payments in respect of the supply of logs were to be paid by the Ministry to its bank. The instructions were held to be irrevocable “unless the said bank should consent to their cancellation.” Wynn Parry J. held that on its true construction the letter of instructions was in the nature of a security. He posed the following question ([1947] Ch. 177 at 182):-

16. The judge ultimately held that the letters in question amounted to assignments of the books debts by way of security for the overdraft and, in the absence of registration, such security assignments were void as against the liquidator. At the risk of stating the obvious, as a judgment of the English High Court, this decision of course in no way binds me. It is nevertheless a decision of a highly respected Chancery judge and it is a decision which has been applied with approval in this jurisdiction: see, e.g., Re Interview Ltd. [1975] I.R. 382 at 396, per Kenny J.

18. This was also the view taken by His Honour Judge Paul Baker QC in Re Marwalt Ltd. [1992] BCC 32. In that case another company, BSC, had agreed to supply tinplate to a Chilean company. This, however, was a high risk market and BSC needed to sell the tinplate through a third party which had export credit guarantee insurance. Marwalt was such a company and BSC engaged it to sell on the tinplate to the Chilean company, Corpora, on a commission basis. Any funds payable by the Chilean company were to be paid directly to BSC. BSC was effectively an undisclosed principal so far as these transactions were concerned.

19. Judge Baker held that these arrangements involved an assignment of debt to BSC. Unlike the situation in Kent and Sussex Sawmills – “where there was no correlation between the amount to be paid by the debtor to the creditor…and the amount to due to the bank which took the form of a fluctuating overdraft” – in the present case there was:-

“an exact correlation between the moneys which are to come in from Corpora and the moneys which are due to go out to BSC. Those moneys are not to secure an indebtedness as between Marwalt and BSC; they go out as part of BSC’s own moneys and not as moneys belonging to Marwalt.”

20. Marwalt may, of course, be explained on the basis that there was an exact co-relation between the moneys which came in from the purchaser of the tinplate and the sums which were due to the supplier, BSC. But there is, I think, another explanation for this decision which serves to put the entire matter in context, namely, that Marwalt were acting purely as commission agents for BSC. They never intended to make any profit (commission aside) on these dealings vis-à-vis the moneys received or receivable from Corpora. Those moneys were effectively held by Marwalt as bare trustees and, applying the test of Wynn Parry J., it could never have been said that Marwalt had any equity of redemption in those moneys. It is thus scarcely surprising that Judge Baker held that the moneys had been assigned by way of charge and not by way of debt security.

22. It is true that in the present case the undertaking was given in consideration of the provision of additional credit facilities and to that extent the present case roughly parallels the decision in Siebe Gorman, albeit that – and this is not an unimportant consideration in view of a working presumption which I will shortly mention – the assignment in the latter case was to a trading company and not to a bank. The real question, however, is whether the Council’s debt had been effectively sold to AIB by way of assignment via the solicitor’s undertaking or, alternatively, whether Caherconlishretained an equity of redemption in these moneys in (admittedly unlikely) event that the AIB debt were to be discharged, in whole or in part. I use the term “effectively sold” advisedly, because in deference to the views expressed by Slade J. in Siebe Gorman ([1979] 2 Lloyds’s Law Reports 142 at 161), I would regard an assignment of debt for consideration (i.e., the provision of credit facilities by either a trade creditor or a bank) as being tantamount to a sale, even if no formal purchase price is stipulated.

23. Given the presumption which must obtain in the ordinary banker/client relationship that the client enjoys the equity of redemption, absent a clear indication to the contrary, in my view, unlike the situation which was found to prevail on the facts in Siebe Gorman, that working presumption has not been displaced in the present case. It is true that Mr. Potter’s undertaking stated that he had “irrevocable instructions to lodge the said cheques to Caherconlish Treatment Plant’s account with AIB”. But this is in itself is not inconsistent with an equity of redemption. Nor do these words in themselves imply that the debt has actually been effectively sold by way of assignment in consideration of the extension of the overdraft facilities.

24. Again, if we test this proposition in the same manner as in Kent Sawmills and we must then ask ourselves what the situation would have been, if – mirabile dictu – the Caherconclish account had otherwise come into surplus. That question effectively answers itself Even if Mr. Potter’s undertaking still applied in those unlikely but happy circumstances, all it meant was that the payment cheque from the Council had to be lodged in the company’s account. It did not mean that these monies had thereby somehow become the property of the bank by way of windfall since there had, in fact, been no effective sale or assignment or the Council’s payment to bank in return for the credit facilities. Putting this another way, the evidence coerces me to the view that the bank wanted security for its debt and it was not, in this instance at least, in the business of effectively purchasing the debt by providing additional overdraft facilities to Caherconlish.

Whether a garnishee order is a discretionary remedy

26. There remains for consideration an entirely separate argument advanced by Mr. Rutherdale for AIB to the effect that the making of a garnishee order under Ord. 45 is a discretionary order. He contends that as his client advanced the moneys to Caherconlish and as those moneys were dispersed by Caherconlish in its dealings with Response, it would be unfair and inequitable that Response should also be able to obtain the advantage of moneys from the Council which the Bank had sought as security for the debt.

27. While it is true that the making of an order under O. 45 remains in the discretion of the court, it would generally require special circumstances before the court would decline on discretionary grounds to make an order in favour of a judgment creditor who had otherwise satisfied the necessary proofs. It is probably fair to say that the approach of the court in relation to such orders is more direct and somewhat less nuanced than might obtain in the cases, for example, of an application for an injunction or an application for judicial review.

28. It is also true that there is authority for the proposition which suggests that the court would not make an order of garnishee where the effect of that order would be to direct a bank “to pay the money to an execution creditor when that payment would leave them still liable to an action to recover the same debt brought in a competent court at the foreign place where the parties reside”: Martin v. Nadel [1906] 2 K.B. 26 at 30, per Vaughan Williams L.J.

29. But I cannot think that this principle can serve to justify me refusing to make absolute the order of garnishee. In the first place, the bank could have protected its position by registering the solicitor’s undertaking as a charge. It was different in Martin v. Nadel where, through no fault of the bank in question, it remained liable to be sued for the debt in both England and Germany.

30. Secondly, while mindful of the fact that AIB’s advances were vital to enable Caherconlish to continue trading and while this clearly benefited Response, there was no contractual or quasi-contractual nexus between the parties such as would make it inherently inequitable for Response to apply for a garnishee order in respect of these moneys.

Conclusions

31. In conclusion, therefore, I will make absolute the order of garnishee sought by Response.

In re Keenan Bros. Ltd.

[1985] IR 401

Walsh J.

The facts of this case are so adequately set out in the judgment of Keane J. in the High Court that it is unnecessary for me to repeat them. This appeal was taken against his judgment to the effect that a deed of charge made the 3rd May, 1983, and a debenture deed of 5th May, 1983, both in favour of Allied Irish Banks and purporting to create fixed charges on present and future book debts of Keenan Brothers Limited were in law and in fact floating charges on the book debts.

The company was in serious financial difficulties on the dates already mentioned and the banks were willing to give it financial assistance provided their loans could be so secured as to give them priority over other creditors including the Revenue Commissioners. In an endeavour to achieve that

result the deed and debenture already mentioned were executed. They are described in greater detail in the High Court judgment. The deed charged all the book debts and other debts present and future of the company and was expressed to constitute a first fixed charge. The debenture charged, by way of a first fixed legal charge, the present and future book debts of the company and all rights and powers in respect thereof.

The difference between floating and fixed charges are so fully explained in the judgments of Henchy J. and McCarthy J. which are to follow that I do not need to deal with that topic save to say that I agree with those explanations. I also agree that a fixed charge may be created in respect of book debts and other debts, both present and future.

Book debts and other debts cease to be such the moment they are discharged by the debtors, irrespective of whether the payment is made directly to the creditor or, on his order, to some other party on his account.

From the dates of the execution of the charges until the 4th October, 1983, all monies received by the company, whether from book debts or other sources, were lodged to the company’s No. 1 current account with the bank. During that period all these accounts were operated in the ordinary way and without any special restriction on any of them imposed by the bank.

On the 4th October, 1983, a new bank account was opened by the company with the bank under the name “Keenan Brothers Limited Allied Irish Banks Limited Book Debts RAC”, the letters RAC standing for Receivable Account. From that date until the commencement of the liquidation on 29th November, 1983, all receipts of the company whether from debtors or otherwise were lodged to the receivable account. The total receipts from debts lodged amounted to £665,948.53 and a further sum of £11,184.85 and £14,944.76 in respect of cash sales and sundries respectively were also lodged. No withdrawals or transfers or payments could be made from that account without the counter signature of the bank manager, who had in fact the sole discretion to permit withdrawals or transfers from that account. Some book debts paid into the No. 1 account were immediately transferred into the receivable account.

The company’s day to day expenses and payments due by the company to its business creditors were paid out of the No. 1 account which was in effect an overdraft account and which from time to time received transfers of funds from the receivable account. These payments were of course only possible with the consent of the bank.

At all relevant times the receivable account was in credit. As the relationship between banker and customer is one of debtor and creditor all sums from time to time standing to credit in that account were owed by the Bank to the company and were not book debts due to the company or debts in the contemplation of the deed of charge or the debenture, even though the account was opened to receive the collected book and other debts due to the company, which of course ceased to be debts from the moment they were collected. According to the copy of the bank’s statement of the receivable account exhibited in this case, the highest credit balance was £34,395.97 which stood to credit on the 24th November, 1983. On the 25th November £42,000 was transferred to the No. 1 account. On the 28th November the credit balance was £22,375.14. On the 29th November, 1983, £20,137 was transferred to the No. 1 account leaving a balance of £2,238.14. The 29th November was the date of the order of the High Court for the liquidation of the company. The material before the court does not disclose whether this was effected before or after the order for liquidation. If it was the latter then it is for the Examiner to examine the legal effects of the transaction. No monies in that account are, or ever were, subject to the fixed charge. That is also a matter for the Examiner to look into. For the moment I am content to answer in the affirmative the questions numbered 1 and 2 in the notice of motion of the official liquidator. I do not find it necessary to identify what particular monies were or are the subject of the fixed charge beyond repeating my opinion that none of the monies in the receivable account were ever so subject after they were lodged to that account.

Henchy J.

One of the essential differences between a fixed charge and a floating charge given by a company is that a fixed charge takes effect, upon its creation, on the assets that are expressed to be subject to it, so that those assets, as they then exist, or, when the charge applies to future assets, as soon as they come into existence, will stand encumbered by the charge, and the company will be able to deal with those assets only to the extent permitted by the terms of the charge. On the other hand, in the case of a floating charge, while such charge is effective in law from the date of its creation, because it is of its nature, dormant and hovering, it does not attach to the assets expressed to be subject to it so as to prevent the company from continuing to deal with those assets in the ordinary course of business, until the happening of some event, such as the appointment of a liquidator, which shows that the company is no longer in business, or until the chargee intervenes. At that point, the floating charge is said to crystallise and the rights of the chargee become the same as if he had got a fixed charge; thereafter the company cannot deal with the assets in question except subject to the charge. A floating charge, so long as it remains floating, avoids the restricting (and in some cases, paralysing) effect on the use of the assets of the company resulting from a fixed charge. While a charge remains a floating one, the company may, unless there is agreement to the contrary, deal with its assets in the ordinary course of business just as if there were no floating charge.

Those conclusions would seem to be supported by the cases referred to in the judgment under appeal.

Apart from the fact that both of the instruments of charge in this case refer to a “fixed charge”, thereby showing that such was the type of charge intended, I consider that the restricted use permitted to the company of the assets charged was incompatible with the essence of a floating charge.

The deed of charge of the 3rd May, 1983, purported to give the Bank (A.I.B. Ltd.) a first fixed charge on the book debts, present and future, of the company. The deed went on to provide that, amongst other things:

“The Company shall pay into an account with the Bank designated for that purpose all moneys which it may receive in respect of the book debts and other debts hereby charged and shall not without the prior consent of the Bank in writing make any withdrawals or direct any payment from the said account.”

and

“The Company shall not without the prior consent in writing of the Bank purport to charge, waive, assign or otherwise deal with its book debts or other debts in favour of any other person.”

Since the assets stated to be charged as a fixed charge were “the book and other debts present and future”, and since, under the provisions I have quoted, those assets were to be segregated in a special account and there to be virtually frozen and rendered unusable by the company save with the prior consent in writing of the Bank, I consider that the charge, far from being floating or dormant or hovering over those assets, had fixed on them to such an extent that they were unusable in the ordinary course of business save at the discretion of the Bank. The charge therefore was, as it was expressed to be, a fixed charge.

As to the debenture deed of the 5th May, 1983, the company professed to charge in favour of the Bank (A.I.I.B. Ltd.) its present and future debts as a first fixed legal charge. The extent to which this was to be in reality a fixed, rather than a floating charge, is shown by the following provisions in the deed:

1. all moneys which were received by the company in respect of book debts were to be paid into a specified A.I.B. branch and no withdrawals or payments from that account were to be made without the prior consent of the Bank;

2. the company was not, without the consent of the Bank, to carry on its business otherwise than in the ordinary and normal course;

3. the company was not, without the consent in writing of the Bank, to diminish or dispose of its book debts otherwise than by collecting and lodging them in the specified account.

It seems to me that such a degree of sequestration of the book debts when collected made those monies incapable of being used in the ordinary course of business and meant that they were put, specifically and expressly,at the disposal of the Bank. I am satisfied that assets thus withdrawn from ordinary trade use, put in the keeping of the debenture holder, and sterilised and made undisposable save at the absolute discretion of the debenture holder, have the distinguishing features of a fixed charge. The charge was not intended to fasten in the future on the book debts; it was affixed forthwith and without further ado to those debts as they were collected; so it did not in any sense float over those moneys. As I understand the law, assets the subject matter of a floating charge may be disposed of, at least in the ordinary course of business, by the maker of the charge without the consent of the chargee. That was not the case here. I would allow this appeal and declare that the charge created by each of the two instruments of charge was a fixed charge.

Hederman J.

I agree with the judgment delivered by Walsh J. that the questions numbered 1 and 2 in the notice of motion of the official liquidator should be answered in the affirmative.

I also agree with the judgment delivered by Henchy J. and with the judgment about to be delivered by McCarthy J. and I would accordingly allow the appeal.

McCarthy J.

The Banks appealed against the decision of the High Court which held that the charges which had been created by the instruments of the 3rd May and 5th May, 1983, were floating charges rather than fixed charges over the present and future book debts of the company. The result of that decision is that monies due to the Revenue have priority over the claims of the banks on foot of the instruments of May, 1983; the claim by the banks is in respect of advances made between May, 1983 and November, 1983 when the company went into liquidation. It is unnecessary to detail the sequence of events or to recite the provisions of the instruments, all of which are set out in detail in the elaborate judgment of Keane J. The underlying basis was that the company, in May, 1983 was in serious financial difficulties and the banks, if they could secure the advances, were prepared to lend financial assistance. Because of the Companies Act, 1963, a floating charge would not secure the required priority, but a fixed charge would. In Siebe Gorman v.Barclays Bank [1979] 2 Lloyds Rep. 142, Slade J. had given a judicial blessing in England to a claim by way of fixed charge on book debts, where this was purported to be created by an instrument with marked similarities to those the subject of this appeal. During the course of the hearing, we were informed that they were, in fact, modelled on those in Siebe Gorman,although it was emphasised that monies received in respect of the book debts in the instant case were paid into a special account and not, as in Siebe Gorman, into the ordinary account of the mortgagor.

In In re Armagh Shoes Ltd. [1982] N.I. 59, Hutton J. in the High Court of Northern Ireland identified an apparent divergence of judicial view and legal precedent in a series of decisions:Tailby v. The Official Receiver (1883) 13 App. Cas. 523; In re Yorkshire Woolcombers’ Association Ltd. [1903] 2 Ch. 284; National Provincial Bank of England v. United Electric Theatres Ltd. [1916] 1 Ch. 132; Stave Falls Lumber Company v. Westminster Trust Company (1940) 4 D.L.R. 382; Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979; Evans Coleman and Evans Ltd. v. R.A. Nelson Construction Ltd. 16 D.L.R. 123 and Siebe Gorman [1979] 2 Lloyds Rep. 142.

It may well be that there are factual differences in the several cases but I think it desirable to identify some common ground so as to isolate the underlying principle and thereby resolve the two legal issues raised in this appeal, that is, (a) can a fixed charge be validly created in respect of future book debts? and (b) did the relevant instruments in this case do so?

Clearly, the parties wanted to secure the bank’s advances in priority to all other claims and wanted to achieve this by a fixed charge, whilst enabling the company to avail of advances from the bank covered, so to speak, by amounts received by the company in discharge of book debts and lodged to the special account; and wanted to achieve this result by using the Siebe Gorman scheme. It is not suggested that mere terminology itself, such as using the expression “fixed charge”, achieves the purpose; one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements?

I turn, firstly, to the second issue, to determine the nature of the charge created by the instruments. In his judgment, Keane J. refers to the development of the floating charge in contrast to the fixed or specific charge.”I think that one has to bear in mind at the outset that this form of charge made its first appearance in England as a by-product of the joint stock companies which began to flourish after the enactment of the Joint Stock Companies Act, 1844. In order to borrow money, such companies offered as security not merely their fixed assets, but also assets which were regularly turned over in the course of business such as the companies’ stock in trade. It was obviously cumbersome and impractical to charge such assets specifically with the repayment of advances, since it would mean the constant execution and release of securities as the assets were disposed of and replaced. Hence the concept developed of a charge which did not attach to any specific assets of the company, remained dormant until the mortgagee intervened and in the interim did not prevent the mortgagor from using the assets in question in the ordinary course of his business.” (see p. 407, supra)

It appears that what is now called a “floating charge” on all the property (the “undertaking” of a company) was first recognised in In re Panama, New Zealand and Australian Royal Mail Company (1870) L.R. 5 Ch. 318, where it was held that the word “undertaking” meant all the property, present and future of the company, and that the charge thereon was effective and was to operate by way of floating security. In In re Yorkshire Woolcombers Association Ltd. [1903] 2 Ch. 284; sub. nom. Illingworth v. Houldsworth [1904] A.C. 355, there are a number of judicial analyses, if not definitions, of the term “floating charge” or of the distinction between a floating charge and a specific or fixed charge. Citations from these judgments are to be found in Armagh Shoes and in the judgment of Keane J. in the instant appeal. I am content to cite the relevant extract from the speech of enviable brevity of Lord Macnaghten at p. 358:

“I should have thought there was not much difficulty in defining what a floating charge is in contrast to what is called a specific charge. A specific charge, I think, is one that without more(emphasis added) fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.”

I do not overlook the fact that Lord Macnaghten expressly agreed with the judgment of Farwell J. in the court of first instance.

I emphasise the phrase “without more” because it seems to me to be the badge that identifies the specific charge. The other side of the coin, when one looks at the characteristics of a floating charge, is that before what is called crystallisation of the floating charge the company has power to create legal mortgages and equitable charges in priority to the floating charge. (See In re Florence Land Company (1878) 10 Ch. D. 530; In re Colonial Trust (1879) 15 Ch. D. 465 and Wheatley v. Silkstone and Haigh Moor Coal Company (1885) 29 Ch. D. 715, where North J. said at p. 724:

“but it (the equitable charge by deposit of title deeds) is not intended to prevent and has not the effect of in any way preventing the carrying on of the business in all or any of the ways in which it is carried on in the ordinary course; and, in as much as I find that in the ordinary course of business and for the purpose of the business this mortgage was made, it is a good mortgage upon and a good charge upon the property comprised in it, and is not subject to the claim created by the debentures.”

The breadth of the company’s powers in this regard may be limited by the terms of the floating charge but such a qualification is strictly construed and a legal mortgagee without notice would be entitled to his priority (see Coveney v. Persse (1910) 1 I.R. 194).

The learned trial judge laid particular emphasis on two clauses of the charging instruments:

Charge dated 3rd May, 1983, in favour of Allied Irish Banks Limited: clause 3(ii):

“The company shall pay into an account with the Bank designated for that purpose all monies which it may receive in respect of the book debts and other debts hereby charged and shall not without the prior consent of the Bank in writing make any withdrawals or direct any payment from the said account.”

In the instrument of 5th May, 1983, with Allied Irish Investment Bank Limited clause 7.3 provided that the company:

“shall not without the consent in writing of the Bank carry on its business other than in the ordinary and normal course.”

Clause 7.1 contains a provision to the same effect as that quoted from the instrument of the 3rd May, in respect of which Keane J. commented, “it is patent that the parties intended the company to carry on its business so far as these assets were concerned . . . to collect the book debts, lodge them to its bank account and use them in the business in the ordinary way.” Mr. Cooke, for the banks, contends that this was a misconstruction of that clause, that its purpose was to give the bank a degree of control over exceptional transactions, but was far from directing the company to carry on its normal business, rather it was allowing the company to trade subject to the express terms of the debenture with a provision for a cash flow set up by the bank in which the inflow of cash would go directly to the bank. In my view, this is the correct construction of that clause. As to the earlier quoted clause (in respect of the bank account) Keane J. said:

“Subject to the possible necessity to give notice in the case of the existing debts, the effect of the deeds was to vest the debts in the banks the moment they came into existence and to give the banks the right to collect them (on giving notice to the debtors); and the company, at the date of the execution of the deeds, ceased to have any interest in the deeds whatever. If this indeed is what the parties intended, it is not easy to understand why it was thought necessary to provide that (and he quotes clause 3(ii) of the first instrument).

On this view of the transaction, the company had no business collecting any debts once the securities had been executed. If the charge in each case was intended to be a specific or fixed charge, such a provision was wholly unnecessary and indeed virtually meaningless.” (see p. 409, supra.)

In my view, it is because it was described as a specific or fixed charge and was intended to be such, that the requirement of a special bank account was necessary; if it were a floating charge payment into such an account would be entirely inappropriate and, indeed, would conflict with the ambulatory nature of the floating charge to which Lord Macnaghten refers. In In re Yorkshire Woolcombers Association Ltd. [1903] 2 Ch. 284, Romer L.J. postulated three characteristics of a floating charge, the third being that “if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.” Mr. Cooke has argued that this latter characteristic is essential to a floating charge and that the banking provision in the instruments here negatives such a characteristic. I would uphold this view. I have sought to identify from the speech of Lord Macnaghten the badge of a specific or fixed charge; that of the floating charge seems to me to be the absence of immediate effect or possible ultimate effect, in short, it may never happen; if the advances made or the debts incurred are repaid or discharged, then the cloud is dispersed never to return in that exact form. Towards the end of his judgment, Keane J. said: “What the banks have sought to do in the present instance is to create a hybrid form of charge which incorporates all the advantages of a floating charge with none of the statutory limitations on its operation. The borrower continues to use the assets in the course of his business to his own benefit, and to the benefit of the lender who continues to earn interest on his loan, in the knowledge that he can at any time realise his security if his prospects of ultimate repayment appear in peril. At the same time, he is protected from the consequences that would normally ensue for a lender who offers money on the security of the floating charge within twelve months of a winding-up or in circumstances where the preferential creditors are owed substantial sums.” (see p. 415, supra) The charge, whatever its nature, for its validity had to be registered under the Companies Act, 1963, and its existence would have been known to anyone upon casual enquiry – its existence as what was described as a fixed charge. Whilst acknowledging that the charge is somewhat hybrid in form because of the concession in respect of the collection of debts and lodgment to a special account, I do not recognise in it the ordinary characteristics of a floating charge, i.e., that it may crystallise on the happening of some future event. If the borrower, the company, is driven to such financial straits that it is prepared to effect an immediate charge upon its book debts, the existence of which charge is, in effect, published to the commercial and financial world, I do not accept that an elaborate system set up to enable the company to benefit by the collection of such debts detracts from its qualifying as a specific or fixed charge.

The remaining question, as raised by the Revenue Commissioners, is whether or not it is possible in law to create a fixed charge on future book

debts. There appears to be ample authority in England in support of this contention going back to Tailby v. The Official Receiver (1883) 13 App. Cas. 523, and asserted in Canada in Evans Coleman and Evans Ltd. 16 D.L.R. 123. I am content to adopt the observations of Davey J.A. at p. 127 of the report and hold that there is no legal bar to there being a fixed charge on future book debts. To echo Lord Watson in Tailby v. The Official Receiver at p. 536:

“I cannot understand upon what principle an assignment of all legacies which may be bequeathed by any person to the assignor is to stand good, and effect is to be denied to a general assignment of all future book debts. As Cotton L.J. said in In re Clarke . . .;”vagueness comes to nothing if the property is definite at the time when the Court is asked to enforce the contract.” A future book debt is quite as capable of being identified as a legacy; and in this case the identity of the debt, with the subjects assigned, is not a matter of dispute.”

Each book debt is a separate entity; granted, that even though it has been assigned to the banks, it may be altered in whole or in part by, for example, a contra account. That may go to the amount payable but it does not affect the transaction; there is no logic in seeking to distinguish between an accepted validity of a floating charge on future book debts and an alleged invalidity in a fixed charge on such debts.

In my judgment, the instruments executed between the company and the banks did effect what they were intended to effect and constituted fixed charges on all the book debts present and future of the company. I would allow the appeal accordingly.

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All Assets Charge

Cases

Response Engineering Ltd -v- Caherconlish Treatment Plant Ltd

In re Tullow Engineering (Holdings) Ltd. (In Receivership)

In the matter of J.D. Brian Ltd (in Liquidation)

Farrell v. Equity Bank Ltd.

Michael Hanley v. ICC Finance Ltd;

In re Keenan Bros. Ltd.

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Cases

Response Engineering Ltd -v- Caherconlish Treatment Plant Ltd

In re Tullow Engineering (Holdings) Ltd. (In Receivership)

In the matter of J.D. Brian Ltd (in Liquidation)

Farrell v. Equity Bank Ltd.

Michael Hanley v. ICC Finance Ltd;

In re Keenan Bros. Ltd.

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